G.R. No.
L-75697 June 18, 1987
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY
MAYOR and CITY TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf
of other videogram operators adversely affected. It assails the constitutionality of Presidential Decree
No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate
and supervise the videogram industry (hereinafter briefly referred to as the BOARD). The Decree was
promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days after completion
of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential
Decree No. 1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette,
ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers
and Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association,
hereinafter collectively referred to as the Intervenors, were permitted by the Court to intervene in the
case, over petitioner's opposition, upon the allegations that intervention was necessary for the
complete protection of their rights and that their "survival and very existence is threatened by the
unregulated proliferation of film piracy." The Intervenors were thereafter allowed to file their
Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including, among
others, videotapes, discs, cassettes or any technical improvement or variation thereof, have
greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp
decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the
collection of sales, contractor's specific, amusement and other taxes, thereby resulting in
substantial losses estimated at P450 Million annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum
from rentals, sales and disposition of videograms, and such earnings have not been subjected
to tax, thereby depriving the Government of approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also affected the
viability of the movie industry, particularly the more than 1,200 movie houses and theaters
throughout the country, and occasioned industry-wide displacement and unemployment due
to the shutdown of numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the
Government to create an environment conducive to growth and development of all business
industries, including the movie industry which has an accumulated investment of about P3
Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not only
alleviate the dire financial condition of the movie industry upon which more than 75,000
families and 500,000 workers depend for their livelihood, but also provide an additional
source of revenue for the Government, and at the same time rationalize the heretofore
uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features
constitutes a clear and present danger to the moral and spiritual well-being of the youth, and
impairs the mandate of the Constitution for the State to support the rearing of the youth for
civic efficiency and the development of moral character and promote their physical,
intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb
these blatant malpractices which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the
people and betraying the national economic recovery program, bold emergency measures
must be adopted with dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
 1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers
conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be
expressed in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to
include the general purpose which a statute seeks to achieve. It is not necessary that the title express
each and every end that the statute wishes to accomplish. The requirement is satisfied if all the parts
of the statute are related, and are germane to the subject matter expressed in the title, or as long as
they are not inconsistent with or foreign to the general subject and title. 2An act having a single general
subject, indicated in the title, may contain any number of provisions, no matter how diverse they may
be, so long as they are not inconsistent with or foreign to the general subject, and may be considered
in furtherance of such subject by providing for the method and means of carrying out the general
object." 3 The rule also is that the constitutional requirement as to the title of a bill should not be so
narrowly construed as to cripple or impede the power of legislation. 4 It should be given practical
rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider
is without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any
provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of the
purchase price or rental rate, as the case may be, for every sale, lease or disposition of a
videogram containing a reproduction of any motion picture or audiovisual program. Fifty
percent (50%) of the proceeds of the tax collected shall accrue to the province, and the other
fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED,
That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the
Metropolitan Manila Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment
of, the general object of the DECREE, which is the regulation of the video industry through the
Videogram Regulatory Board as expressed in its title. The tax provision is not inconsistent with, nor
foreign to that general subject and title. As a tool for regulation 6 it is simply one of the regulatory and
control mechanisms scattered throughout the DECREE. The express purpose of the DECREE to include
taxation of the video industry in order to regulate and rationalize the heretofore uncontrolled
distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles explain the
motives of the lawmaker in presenting the measure. The title of the DECREE, which is the creation of
the Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in its
Preamble and reasonably covers all its provisions. It is unnecessary to express all those objectives in
the title or that the latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not cease
to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. 8 The
power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely
venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of
the authority which exercises it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in
general, a sufficient security against erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600 million per annum have not
been subjected to tax, thereby depriving the Government of an additional source of revenue. It is an
end-user tax, imposed on retailers for every videogram they make available for public viewing. It is
similar to the 30% amusement tax imposed or borne by the movie industry which the theater-owners
pay to the government, but which is passed on to the entire cost of the admission ticket, thus shifting
the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all
videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an
objective of the DECREE to protect the movie industry, the tax remains a valid imposition.
 The public purpose of a tax may legally exist even if the motive which impelled the legislature
to impose the tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that "inequities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional limitation". 12 Taxation has been
made the implement of the state's police power.13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the
former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the
judgment of the President ... , there exists a grave emergency or a threat or imminence thereof, or
whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to act
adequately on any matter for any reason that in his judgment requires immediate action, he may, in
order to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which shall
form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause
sufficiently summarizes the justification in that grave emergencies corroding the moral values of the
people and betraying the national economic recovery program necessitated bold emergency measures
to be adopted with dispatch. Whatever the reasons "in the judgment" of the then President,
considering that the issue of the validity of the exercise of legislative power under the said Amendment
still pends resolution in several other cases, we reserve resolution of the question raised at the proper
time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative
power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance
of other agencies and units of the government and deputize, for a fixed and limited period, the heads
or personnel of such agencies and units to perform enforcement functions for the Board" is not a
delegation of the power to legislate but merely a conferment of authority or discretion as to its
execution, enforcement, and implementation. "The true distinction is between the delegation of
power to make the law, which necessarily involves a discretion as to what it shall be, and conferring
authority or discretion as to its execution to be exercised under and in pursuance of the law. The first
cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very language of the
decree, the authority of the BOARD to solicit such assistance is for a "fixed and limited period" with the
deputized agencies concerned being "subject to the direction and control of the BOARD." That the
grant of such authority might be the source of graft and corruption would not stigmatize the DECREE as
unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate
remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or
different testimony than the law required at the time of the commission of the offense." It is
petitioner's position that Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of forty-five (45)
days after the effectivity of this Decree within which to register with and secure a permit
from the BOARD to engage in the videogram business and to register with the BOARD all
their inventories of videograms, including videotapes, discs, cassettes or other technical
improvements or variations thereof, before they could be sold, leased, or otherwise disposed
of. Thereafter any videogram found in the possession of any person engaged in the
videogram business without the required proof of registration by the BOARD, shall be prima
facie evidence of violation of the Decree, whether the possession of such videogram be for
private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof of
registration of any videogram cannot be presented and thus partakes of the nature of an ex post
facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et
al. 15
... it is now well settled that "there is no constitutional objection to the passage of a law
providing that the presumption of innocence may be overcome by a contrary presumption
founded upon the experience of human conduct, and enacting what evidence shall be
sufficient to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856
[1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-
641). And the "legislature may enact that when certain facts have been proved that they
shall be prima facie evidence of the existence of the guilt of the accused and shift the burden
of proof provided there be a rational connection between the facts proved and the ultimate
facts presumed so that the inference of the one from proof of the others is not unreasonable
and arbitrary because of lack of connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational connection between
the fact proved, which is non-registration, and the ultimate fact presumed which is violation of the
DECREE, besides the fact that the prima facie presumption of violation of the DECREE attaches only
after a forty-five-day period counted from its effectivity and is, therefore, neither retrospective in
character.
6. We do not share petitioner's fears that the video industry is being over-regulated and being eased
out of existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was
apparent. While the underlying objective of the DECREE is to protect the moribund movie industry,
there is no question that public welfare is at bottom of its enactment, considering "the unfair
competition posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought
about by the availability of unclassified and unreviewed video tapes containing pornographic films and
films with brutally violent sequences; and losses in government revenues due to the drop in theatrical
attendance, not to mention the fact that the activities of video establishments are virtually untaxed
since mere payment of Mayor's permit and municipal license fees are required to engage in
business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video
industry. On the contrary, video establishments are seen to have proliferated in many places
notwithstanding the 30% tax imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the
DECREE. These considerations, however, are primarily and exclusively a matter of legislative concern.

Only congressional power or competence, not the wisdom of the action taken, may be the
basis for declaring a statute invalid. This is as it ought to be. The principle of separation of
powers has in the main wisely allocated the respective authority of each department and
confined its jurisdiction to such a sphere. There would then be intrusion not allowable under
the Constitution if on a matter left to the discretion of a coordinate branch, the judiciary
would substitute its own. If there be adherence to the rule of law, as there ought to be, the
last offender should be courts of justice, to which rightly litigants submit their controversy
precisely to maintain unimpaired the supremacy of legal norms and prescriptions. The attack
on the validity of the challenged provision likewise insofar as there may be objections, even if
valid and cogent on its wisdom cannot be sustained. 18

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

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.
G.R. No. L-28896 February 17, 1988 The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the warrant
COMMISSIONER OF INTERNAL REVENUE, petitioner, of distraint and levy was issued; indeed, such protest could not be located in the office of the
vs. petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents. considered by the tax authorities. During the intervening period, the warrant was premature and could
therefore not be served.
CRUZ, J.:
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance
18, 1965, when it was filed, the reglementary period which started on the date the assessment was
On the other hand, such collection should be made in accordance with law as any arbitrariness will
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the
negate the very reason for government itself. It is therefore necessary to reconcile the apparently
private respondent was definitely informed of the implied rejection of the said protest and the warrant
conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is
was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
the promotion of the common good, may be achieved.
reglementary period had been consumed.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the
Now for the substantive question.
P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its
income tax returns. The corollary issue is whether or not the appeal of the private respondent from the
decision of the Collector of Internal Revenue was made on time and in accordance with law. The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it
was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private
We deal first with the procedural question.
respondent for actual services rendered. The payment was in the form of promotional fees. These
were collected by the Payees for their work in the creation of the Vegetable Oil Investment
The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
engineering, construction and other allied activities, received a letter from the petitioner assessing it in Estate Development Company.
the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.1 On January
18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees
on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy
to be personal holding company income 12 but later conformed to the decision of the respondent court
was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused
rejecting this assertion.13 In fact, as the said court found, the amount was earned through the joint
to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case
efforts of the persons among whom it was distributed It has been established that the Philippine Sugar
proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes,
Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land,
who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR
factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo
was not taking any action on the protest and it was only then that he accepted the warrant of distraint
Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable
and levy earlier sought to be served.5 Sixteen days later, on April 23, 1965, Algue filed a petition for
Oil Investment Corporation, inducing other persons to invest in it. 14 Ultimately, after its incorporation
review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals.6
largely through the promotion of the said persons, this new corporation purchased the PSEDC
properties.15 For this sale, Algue received as agent a commission of P126,000.00, and it was from this
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.16
the appeal may be made within thirty days after receipt of the decision or ruling challenged. 7 It is true
that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders
There is no dispute that the payees duly reported their respective shares of the fees in their income tax
hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof and makes
returns and paid the corresponding taxes thereon.17 The Court of Tax Appeals also found, after
the said request deemed rejected." 10 But there is a special circumstance in the case at bar that
examining the evidence, that no distribution of dividends was involved.18
prevents application of this accepted doctrine.
The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such payments
were made, whether by check or in cash, and there is not enough substantiation of such payments. In
short, the petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an
imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in
one lump sum but periodically and in different amounts as each payee's need arose. 19 It should be
remembered that this was a family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. Even so, at the end of the year, when the books were
to be closed, each payee made an accounting of all of the fees received by him or her, to make up the
total of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was
understandable, however, in view of the close relationship among the persons in the family
corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was
P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit
from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate
properties. This finding of the respondent court is in accord with the following provision of the Tax
Code:
SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions —
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price
of services, is not deductible. (a) An ostensible salary paid by a corporation may be
a distribution of a dividend on stock. This is likely to occur in the case of a
corporation having few stockholders, Practically all of whom draw salaries. If in
such a case the salaries are in excess of those ordinarily paid for similar services,
and the excessive payment correspond or bear a close relationship to the
stockholdings of the officers of employees, it would seem likely that the salaries are
not paid wholly for services rendered, but the excessive payments are a
distribution of earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G.
No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of
the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance
to surrender part of one's hard earned income to the taxing authorities, every person who is able to
must contribute his share in the running of the government. The government for its part, is expected
to respond in the form of tangible and intangible benefits intended to improve the lives of the people
and enhance their moral and material values. This symbiotic relationship is the rationale of taxation
and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of
power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If
it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all
the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.

SO ORDERED.
G.R. No. 169234 October 2, 2013
CAMP JOHN HAY DEVELOPMENT CORPORATION, Petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, REPRESENTED BY ITS CHAIRMAN HON. CESAR S.
GUTIERREZ, ADELINA A. TABANGIN, IN HER CAPACITY AS CHAIRMAN OF THE BOARD OF TAX
(ASSESSMENT) APPEALS OF BAGUIO CITY, AND HON. ESTRELLA B. TANO, IN HER CAPACITY AS THE
CITY ASSESSOR OF THE CITY OF BAGUIO, Respondents.
DECISION
PEREZ, J.:
A claim for tax exemption, whether full or partial, does not deal with the authority of local assessor to
assess real property tax. Such claim questions the correctness of the assessment and compliance with
the Q applicable provisions of Republic Act (RA) No. 7160 or the Local Government Code (LGC) of 1991,
particularly as to requirement of payment under protest, is mandatory.
Before the Court is a Petition for Review on Certiorari seeking tore verse and set aside the 27 July 2005
Decision1of the Court of Tax Appeals(CTA) En Banc in C.T.A. E.B. No. 48 which affirmed the Resolutions
dated 23 May 2003 and 8 September 2004 issued by the Central Board of Assessment Appeals (CBAA)
in CBAA Case No. L-37 remanding the case to the Local Board of Assessment Appeals (LBAA) of Baguio
City for further proceedings.
The facts
The factual antecedents of the case as found by the CTA En Banc areas follows:
In a letter dated 21 March 2002, respondent City Assessor of Baguio City notified petitioner Camp John
Hay Development Corporation about the issuance against it of thirty-six (36) Owner’s Copy of
Assessment of Real Property (ARP), with ARP Nos. 01-07040-008887 to 01-07040-008922covering
various buildings of petitioner and two (2) parcels of land owned by the Bases Conversion
Development Authority (BCDA) in the John Hay Special Economic Zone (JHSEZ), Baguio City, which
were leased out to petitioner.
In response, petitioner questioned the assessments in a letter dated 3April 2002 for lack of legal basis
due to the City Assessor’s failure to identify the specific properties and its corresponding assessed
values. The City Assessor replied in a letter dated 11 April 2002 that the subject ARPs (with an
additional ARP on another building bringing the total number of ARPs to thirty-seven [37]) against the
buildings of petitioner located within the JHSEZ were issued on the basis of the approved building
permits obtained from the City Engineer’s Office of Baguio City and pursuant to Sections 201 to 206 of
RA No. 7160 or the LGC of 1991.
Consequently, on 23 May 2002, petitioner filed with the Board of Tax Assessment Appeals (BTAA) of
Baguio City an appeal under Section 2262 of the LGC of 1991 challenging the validity and propriety of
the issuances of the City Assessor. The appeal was docketed as Tax Appeal Case No. 2002-003.
Petitioner claimed that there was no legal basis for the issuance of the assessments because it was
allegedly exempted from paying taxes, national and local, including real property taxes, pursuant to RA
No. 7227, otherwise known as the Bases Conversion and Development Act of 1992.3
The Ruling of the BTAA
In a Resolution dated 12 July 2002,4 the BTAA cited Section 7,5 Rule V of the Rules of Procedure Before
the LBAA, and enjoined petitioner to first comply therewith, particularly as to the payment under
protest of the subject real property taxes before the hearing of its appeal. Subsequently, the BTAA
dismissed petitioner’s Motion for Reconsideration in the 20 September 2002 Resolution6 for lack of
merit.
Aggrieved, petitioner elevated the case before the CBAA through a Memorandum on Appeal docketed
as CBAA Case No. L-37.
The Ruling of the CBAA
The CBAA denied petitioner’s appeal in a Resolution dated 23 May 2003,7 set aside the BTAA’s order of
deferment of hearing, and remanded the case to the LBAA of Baguio City for further proceedings
subject to a full and up-to-date payment of the realty taxes on subject properties as assessed by the
respondent City Assessor of Baguio City, either in cash or in bond.
Citing various cases it previously decided,8 the CBAA explained that the deferment of hearings by the
LBAA was merely in compliance with the mandate of the law. The governing provision in this case is
Section 231, not Section 226, of RA No. 7160 which provides that "appeal on assessments of real
property made under the provisions of this Code shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the final outcome of the appeal." In
addition, as to the issue raised pertaining to the propriety of the subject assessments issued against
petitioner, allegedly claimed to be a tax-exemptentity, the CBAA expressed that it has yet to acquire
jurisdiction over it since the same has not been resolved by the LBAA.
On 8 September 2004, the CBAA denied petitioner’s Motion for Reconsideration for lack of merit.9
Undaunted by the pronouncements in the abovementioned Resolutions, petitioner appealed to the
CTA En Banc by filing a Petition for Review under Section 11 of RA No. 1125, as amended by Section 9
of RA No. 9282, on 24 November 2004, docketed as C.T.A. EB No. 48, and raised the following issues
for its consideration: (1) whether or not respondent City Assessor of the City of Baguio has legal basis
to issue against petitioner the subject assessments with serial nos. 01-07040-008887 to 01-07040-
008922for real property taxation of the buildings of the petitioner, a tax-exemptentity, or land owned
by the BCDA under lease to the petitioner; and (2)whether or not the CBAA, in its Resolutions dated 23
May 2003 and 8September 2004, has legal basis to order the remand of the case to the LBAA of Baguio
City for further proceedings subject to a full and up-to- date payment, in cash or bond, of the realty
taxes on the subject properties as assessed by the City Assessor of the City of Baguio.10
The Ruling of the CTA En Banc
In the assailed Decision dated 27 July2005,11the CTA En Banc found that petitioner has indeed failed
to comply with Section 252 of RA No. 7160or the LGC of 1991. Hence, it dismissed the petition and
affirmed the subject Resolutions of the CBAA which remanded the case to the LBAA for further
proceedings subject to compliance with said Section, in relation to Section 7, Rule V of the Rules of
Procedure before the LBAA.
Moreover, adopting the CBAA’s position, the court a quo ruled that it could not resolve the issue on
whether petitioner is liable to pay real property tax or whether it is indeed a tax-exempt entity
considering that the LBAA has not decided the case on the merits. To do otherwise would not only be
procedurally wrong but legally wrong. It therefore concluded that before a protest may be entertained,
the tax should have been paid first without prejudice to subsequent adjustment depending upon the
final outcome of the appeal and that the tax or portion thereof paid under protest, shall be held in
trust by the treasurer concerned.
Consequently, this Petition for Review wherein petitioner on the ground of lack of legal basis seeks to
set aside the 27 July 2005 Decision, and to nullify the assessments of real property tax issued against it
by respondent City Assessor of Baguio City.12
The Issue
The Issue before the Court is whether or not respondent CTA En Banc erred in dismissing for lack of
merit the petition in C.T.A. EB No. 48, and accordingly affirmed the order of the CBAA to remand the
case to the LBAA of Baguio City for further proceedings subject to a full and up-to-date payment of
realty taxes, either in cash or in bond, on the subject properties assessed by the City Assessor of Baguio
City.
In support of the present petition, petitioner posits the following grounds: (a) Section 225 (should be
Section 252) of RA No. 7160 or the LGC of 1991 does not apply when the person assessed is a tax-
exemptentity; and (b) Under the doctrine of operative fact, petitioner is not liable for the payment of
the real property taxes subject of this petition.13
Our Ruling
The Court finds the petition unmeritorious and therefore rules against petitioner.
Section 252 of RA No. 7160, also known as the LGC of 199114, categorically provides:
SEC. 252. Payment Under Protest. – (a) No protest shall be entertained unless the taxpayer first pays
the tax. There shall be annotated on the tax receipts the words "paid under protest." The protest in
writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or
municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide
the protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest, shall beheld in trust by the treasurer
concerned.
(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or
portion of the tax protested shall be refunded to the protestant, or applied as tax credit
against his existing or future tax liability.
(d) In the event that the protest is denied or upon the lapse of the sixty-day period
prescribed in subparagraph (a), the tax payer may avail of the remedies as provided for in
Chapter 3, Title Two, Book II of this Code. (Emphasis and underlining supplied)
Relevant thereto, the remedies referred to under Chapter 3, Title Two, Book II of RA No. 7160 or the
LGC of 1991 are those provided for under Sections 226 to 231. Significant provisions pertaining to the
procedural and substantive aspects of appeal before the LBAA and CBAA, including its effect on the
payment of real property taxes, follow:
SEC. 226. Local Board of Assessment Appeals. – Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice of
assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition
under oath in the form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal.
SEC. 229. Action by the Local Board of Assessment Appeals. – (a)The Board shall decide the appeal
within one hundred twenty (120) days from the date of receipt of such appeal. The Board, after
hearing, shall render its decision based on substantial evidence or such relevant evidence on record as
a reasonable mind might accept as adequate to support the conclusion.
(b) In the exercise of its appellate jurisdiction, the Board shall have the powers to summon
witnesses, administer oaths, conduct ocular inspection, take depositions, and issue subpoena
and subpoena duces tecum. The proceedings of the Board shall be conducted solely for the
purpose of ascertaining the facts without necessarily adhering to technical rules applicable in
judicial proceedings.
(c) The secretary of the Board shall furnish the owner of the property or the person having
legal interest therein and the provincial or city assessor with a copy of the decision of the
Board. In case the provincial or city assessor concurs in the revision or the assessment, it shall
be his duty to notify the owner of the property or the person having legal interest therein of
such fact using the form prescribed for the purpose. The owner of the property or the person
having legal interest therein or the assessor who is not satisfied with the decision of the
Board may, within thirty (30) days after receipt of the decision of said Board, appeal to the
Central Board of Assessment Appeals, as here in provided. The decision of the Central Board
shall be final and executory.
SEC. 231. Effect of Appeal on the Payment of Real Property Tax. – Appeal on assessments of real
property made under the provisions of this Code shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the final outcome of the appeal.
(Emphasis supplied)
The above-quoted provisions of RA No. 7160 or the LGC of 1991,clearly sets forth the administrative
remedies available to a taxpayer or real property owner who does not agree with the assessment of
the real property tax sought to be collected.
The language of the law is clear. No interpretation is needed. The elementary rule in statutory
construction is that if a statute is clear, plain and free from ambiguity, it must be given its literal
meaning and applied without attempted interpretation. Verba legis non est recedendum. From the
words of a statute there should be no departure.15
To begin with, Section 252 emphatically directs that the taxpayer/real property owner questioning the
assessment should first pay the tax due before his protest can be entertained. As a matter of fact, the
words "paid under protest" shall be annotated on the tax receipts. Consequently, only after such
payment has been made by the taxpayer may he file a protest in writing (within thirty (30) days from
said payment of tax) to the provincial, city, or municipal treasurer, who shall decide the protest within
sixty (60)days from its receipt. In no case is the local treasurer obliged to entertain the protest unless
the tax due has been paid.
Secondly, within the period prescribed by law, any owner or person having legal interest in the
property not satisfied with the action of the provincial, city, or municipal assessor in the assessment of
his property may file an appeal with the LBAA of the province or city concerned, as provided in Section
226 of RA No. 7160 or the LGC of 1991. Thereafter, within thirty (30) days from receipt, he may
elevate, by filing a notice of appeal, the adverse decision of the LBAA with the CBAA, which exercises
exclusive jurisdiction to hear and decide all appeals from the decisions, orders, and resolutions of the
Local Boards involving contested assessments of real properties, claims for tax refund and/or tax
credits, or overpayments of taxes.16
Significantly, in Dr. Olivares v. Mayor Marquez,17 this Court had the occasion to extensively discuss the
subject provisions of RA No. 7160 or the LGC of 1991, in relation to the impropriety of the direct
recourse before the courts on issue of the correctness of assessment of real estate taxes. The pertinent
articulations follow:
x x x A perusal of the petition before the RTC plainly shows that what is actually being assailed is the
correctness of the assessments made by the local assessor of Parañaque on petitioners’ properties.
The allegations in the said petition purportedly questioning the assessor’s authority to assess and
collect the taxes were obviously made in order to justify the filing of the petition with the RTC. In fact,
there is nothing in the said petition that supports their claim regarding the assessor’s alleged lack of
authority. What petitioners raise are the following:
(1) some of the taxes being collected have already prescribed and may no longer be collected
as provided in Section 194 of the Local Government Code of 1991; (2) some properties have
been doubly taxed/assessed; (3) some properties being taxed are no longer existent;
(4)some properties are exempt from taxation as they are being used exclusively for
educational purposes; and (5) some errors are made in the assessment and collection of
taxes due on petitioners’ properties, and that respondents committed grave abuse of
discretion in making the "improper, excessive and unlawful the collection of taxes against the
petitioners."
Moreover, these arguments essentially involve questions of fact. Hence, the petition should have been
brought, at the very first instance, to the LBAA.
Under the doctrine of primacy of administrative remedies, an error in the assessment must be
administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack of
jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to a
later adjustment pending the outcome of the appeal.
Even assuming that the assessor’s authority is indeed an issue, it must be pointed out that in order for
the court a quo to resolve the petition, the issues of the correctness of the tax assessment and
collection must also necessarily be dealt with.
xxxx
In the present case, the authority of the assessor is not being questioned. Despite petitioners’
protestations, the petition filed before the court a quo primarily involves the correctness of the
assessments, which are questions of fact, that are not allowed in a petition for certiorari, prohibition
and mandamus. The court a quo is therefore precluded from entertaining the petition, and it
appropriately dismissed the petition.18 (Emphasis and underlining supplied)
By analogy, the rationale of the mandatory compliance with the requirement of "payment under
protest" similarly provided under Section 64of the Real Property Tax Code (RPTC) 19 was earlier
emphasized in Meralcov. Barlis,20wherein the Court held:
We find the petitioner’s arguments to be without merit. The trial court has no jurisdiction to entertain
a Petition for Prohibition absent petitioner’s payment under protest, of the tax assessed as required by
Sec.64 of the RPTC. Payment of the tax assessed under protest, is a condition sine qua non before the
trial court could assume jurisdiction over the petition and failure to do so, the RTC has no jurisdiction
to entertain it.
The restriction upon the power of courts to impeach tax assessment without a prior payment, under
protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation
and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state or,
in this case, the local government unit, shall be crippled in dispensing the needed services to the
people, and its machinery gravely disabled.
xxxx
There is no merit in petitioner’s argument that the trial court could take cognizance of the petition as it
only questions the validity of the issuance of the warrants of garnishment on its bank deposits and not
the tax assessment. Petitioner MERALCO in filing the Petition for Prohibition before the RTC was in
truth assailing the validity of the tax assessment and collection. To resolve the petition, it would not
only be the question of validity of the warrants of garnishments that would have to be tackled, but in
addition the issues of tax assessment and collection would necessarily have to be dealt with too. As the
warrants of garnishment were issued to collect back taxes from petitioner, the petition for prohibition
would be for no other reason than to forestall the collection of back taxes on the basis of tax
assessment arguments. This, petitioner cannot do without first resorting to the proper administrative
remedies, or as previously discussed, by paying under protest the tax assessed, to allow the court to
assume jurisdiction over the petition.
xxxx
It cannot be gainsaid that petitioner should have addressed its arguments to respondent at the first
opportunity - upon receipt of the3 September 1986 notices of assessment signed by Municipal
Treasurer Norberto A. San Mateo. Thereafter, it should have availed of the proper administrative
remedies in protesting an erroneous tax assessment, i.e., to question the correctness of the
assessments before the Local Board of Assessment Appeals (LBAA), and later, invoke the appellate
jurisdiction of the Central Board of Assessment Appeals(CBAA).
Under the doctrine of primacy of administrative remedies, an error in the assessment must be
administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack of
jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to a
later adjustment pending the outcome of the appeal. The failure to appeal within the statutory period
shall render the assessment final and unappealable.
Petitioner having failed to exhaust the administrative remedies available to it, the assessment attained
finality and collection would be in order. (Emphasis and underscoring supplied)
From the foregoing jurisprudential pronouncements, it is clear that the requirement of "payment
under protest" is a condition sine qua non before a protest or an appeal questioning the correctness of
an assessment of real property tax may be entertained.
Moreover, a claim for exemption from payment of real property taxes does not actually question the
assessor’s authority to assess and collect such taxes, but pertains to the reasonableness or correctness
of the assessment by the local assessor, a question of fact which should be resolved, at the very first
instance, by the LBAA. This may be inferred from Section 206 of RA No. 7160 or the LGC of 1991which
states that:
SEC. 206. Proof of Exemption of Real Property from Taxation. – Every person by or for whom real
property is declared, who shall claim tax exemption for such property under this Title shall file with the
provincial, city or municipal assessor within thirty (30) days from the date of the declaration of real
property sufficient documentary evidence in support of such claim including corporate charters, title of
ownership, articles of incorporation, bylaws, contracts, affidavits, certifications and mortgage deeds,
and similar documents.
If the required evidence is not submitted within the period herein prescribed, the property shall be
listed as taxable in the assessment roll. However, if the property shall be proven to be tax exempt, the
same shall be dropped from the assessment roll. (Emphasis supplied)
In other words, by providing that real property not declared and proved as tax-exempt shall be
included in the assessment roll, the above-quoted provision implies that the local assessor has the
authority to assess the property for realty taxes, and any subsequent claim for exemption shall be
allowed only when sufficient proof has been adduced supporting the claim.21
Therefore, if the property being taxed has not been dropped from the assessment roll, taxes must be
paid under protest if the exemption from taxation is insisted upon.
In the case at bench, records reveal that when petitioner received the letter dated 21 March 2002
issued by respondent City Assessor, including copies of ARPs (with ARP Nos. 01-07040-008887 to 01-
07040-008922) attached thereto, it filed its protest through a letter dated 3 April 2002seeking
clarification as to the legal basis of said assessments, without payment of the assessed real property
taxes. Afterwards, respondent City Assessor replied thereto in a letter dated 11 April 2002 which
explained the legal basis of the subject assessments and even included an additional ARP against
another real property of petitioner. Subsequently, petitioner then filed before the BTAA its appeal
questioning the validity and propriety of the subject ARPs.
Clearly from the foregoing factual backdrop, petitioner considered the11 April 2002 letter as the
"action" referred to in Section 226 which speaks of the local assessor’s act of denying the protest filed
pursuant to Section252. However, applying the above-cited jurisprudence in the present case, it is
evident that petitioner’s failure to comply with the mandatory requirement of payment under protest
in accordance with Section 252 of the LGC of 1991 was fatal to its appeal. Notwithstanding such failure
to comply therewith, the BTAA elected not to immediately dismiss the case but instead took
cognizance of petitioner’s appeal subject to the condition that payment of the real property tax should
first be made before proceeding with the hearing of its appeal, as provided for under Section 7, Rule V
of the Rules of Procedure Before the LBAA. Hence, the BTAA simply recognized the importance of the
requirement of "payment under protest" before an appeal may be entertained, pursuant to Section
252, and in relation with Section231 of the same Code as to non-suspension of collection of the realty
tax pending appeal.
Notably, in its feeble attempt to justify non-compliance with the provision of Section 252, petitioner
contends that the requirement of paying the tax under protest is not applicable when the person being
assessed is a tax-exempt entity, and thus could not be deemed a "taxpayer" within the meaning of the
law. In support thereto, petitioner alleges that it is exempted from paying taxes, including real
property taxes, since it is entitled to the tax incentives and exemptions under the provisions of RA No.
7227 and Presidential Proclamation No. 420, Series of 1994,22 as stated in and confirmed by the lease
agreement it entered into with the BCDA.23
This Court is not persuaded.
First, Section 206 of RA No. 7160 or the LGC of 1991, as quoted earlier, categorically provides that
every person by or for whom real property is declared, who shall claim exemption from payment of
real property taxes imposed against said property, shall file with the provincial, city or municipal
assessor sufficient documentary evidence in support of such claim. Clearly, the burden of proving
exemption from local taxation is upon whom the subject real property is declared; thus, said person
shall be considered by law as the taxpayer thereof. Failure to do so, said property shall be listed as
taxable in the assessment roll.
In the present case, records show that respondent City Assessor of Baguio City notified petitioner, in
the letters dated 21 March 200224 and 11April 2002,25 about the subject ARPs covering various
buildings owned by petitioner and parcels of land (leased out to petitioner) all located within the
JHSEZ, Baguio City. The subject letters expressed that the assessments were based on the approved
building permits obtained from the City Engineer’s Office of Baguio City and pursuant to Sections 201
to 206 of RA No. 7160 or the LGC of 1991 which pertains to whom the subject real properties were
declared.
Noticeably, these factual allegations were neither contested nor denied by petitioner. As a matter of
fact, it expressly admitted ownership of the various buildings subject of the assessment and thereafter
focused on the argument of its exemption under RA No. 7227. But petitioner did not present any
documentary evidence to establish that the subject properties being tax exempt have already been
dropped from the assessment roll, in accordance with Section 206. Consequently, the City Assessor
acted in accordance with her mandate and in the regular performance of her official function when the
subject ARPs were issued against petitioner herein, being the owner of the buildings, and therefore
considered as the person with the obligation to shoulder tax liability thereof, if any, as contemplated
by law.
It is an accepted principle in taxation that taxes are paid by the person obliged to declare the same for
taxation purposes. As discussed above, the duty to declare the true value of real property for taxation
purposes is imposed upon the owner, or administrator, or their duly authorized representatives. They
are thus considered the taxpayers. Hence, when these persons fail or refuse to make a declaration of
the true value of their real property within the prescribed period, the provincial or city assessor shall
declare the property in the name of the defaulting owner and assess the property for taxation. In this
wise, the taxpayer assumes the character of a defaulting owner, or defaulting administrator, or
defaulting authorized representative, liable to pay back taxes. For that reason, since petitioner herein
is the declared owner of the subject buildings being assessed for real property tax, it is therefore
presumed to be the person with the obligation to shoulder the burden of paying the subject tax in the
present case; and accordingly, in questioning the reasonableness or correctness of the assessment of
real property tax, petitioner is mandated by law to comply with the requirement of payment under
protest of the tax assessed, particularly Section 252 of RA No. 7160 or the LGC of 1991.
Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception.
The law does not look with favor on tax exemptions and the entity that would seek to be thus
privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.26 Thus applying the rule of strict construction of laws granting tax exemptions, and the
rule that doubts should be resolved in favor of provincial corporations, this Court holds that petitioner
is considered a taxable entity in this case.
Second, considering that petitioner is deemed a taxpayer within the meaning of law, the issue on
whether or not it is entitled to exemption from paying taxes, national and local, including real property
taxes, is a matter which would be better resolved, at the very instance, before the LBAA, for the
following grounds: (a) petitioner’s reliance on its entitlement for exemption under the provisions of RA
No. 7227 and Presidential Proclamation No. 420, was allegedly confirmed by Section 18,27 Article XVI of
the Lease Agreement dated 19 October 1996 it entered with the BCDA. However, it appears from the
records that said Lease Agreement has yet to be presented nor formally offered before any
administrative or judicial body for scrutiny; (b) the subject provision of the Lease Agreement declared a
condition that in order to be allegedly exempted from the payment of taxes, petitioner should have
first paid and remitted 5% of the gross income earned by it within ninety (90) days from the close of
the calendar year through the JPDC. Unfortunately, petitioner has neither established nor presented
any evidence to show that it has indeed paid and remitted 5% of said gross income tax; (c) the right to
appeal is a privilege of statutory origin, meaning a right granted only by the law, and not a
constitutional right, natural or inherent. Therefore, it follows that petitioner may avail of such
opportunity only upon strict compliance with the procedures and rules prescribed by the law itself, i.e.
RA No. 7160 or the LGC of 1991; and (d) at any rate, petitioner’s position of exemption is weakened by
its own admission and recognition of this Court’s previous ruling that the tax incentives granted in RA
No. 7227 are exclusive only to the Subic Special Economic and Free Port Zone; and thus, the extension
of the same to the JHSEZ (as provided in the second sentence of Section 3 of Presidential Proclamation
No. 420)28 finds no support therein and therefore declared null and void and of no legal force and
effect.29 Hence, petitioner needs more than mere arguments and/or allegations contained in its
pleadings to establish and prove its exemption, making prior proceedings before the LBAA a necessity.
To reiterate, the restriction upon the power of courts to impeach tax assessment without a prior
payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the
lifeblood of the nation and as such their collection cannot be curtailed by injunction or any like action;
otherwise, the state or, in this case, the local government unit, shall be crippled in dispensing the
needed services to the people, and its machinery gravely disabled.30 The right of local government
units to collect taxes due must always be upheld to avoid severe erosion. This consideration is
consistent with the State policy to guarantee the autonomy of local governments and the objective of
RA No. 7160 or the LGC of 1991 that they enjoy genuine and meaningful local autonomy to empower
them to achieve their fullest development as self-reliant communities and make them effective
partners in the attainment of national goals.31
All told, We go back to what was at the outset stated, that is, that a claim for tax exemption, whether
full or partial, does not question the authority of local assessor to assess real property tax, but merely
raises a question of the reasonableness or correctness of such assessment, which requires compliance
with Section 252 of the LGC of 1991. Such argument which may involve a question of fact should be
resolved at the first instance by the LBAA.
The CTA En Bane was correct in dismissing the petition in C.T.A. EB No. 48, and affirming the CBAA's
position that it cannot delve on the issue of petitioner's alleged non-taxability on the ground of
exemption since the LBAA has not decided the case on the merits. This is in compliance with the
procedural steps prescribed in the law.
WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Tax Appeals En Bane
in C.T.A. EB No. 48 is AFFIRMED. The case is remanded to the Local Board of Assessment Appeals of
Baguio City for further proceedings. No costs.
SO ORDERED.

With the above-enumerated reasons, it is obvious that in order for a complete determination of
petitioner’s alleged exemption from payment of real property tax under RA No. 7160 or the LGC of
1991, there are factual issues needed to be confirmed. Hence, being a question of fact, petitioner
cannot do without first resorting to the proper administrative remedies, or as previously discussed, by
paying under protest the tax assessed in compliance with Section 252 thereof.

Accordingly, the CBAA and the CTA En Banc correctly ruled that real property taxes should first be paid
before any protest thereon may be considered. It is without a doubt that such requirement of
"payment under protest" is a condition sine qua non before an appeal may be entertained. Thus,
remanding the case to the LBAA for further proceedings subject to a full and up-to-date payment,
either in cash or surety, of realty tax on the subject properties was proper.
G.R. No. L-30232 July 29, 1988
LUZON STEVEDORING CORPORATION, petitioner-appellant,
vs.
COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL REVENUE, respondents-
appellees.
H. San Luis & V.L. Simbulan for petitioner-appellant.
PARAS, J.:
This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in CTA Case
No. 1484, "Luzon Stevedoring Corporation v. Hon. Ramon Oben, Commissioner, Bureau of Internal
Revenue", denying the various claims for tax refund; and the February 20, 1969 Resolution of the same
court denying the motion for reconsideration.
Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats,
imported various engine parts and other equipment for which it paid, under protest, the assessed
compensating tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, on
January 2, 1964, it filed a Petition for Review (Rollo, pp. 14-18) with the Court of Tax Appeals, docketed
therein as CTA Case No. 1484, praying among others, that it be granted the refund of the amount of
P33,442.13. The Court of Tax Appeals, however, in a Decision dated October 21, 1969 (Ibid., pp. 22-27),
denied the various claims for tax refund. The decretal portion of the said decision reads:
WHEREFORE, finding petitioner's various claims for refund amounting to
P33,442.13 without sufficient legal justification, the said claims have to be, as they
are hereby, denied. With costs against petitioner.
On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration (Ibid., pp. 28-34), but the
same was denied in a Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant petition.
This Court, in a Resolution dated March 13, 1969, gave due course to the petition (Ibid., p. 40).
Petitioner-appellant raised three (3) assignments of error, to wit:
I "Cargo vessel" because they are neither designed nor used for carrying and/or transporting persons or
The lower court erred in holding that the petitioner-appellant is engaged in
business as stevedore, the work of unloading and loading of a vessel in port,
contrary to the evidence on record.
II
The lower court erred in not holding that the business in which petitioner-appellant
is engaged, is part and parcel of the shipping industry.
III
The lower court erred in not allowing the refund sought by petitioner-appellant.
The instant petition is without merit.
The pivotal issue in this case is whether or not petitioner's tugboats" can be interpreted to be included
in the term "cargo vessels" for purposes of the tax exemption provided for in Section 190 of the
National Internal Revenue Code, as amended by Republic Act No. 3176.
Said law provides:
Sec. 190. Compensating tax. — ... And Provided further, That the tax imposed in
this section shall not apply to articles to be used by the importer himself in the
manufacture or preparation of articles subject to specific tax or those for
consignment abroad and are to form part thereof or to articles to be used by the
importer himself as passenger and/or cargo vessel, whether coastwise or
oceangoing, including engines and spare parts of said vessel. ....
Petitioner contends that tugboats are embraced and included in the term cargo vessel under the tax
exemption provisions of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176. He
argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former
towing the latter for loading and unloading of a vessel in part, constitute a single vessel. Accordingly, it
concludes that the engines, spare parts and equipment imported by it and used in the repair and
maintenance of its tugboats are exempt from compensating tax (Rollo, p. 23).
On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are not
goods by themselves but are mainly employed for towing and pulling purposes. As such, it cannot be
claimed that the tugboats in question are used in carrying and transporting passengers or cargoes as a
common carrier by water, either coastwise or oceangoing and, therefore, not within the purview of
Section 190 of the Tax Code, as amended by Republic Act No. 3176 (Brief for Respondents-Appellees,
pp. 45).
This Court has laid down the rule that "as the power of taxation is a high prerogative of sovereignty,
the relinquishment is never presumed and any reduction or dimunition thereof with respect to its
mode or its rate, must be strictly construed, and the same must be coached in clear and unmistakable
terms in order that it may be applied." (84 C.J.S. pp. 659-800), More specifically stated, the general rule
is that any claim for exemption from the tax statute should be strictly construed against the taxpayer
(Acting Commissioner of Customs v. Manila Electric Co. et al., 69 SCRA 469 [1977] and Commissioner of
Internal Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA 142 [1975]).
As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be
declared exempt from the compensating tax, it is indispensable that the requirements of the
amendatory law be complied with, namely: (1) the engines and spare parts must be used by the
importer himself as a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo vessel
must be used in coastwise or oceangoing navigation (Decision, CTA Case No. 1484; Rollo, p. 24).
As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic Act No. 3176 limit
tax exemption from the compensating tax to imported items to be used by the importer himself as
operator of passenger and/or cargo vessel (Ibid., p. 25).
As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows:
A tugboat is a strongly built, powerful steam or power vessel, used for towing and,
now, also used for attendance on vessel. (Webster New International Dictionary,
2nd Ed.)
A tugboat is a diesel or steam power vessel designed primarily for moving large
ships to and from piers for towing barges and lighters in harbors, rivers and canals.
(Encyclopedia International Grolier, Vol. 18, p. 256).
A tug is a steam vessel built for towing, synonymous with tugboat. (Bouvier's Law
Dictionary.) (Rollo, p. 24).
Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of
passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where a
provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense
being entertained to justify non-compliance. All that has to be done is to apply it in every case that falls
within its terms (Allied Brokerage Corp. v. Commissioner of Customs, L-27641, 40 SCRA 555 [1971];
Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]).
And, even if construction and interpretation of the law is insisted upon, following another fundamental
rule that statutes are to be construed in the light of purposes to be achieved and the evils sought to be
remedied (People v. Purisima etc., et al., L-42050-66, 86 SCRA 544 [1978], it will be noted that the
legislature in amending Section 190 of the Tax Code by Republic Act 3176, as appearing in the records,
intended to provide incentives and inducements to bolster the shipping industry and not the business
of stevedoring, as manifested in the sponsorship speech of Senator Gil Puyat (Rollo, p. 26).
On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found that no evidence was
adduced by petitioner-appellant that tugboats are passenger and/or cargo vessels used in the shipping
industry as an independent business. On the contrary, petitioner-appellant's own evidence supports
the view that it is engaged as a stevedore, that is, the work of unloading and loading of a vessel in port;
and towing of barges containing cargoes is a part of petitioner's undertaking as a stevedore. In fact,
even its trade name is indicative that its sole and principal business is stevedoring and lighterage, taxed
under Section 191 of the National Internal Revenue Code as a contractor, and not an entity which
transports passengers or freight for hire which is taxed under Section 192 of the same Code as a
common carrier by water (Decision, CTA Case No. 1484; Rollo, p. 25).
Under the circumstances, there appears to be no plausible reason to disturb the findings and
conclusion of the Court of Tax Appeals.
As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the
Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an expertise on the subject unless there
has been an abuse or improvident exercise of authority (Reyes v. Commissioner of Internal Revenue,
24 SCRA 199 [1981]), which is not present in the instant case.
PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the Court of Tax Appeals
is AFFIRMED.
SO ORDERED.
G.R. No. L-28896 February 17, 1988 The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the warrant
COMMISSIONER OF INTERNAL REVENUE, petitioner, of distraint and levy was issued; indeed, such protest could not be located in the office of the
vs. petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents. considered by the tax authorities. During the intervening period, the warrant was premature and could
therefore not be served.
CRUZ, J.:
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance
18, 1965, when it was filed, the reglementary period which started on the date the assessment was
On the other hand, such collection should be made in accordance with law as any arbitrariness will
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the
negate the very reason for government itself. It is therefore necessary to reconcile the apparently
private respondent was definitely informed of the implied rejection of the said protest and the warrant
conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is
was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
the promotion of the common good, may be achieved.
reglementary period had been consumed.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the
Now for the substantive question.
P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its
income tax returns. The corollary issue is whether or not the appeal of the private respondent from the
decision of the Collector of Internal Revenue was made on time and in accordance with law. The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it
was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private
We deal first with the procedural question.
respondent for actual services rendered. The payment was in the form of promotional fees. These
were collected by the Payees for their work in the creation of the Vegetable Oil Investment
The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
engineering, construction and other allied activities, received a letter from the petitioner assessing it in Estate Development Company.
the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.1 On January
18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees
on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy
to be personal holding company income 12 but later conformed to the decision of the respondent court
was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused
rejecting this assertion.13 In fact, as the said court found, the amount was earned through the joint
to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case
efforts of the persons among whom it was distributed It has been established that the Philippine Sugar
proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes,
Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land,
who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR
factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo
was not taking any action on the protest and it was only then that he accepted the warrant of distraint
Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable
and levy earlier sought to be served.5 Sixteen days later, on April 23, 1965, Algue filed a petition for
Oil Investment Corporation, inducing other persons to invest in it. 14 Ultimately, after its incorporation
review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals.6
largely through the promotion of the said persons, this new corporation purchased the PSEDC
properties.15 For this sale, Algue received as agent a commission of P126,000.00, and it was from this
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.16
the appeal may be made within thirty days after receipt of the decision or ruling challenged. 7 It is true
that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders
There is no dispute that the payees duly reported their respective shares of the fees in their income tax
hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof and makes
returns and paid the corresponding taxes thereon.17 The Court of Tax Appeals also found, after
the said request deemed rejected." 10 But there is a special circumstance in the case at bar that
examining the evidence, that no distribution of dividends was involved.18
prevents application of this accepted doctrine.
The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such payments
were made, whether by check or in cash, and there is not enough substantiation of such payments. In
short, the petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an
imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in
one lump sum but periodically and in different amounts as each payee's need arose. 19 It should be
remembered that this was a family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. Even so, at the end of the year, when the books were
to be closed, each payee made an accounting of all of the fees received by him or her, to make up the
total of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was
understandable, however, in view of the close relationship among the persons in the family
corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was
P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit
from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate
properties. This finding of the respondent court is in accord with the following provision of the Tax
Code:
SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions —
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price
of services, is not deductible. (a) An ostensible salary paid by a corporation may be
a distribution of a dividend on stock. This is likely to occur in the case of a
corporation having few stockholders, Practically all of whom draw salaries. If in
such a case the salaries are in excess of those ordinarily paid for similar services,
and the excessive payment correspond or bear a close relationship to the
stockholdings of the officers of employees, it would seem likely that the salaries are
not paid wholly for services rendered, but the excessive payments are a
distribution of earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G.
No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of
the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance
to surrender part of one's hard earned income to the taxing authorities, every person who is able to
must contribute his share in the running of the government. The government for its part, is expected
to respond in the form of tangible and intangible benefits intended to improve the lives of the people
and enhance their moral and material values. This symbiotic relationship is the rationale of taxation
and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of
power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If
it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all
the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.

SO ORDERED.
G.R. No. L-31364 March 30, 1979
MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional Director,
Revenue Region No. 14, Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental, Branch V, and
FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D. TONGOY respondents.
DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special
Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
dismissing the Motion for Allowance of Claim and for an Order of Payment of Taxes by the
Government of the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for
deficiency income taxes for the years 1963 and 1964 of the decedent in the total amount of P3,254.80,
inclusive 5% surcharge, 1% monthly interest and compromise penalties, and the second, dated October
7, 1969, denying the Motion for reconsideration of the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3,
1969 in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The claim
represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency income taxes
in the total sum of P3,254.80 as above stated, covered by Assessment Notices Nos. 11-50-29-1-11061-
21-63 and 11-50-291-1 10875-64, to which motion was attached Proof of Claim (Annex B, Petition, pp.
21-22, Rollo). The Administrator opposed the motion solely on the ground that the claim was barred
under Section 5, Rule 86 of the Rules of Court (par. 4, Opposition to Motion for Allowance of Claim, pp.
23-24, Rollo). Finding the opposition well-founded, the respondent Judge, Jose F. Fernandez, dismissed
the motion for allowance of claim filed by herein petitioner, Regional Director of the Bureau of Internal
Revenue, in an order dated July 29, 1969 (Annex D, Petition, p. 26, Rollo). On September 18, 1969, a
motion for reconsideration was filed, of the order of July 29, 1969, but was denied in an Order dated
October 7, 1969.
Hence, this appeal on certiorari, petitioner assigning the following errors:
1. The lower court erred in holding that the claim for taxes by the government
against the estate of Luis D. Tongoy was filed beyond the period provided in
Section 2, Rule 86 of the Rules of Court.
2. The lower court erred in holding that the claim for taxes of the government was
already barred under Section 5, Rule 86 of the Rules of Court.
which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New
Rule of Court, bars claim of the government for unpaid taxes, still within the period of limitation
prescribed in Section 331 and 332 of the National Internal Revenue Code.
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for
Allowance of Claim, etc. of the petitioners reads as follows:
All claims for money against the decedent, arising from contracts, express or
implied, whether the same be due, not due, or contingent, all claims for funeral
expenses and expenses for the last sickness of the decedent, and judgment for
money against the decedent, must be filed within the time limited in they notice;
otherwise they are barred forever, except that they may be set forth as counter
claims in any action that the executor or administrator may bring against the
claimants. Where the executor or administrator commence an action, or
prosecutes an action already commenced by the deceased in his lifetime, the
debtor may set forth may answer the claims he has against the decedents, instead
of presenting them independently to the court has herein provided, and mutual
claims may be set off against each other in such action; and in final judgment is
rendered in favored of the decedent, the amount to determined shall be
considered the true balance against the estate, as though the claim has been
presented directly before the court in the administration proceedings. Claims not
yet due, or contingent may be approved at their present value.
A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different character from
the claims expressly enumerated therein, such as: "all claims for money against the decedent arising
from contract, express or implied, whether the same be due, not due or contingent, all claim for
funeral expenses and expenses for the last sickness of the decedent and judgment for money against
the decedent." Under the familiar rule of statutory construction of expressio unius est exclusio
alterius, the mention of one thing implies the exclusion of another thing not mentioned. Thus, if a
statute enumerates the things upon which it is to operate, everything else must necessarily, and by
implication be excluded from its operation and effect (Crawford, Statutory Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-23081,
December 30, 1969, it was held that the assessment, collection and recovery of taxes, as well as the
matter of prescription thereof are governed by the provisions of the National Internal revenue Code,
particularly Sections 331 and 332 thereof, and not by other provisions of law. (See also Lim Tio, Dy
Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R. No. L-10681, March
29, 1958). Even without being specifically mentioned, the provisions of Section 2 of Rule 86 of the
Rules of Court may reasonably be presumed to have been also in the mind of the Court as not affecting
the aforecited Section of the National Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes
assessed against the estate of a deceased person ... need not be submitted to the committee on claims
in the ordinary course of administration. In the exercise of its control over the administrator, the court
may direct the payment of such taxes upon motion showing that the taxes have been assessed against
the estate." The abolition of the Committee on Claims does not alter the basic ruling laid down giving
exception to the claim for taxes from being filed as the other claims mentioned in the Rule should be
filed before the Court. Claims for taxes may be collected even after the distribution of the decedent's
estate among his heirs who shall be liable therefor in proportion of their share in the inheritance.
(Government of the Philippines vs. Pamintuan, 55 Phil. 13).
The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of
exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood
of the Government and their prompt and certain availability are imperious need. (Commissioner of
Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation
depends the Government ability to serve the people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of government officials entrusted with the collection of
taxes should not be allowed to bring harm or detriment to the people, in the same manner as private
persons may be made to suffer individually on account of his own negligence, the presumption being
that they take good care of their personal affairs. This should not hold true to government officials with
respect to matters not of their own personal concern. This is the philosophy behind the government's
exception, as a general rule, from the operation of the principle of estoppel. (Republic vs. Caballero, L-
27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and Protective Order of
the Elks Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the
Philippines, L-41480, April 30,1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553;
Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66
SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L-18841, January 27, 1969, 26
SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez,
Inc. vs. Collector of Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes
may be collected even after the distribution of the estate of the decedent among his heirs
(Government of the Philippines vs. Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco
Palanca vs. Commissioner of Internal Revenue, G. R. No. L-16661, January 31, 1962).
Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph
of Section 315 of the Tax Code payment of income tax shall be a lien in favor of the Government of the
Philippines from the time the assessment was made by the Commissioner of Internal Revenue until
paid with interests, penalties, etc. By virtue of such lien, this court held that the property of the estate
already in the hands of an heir or transferee may be subject to the payment of the tax due the
estate. A fortiori before the inheritance has passed to the heirs, the unpaid taxes due the decedent
may be collected, even without its having been presented under Section 2 of Rule 86 of the Rules of
Court. It may truly be said that until the property of the estate of the decedent has vested in the heirs,
the decedent, represented by his estate, continues as if he were still alive, subject to the payment of
such taxes as would be collectible from the estate even after his death. Thus in the case above cited,
the income taxes sought to be collected were due from the estate, for the three years 1946, 1947 and
1948 following his death in May, 1945.
Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2,
Rule 86 of the Rules of Court, the claim in question may be filed even after the expiration of the time
originally fixed therein, as may be gleaned from the italicized portion of the Rule herein cited which
reads:
Section 2. Time within which claims shall be filed. - In the notice provided in the
preceding section, the court shall state the time for the filing of claims against the
estate, which shall not be more than twelve (12) nor less than six (6) months after
the date of the first publication of the notice. However, at any time before an order
of distribution is entered, on application of a creditor who has failed to file his claim
within the time previously limited the court may, for cause shown and on such
terms as are equitable, allow such claim to be flied within a time not exceeding one
(1) month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order of
Payment of Taxes) which, though filed after the expiration of the time previously limited but before an
order of the distribution is entered, should have been granted by the respondent court, in the absence
of any valid ground, as none was shown, justifying denial of the motion, specially considering that it
was for allowance Of claim for taxes due from the estate, which in effect represents a claim of the
people at large, the only reason given for the denial that the claim was filed out of the previously
limited period, sustaining thereby private respondents' contention, erroneously as has been
demonstrated.
WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the total
amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code is a final
one and the respondent estate's sole defense of prescription has been herein overruled, the Motion
for Allowance of Claim is herein granted and respondent estate is ordered to pay and discharge the
same, subject only to the limitation of the interest collectible thereon as provided by the Tax Code. No
pronouncement as to costs.
SO ORDERED.
G.R. No. L-29059 December 15, 1987
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS, respondents.
CRUZ, J.:
By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on appeal by
the Supreme Court on February 27, 1965, the Commissioner of Internal Revenue was ordered to
refund to the Cebu Portland Cement Company the amount of P 359,408.98, representing
overpayments of ad valorem taxes on cement produced and sold by it after October 1957. 1
On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the
private respondent, the latter moved for a writ of execution to enforce the said judgment . 2
The motion was opposed by the petitioner on the ground that the private respondent had an
outstanding sales tax liability to which the judgment debt had already been credited. In fact, it was
stressed, there was still a balance owing on the sales taxes in the amount of P 4,789,279.85 plus 28%
surcharge. 3
On April 22, 1968, the Court of Tax Appeals * granted the motion, holding that the alleged sales tax
liability of the private respondent was still being questioned and therefore could not be set-off against
the refund. 4
In his petition to review the said resolution, the Commissioner of Internal Revenue claims that the
refund should be charged against the tax deficiency of the private respondent on the sales of cement
under Section 186 of the Tax Code. His position is that cement is a manufactured and not a mineral
product and therefore not exempt from sales taxes. He adds that enforcement of the said tax
deficiency was properly effected through his power of distraint of personal property under Sections
316 and 318 5 of the said Code and, moreover, the collection of any national internal revenue tax may
not be enjoined under Section 305, 6 subject only to the exception prescribed in Rep. Act No.
1125. 7 This is not applicable to the instant case. The petitioner also denies that the sales tax
assessments have already prescribed because the prescriptive period should be counted from the filing
of the sales tax returns, which had not yet been done by the private respondent.
For its part, the private respondent disclaims liability for the sales taxes, on the ground that cement is
not a manufactured product but a mineral product. 8 As such, it was exempted from sales taxes under
Section 188 of the Tax Code after the effectivity of Rep. Act No. 1299 on June 16, 1955, in accordance
with Cebu Portland Cement Co. v. Collector of Internal Revenue, 9 decided in 1968. Here Justice
Eugenio Angeles declared that "before the effectivity of Rep. Act No. 1299, amending Section 246 of
the National Internal Revenue Code, cement was taxable as a manufactured product under Section
186, in connection with Section 194(4) of the said Code," thereby implying that it was not considered a
manufactured product afterwards. Also, the alleged sales tax deficiency could not as yet be enforced
against it because the tax assessment was not yet final, the same being still under protest and still to
be definitely resolved on the merits. Besides, the assessment had already prescribed, not having been
made within the reglementary five-year period from the filing of the tax returns. 10
Our ruling is that the sales tax was properly imposed upon the private respondent for the reason that
cement has always been considered a manufactured product and not a mineral product. This matter
was extensively discussed and categorically resolved in Commissioner of Internal Revenue v. Republic
Cement Corporation, 11 decided on August 10, 1983, where Justice Efren L. Plana, after an exhaustive
review of the pertinent cases, declared for a unanimous Court:
From all the foregoing cases, it is clear that cement qua cement was never
considered as a mineral product within the meaning of Section 246 of the Tax
Code, notwithstanding that at least 80% of its components are minerals, for the
simple reason that cement is the product of a manufacturing process and is no
longer the mineral product contemplated in the Tax Code (i.e.; minerals subjected
to simple treatments) for the purpose of imposing the ad valorem tax.
What has apparently encouraged the herein respondents to maintain their present
posture is the case of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-
20563, Oct. 29, 1968 (28 SCRA 789) penned by Justice Eugenio Angeles. For some
portions of that decision give the impression that Republic Act No. 1299, which
amended Section 246, reclassified cement as a mineral product that was not
subject to sales tax. ...
xxx xxx xxx
After a careful study of the foregoing, we conclude that reliance on the decision
penned by Justice Angeles is misplaced. The said decision is no authority for the
proposition that after the enactment of Republic Act No. 1299 in 1955 (defining
mineral product as things with at least 80% mineral content), cement became a
'mineral product," as distinguished from a "manufactured product," and therefore
ceased to be subject to sales tax. It was not necessary for the Court to so rule. It
was enough for the Court to say in effect that even assuming Republic Act No. 1299
had reclassified cement was a mineral product, the reclassification could not be
given retrospective application (so as to justify the refund of sales taxes paid before
 Republic Act 1299 was adopted) because laws operate prospectively only, unless
the legislative intent to the contrary is manifest, which was not so in the case of
Republic Act 1266. [The situation would have been different if the Court instead
had ruled in favor of refund, in which case it would have been absolutely necessary
(1) to make an unconditional ruling that Republic Act 1299 re-classified cement as a
mineral product (not subject to sales tax), and (2) to declare the law retroactive, as
a basis for granting refund of sales tax paid before Republic Act 1299.]
In any event, we overrule the CEPOC decision of October 29, 1968 (G.R. No. L-
20563) insofar as its pronouncements or any implication therefrom conflict with
the instant decision.
The above views were reiterated in the resolution 12 denying reconsideration of the said decision,
thus:
The nature of cement as a "manufactured product" (rather than a "mineral
product") is well-settled. The issue has repeatedly presented itself as a threshold
question for determining the basis for computing the ad valorem mining tax to be
paid by cement Companies. No pronouncement was made in these cases that as a
"manufactured product" cement is subject to sales tax because this was not at
issue.
The decision sought to be reconsidered here referred to the legislative history of
Republic Act No. 1299 which introduced a definition of the terms "mineral" and
"mineral products" in Sec. 246 of the Tax Code. Given the legislative intent, the
holding in the CEPOC case (G.R. No. L-20563) that cement was subject to sales tax
prior to the effectivity •f Republic Act No. 1299 cannot be construed to mean that,
after the law took effect, cement ceased to be so subject to the tax. To erase any
and all misconceptions that may have been spawned by reliance on the case
of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-20563, October 29,
1968 (28 SCRA 789) penned by Justice Eugenio Angeles, the Court has expressly
overruled it insofar as it may conflict with the decision of August 10, 1983, now
subject of these motions for reconsideration.
On the question of prescription, the private respondent claims that the five-year reglementary period
for the assessment of its tax liability started from the time it filed its gross sales returns on June 30,
1962. Hence, the assessment for sales taxes made on January 16, 1968 and March 4, 1968, were
already out of time. We disagree. This contention must fail for what CEPOC filed was not the sales
returns required in Section 183(n) but the ad valorem tax returns required under Section 245 of the
Tax Code. As Justice Irene R. Cortes emphasized in the aforestated resolution:
In order to avail itself of the benefits of the five-year prescription period under
Section 331 of the Tax Code, the taxpayer should have filed the required return for
the tax involved, that is, a sales tax return. (Butuan Sawmill, Inc. v. CTA, et al., G.R.
No. L-21516, April 29, 1966, 16 SCRA 277). Thus CEPOC should have filed sales tax
returns of its gross sales for the subject periods. Both parties admit that returns
were made for the ad valorem mining tax. CEPOC argues that said returns contain
the information necessary for the assessment of the sales tax. The Commissioner
does not consider such returns as compliance with the requirement for the filing of
tax returns so as to start the running of the five-year prescriptive period.
We agree with the Commissioner. It has been held in Butuan Sawmill Inc. v. CTA,
supra, that the filing of an income tax return cannot be considered as substantial
compliance with the requirement of filing sales tax returns, in the same way that an
income tax return cannot be considered as a return for compensating tax for the
purpose of computing the period of prescription under Sec. 331. (Citing Bisaya Land
Transportation Co., Inc. v. Collector of Internal Revenue, G.R. Nos. L-12100 and L-
11812, May 29, 1959). There being no sales tax returns filed by CEPOC, the statute
of stations in Sec. 331 did not begin to run against the government. The
assessment made by the Commissioner in 1968 on CEPOC's cement sales during
the period from July 1, 1959 to December 31, 1960 is not barred by the five-year
prescriptive period. Absent a return or when the return is false or fraudulent, the
applicable period is ten (10) days from the discovery of the fraud, falsity or
omission. The question in this case is: When was CEPOC's omission to file tha
return deemed discovered by the government, so as to start the running of said
period? 13
The argument that the assessment cannot as yet be enforced because it is still being contested loses
sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of
taxes could be postponed by simply questioning their validity, the machinery of the state would grind
to a halt and all government functions would be paralyzed. That is the reason why, save for the
exception already noted, the Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. — No court shall have
authority to grant an injunction to restrain the collection of any national internal
revenue tax, fee or charge imposed by this Code.
It goes without saying that this injunction is available not only when the assessment is already being
questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is
still-and only-on the administrative level. There is all the more reason to apply the rule here because it
appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4
million is still due from the private respondent.
To require the petitioner to actually refund to the private respondent the amount of the judgment
debt, which he will later have the right to distrain for payment of its sales tax liability is in our view an
Idle ritual. We hold that the respondent Court of Tax Appeals erred in ordering such a charade.

WHEREFORE, the petition is GRANTED. The resolution dated April 22, 1968, in CTA Case No. 786 is SET
ASIDE, without any pronouncement as to costs.

SO ORDERED.
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy
Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of
Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,
Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition 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 citizens or residents on (a) taxable compensation income, (b) taxable net
income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any 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 taxable partnership, (f) adjusted gross
income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he would be unduly discriminated
against by the imposition of higher rates of tax upon his income arising from the exercise of his
profession vis-a-visthose which are imposed upon fixed income or salaried individual taxpayers. 4 He
characterizes the above sction as arbitrary amounting to class legislation, oppressive and capricious in
character 5 For petitioner, therefore, there is a transgression of both the equal protection and due
process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days
from notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was
filed on May 28, 1982. 8The facts as alleged were admitted but not the allegations which to their mind
are "mere 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 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.
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 reason was so
clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private
enterprise and initiative and which the government was called upon to enter optionally, and only
'because it was better equipped to administer for the public welfare than is any private individual or
group of individuals,' continue to lose their well-defined boundaries and to be absorbed within
activities that the government must undertake in its sovereign capacity if it is to meet the increasing
social challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent
prerogative, has to be availed of to assure the 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 prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its
plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets forth such
limits . Adversely affecting as it does properly rights, both the due process and equal protection clauses
inay properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it
were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to
tax involves the power to destroy." 14 In a separate opinion in Graves v. New York, 15 Justice
Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times following] a free use of absolutes." 16 This is
merely to emphasize that it is riot and there cannot be such a constitutional mandate. Justice
Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy
while this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any
legislative or executive, act that runs counter to it. In any case therefore where it can be demonstrated
that the challenged statutory provision — as petitioner here alleges — fails to abide by its command,
then this Court must so declare and adjudge it null. The injury thus is centered on the question of
whether the imposition of a higher tax rate on taxable net income derived from business or profession
than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as
here. does not suffice. There must be a factual foundation of such unconstitutional taint. Considering
that petitioner here would condemn such a provision as void 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 invoked, considering that they arc not fixed rules but rather broad standards, there is a
need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can be shown to amount to
the confiscation of property. That would be a clear abuse of power. It then becomes the duty of this
Court to say that such an arbitrary act amounted to the exercise of an authority not conferred. That
properly calls for the application of the Holmes dictum. It has also been held that where the assailed
tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a
retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is 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 governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different, both in the privileges conferred and the liabilities imposed.
Favoritism and undue preference cannot be allowed. For the principle is that equal protection and
security shall be given to every person under circumtances which if not Identical are analogous. If law
be looked upon in terms of burden or charges, those that fall within a class should be treated in the
same fashion, whatever restrictions cast on some in the group equally binding on the rest." 20 That
same formulation applies as well to taxation measures. The equal protection clause is, of course,
inspired by the noble concept of approximating the Ideal of the laws benefits being available to all and
the affairs of men being governed by that serene and impartial uniformity, which is of the very essence
of the Idea of law. There is, however, wisdom, as well as realism in these words of Justice Frankfurter:
"The equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth
Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do
not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties,
address to the attainment of specific ends by the use of specific remedies. The Constitution does not
require things which are different in fact or opinion to be treated in law as though they were the
same." 21 Hence the constant reiteration of the view that classification if rational in character is
allowable. As a matter of fact, in a leading 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 subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling
out of one particular class for taxation, or exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The
rule of taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel
in Philippine Trust Company v. 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
uniformity does not call for perfect uniformity or perfect equality, because this is hardly
attainable." 27 The problem of classification did not present itself in that case. It did not arise until nine
years later, when the Supreme Court held: "Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation, ... . 28 As clarified by
Justice Tuason, where "the differentiation" complained of "conforms to the practical 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 equal protection for all that is required is
that the tax "applies equally to all persons, firms and corporations placed in similar situation."30
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or
taxable income by eliminating all deductible items and at the same time reducing the applicable tax
rate. Taxpayers may be classified into different categories. To repeat, it. is enough that the
classification must rest upon substantial distinctions that make real differences. In the case of the gross
income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of 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 of reduced tax rates to be applied to all of them. Taxpayers
who are recipients of 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 purposes because they
are in the same situation more or less. On the other hand, in the case of professionals in the practice of
their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce
their income. It would not be just then to disregard the disparities by giving all of them zero deduction
and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample
justification then for the Batasang Pambansa to adopt the gross system of income taxation to
compensation income, while continuing the system of net income taxation as regards professional and
business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of
factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of
controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the
reasonableness of the distinction between compensation and taxable net income of professionals and
businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and
Cuevas, JJ., concur.
Teehankee, J., concurs in the result.
Plana, J., took no part.
Separate Opinions

AQUINO, J., concurring:

I concur in the result. The petitioner has no cause of action for prohibition.

ABAD SANTOS, J., dissenting:

This is a frivolous suit. While the tax rates for compensation income are lower than those for net
income such circumtance does not necessarily result in lower tax payments for these receiving
compensation income. In fact, the reverse will most likely be the case; those who file returns on the
basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote for
dismissal.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The petitioner has no cause of action for prohibition.

ABAD SANTOS, J., dissenting:

This is a frivolous suit. While the tax rates for compensation income are lower than those for net
income such circumtance does not necessarily result in lower tax payments for these receiving
compensation income. In fact, the reverse will most likely be the case; those who file returns on the
basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote for
dismissal.
G.R. No. L-7859 December 22, 1955
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme
Ledesma,plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and
Solicitor Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the
taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the
threat to our industry by the imminent imposition of export taxes upon sugar as provided in the
Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market";
wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from
the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to
prepare it for the eventuality of the loss of its preferential position in the United States market and the
imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of
sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or
persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise —
a tax equivalent to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed value of such land.
According to section 6 of the law —
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out
only for any or all of the following purposes or to attain any or all of the following objectives,
as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of
the preferntial position of the Philippine sugar in the United States market, and ultimately to
insure its continued existence notwithstanding the loss of that market and the consequent
necessity of meeting competition in the free markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the component
elements thereof — the mill, the landowner, the planter of the sugar cane, and the laborers
in the factory and in the field — so that all might continue profitably to engage
therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the production
thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their living and
working conditions: Provided, That the President of the Philippines may, until the
adjourment of the next regular session of the National Assembly, make the necessary
disbursements from the fund herein created (1) for the establishment and operation of sugar
experiment station or stations and the undertaking of researchers (a) to increase the
recoveries of the centrifugal sugar factories with the view of reducing manufacturing costs,
(b) to produce and propagate higher yielding varieties of sugar cane more adaptable to
different district conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d)
to improve the buying quality of denatured alcohol from molasses for motor fuel, (e) to
determine the possibility of utilizing the other by-products of the industry, (f) to determine
what crop or crops are suitable for rotation and for the utilization of excess cane lands, and
(g) on other problems the solution of which would help rehabilitate and stabilize the
industry, and (2) for the improvement of living and working conditions in sugar mills and
sugar plantations, authorizing him to organize the necessary agency or agencies to take
charge of the expenditure and allocation of said funds to carry out the purpose hereinbefore
enumerated, and, likewise, authorizing the disbursement from the fund herein created of the
necessary amount or amounts needed for salaries, wages, travelling expenses, equipment,
and other sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the
estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that
such tax is unconstitutional and void, being levied for the aid and support of the sugar industry
exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally
levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the case
directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth
Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6
(heretofore quoted in full), will show that the tax is levied with a regulatory purpose, to provide means
for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is
primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of our
nation, sugar occupying a leading position among its export products; that it gives employment to
thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the
important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a
regime committed to a policy of currency stability. Its promotion, protection and advancement,
therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find
that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide
field of its police power, the lawmaking body could provide that the distribution of benefits therefrom
be readjusted among its components to enable it to resist the added strain of the increase in taxes that
it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla.
1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida —
The protection of a large industry constituting one of the great sources of the state's wealth
and therefore directly or indirectly affecting the welfare of so great a portion of the
population of the State is affected to such an extent by public interests as to be within the
police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of
public concern, it follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must be
allowed fully play, subject only to the test of reasonableness; and it is not contended that the means
provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why
the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be
made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412,
81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed.
579).
That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to
tax that a state be free to select the subjects of taxation, and it has been repeatedly held that
"inequalities which result from a singling out of one particular class for taxation, or exemption infringe
no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245,
citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is
that very enterprise that is being protected. It may be that other industries are also in need of similar
protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none."
As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law
presumably hits the evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied;" and that "the legislative authority, exerted within its
proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp.
301 U. S. 1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax
money to experimental stations to seek increase of efficiency in sugar production, utilization of by-
products and solution of allied problems, as well as to the improvements of living and working
conditions in sugar mills or plantations, without any part of such money being channeled directly to
private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs.
Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So ordered.
G.R. No. L-41631 December 17, 1976
HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as Secretary
to the Mayor; THE MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First Instance of Manila,
Branch XXX and the FEDERATION OF MANILA MARKET VENDORS, INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.
MARTIN, J.:
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 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.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF
STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The
petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil Case
96787 before the Court of First Instance of Manila presided over by respondent Judge, seeking the
declaration of nullity of Ordinance No. 7522 for the reason that (a) the publication requirement under
the Revised Charter of the City of Manila has not been complied with; (b) the Market Committee was
not given any participation in the enactment of the ordinance, as envisioned by Republic Act 6039; (c)
Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated; and (d) the ordinance would
violate Presidential Decree No. 7 of September 30, 1972 prescribing the collection of fees and charges
on livestock and animal products.
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 failure of the respondent Federation of
Manila Market Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax Code.
After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975, declaring
the nullity of Ordinance No. 7522 of the City of Manila on the primary ground of non-compliance with
the requirement of publication under the Revised City Charter. Respondent Judge ruled:
There is, therefore, no question that the ordinance in question was not published
at all in two daily newspapers of general circulation in the City of Manila before its
enactment. Neither was it published in the same manner after approval, although
it was posted in the legislative hall and in all city public markets and city public
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 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.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the
City of Manila and the Local Tax Code on the manner of publishing a tax ordinance enacted by the
Municipal Board of Manila. For, while Section 17 of the Revised Charter provides:
Each proposed ordinance shall be published in two daily newspapers of general
circulation in the city, and shall not be discussed or enacted by the Board until after
the third day following such publication. * * * Each approved ordinance * * * shall
be published in two daily newspapers of general circulation in the city, within ten
days after its approval; and shall take effect and be in force on and after the
twentieth day following its publication, if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
 Within ten days after their approval, certified true copies of all provincial, city,
municipal and barrio ordinances levying or imposing taxes, fees or other
charges shall be published for three consecutive days in a newspaper or publication
widely circulated within the jurisdiction of the local government, or posted in the
local legislative hall or premises and in two other conspicuous places within the
territorial jurisdiction of the local government. In either case, copies of all
provincial, city, municipal and barrio ordinances shall be furnished the treasurers of
the respective component and mother units of a local government for
dissemination.
In other words, while the Revised Charter of the City of Manila requires publication before the
enactment of the ordinance and after the approval thereof in two daily newspapers of general
circulation in the city, the Local Tax Code only prescribes for publication after the approval of
"ordinances levying or imposing taxes, fees or other charges" either in a newspaper or publication
widely circulated within the jurisdiction of the local government or by posting the ordinance in the
local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction
of the local government. Petitioners' compliance with the Local Tax Code rather than with the Revised
Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special act since it relates only
to the City of Manila, whereas the Local Tax Code is a general law because it applies universally to all
local governments. Blackstone defines general law as a universal rule affecting the entire community
and special 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 general law. The fact that one is
special and the other general creates a presumption that the special is to be considered as remaining
an exception of the general, one as a general law of the land, the other as the law of a particular
case. 2 However, the rule readily yields to a situation where the special statute refers to a subject in
general, which the general statute treats in particular. The exactly is the circumstance obtaining in the
case at bar. Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in general,
i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the Local Tax Code relates to
"ordinances levying or imposing taxes, fees or other charges" in particular. In regard, therefore, to
ordinances in general, the Revised Charter of the City of Manila is doubtless dominant, but, that
dominant force loses its continuity when it approaches the realm 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 particular provision. 3 Special provision governs. 4 This is especially
true where the law containing the particular provision was enacted later than the one containing the
general provision. The City Charter of Manila was promulgated on June 18, 1949 as 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 systems upon the same subject, or to leave in force
provisions of a prior law by which the new will of the legislating power may be thwarted and
overthrown. Such a result would render legislation a useless and Idle ceremony, and subject the law to
the reproach of uncertainty and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for
damages arising from the injuries he suffered when he fell inside an uncovered and unlighted
catchbasin or manhole on P. Burgos Avenue. The City of Manila denied liability on the basis of the City
Charter (R.A. 409) exempting the City of Manila from any liability for damages or injury to persons or
property arising 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 other officers while
enforcing or attempting to enforce the provisions of the charter or of any other law or ordinance. Upon
the other hand, Article 2189 of the Civil Code makes cities liable for damages for the death of, or injury
suffered by any persons by reason of the defective condition of roads, streets, bridges, public buildings,
and other public works under their control or supervision. On review, the Court held the Civil Code
controlling. It is true that, insofar as its territorial application is concerned, the Revised City Charter is a
special law and the subject matter of the two laws, the Revised City Charter establishes a general
rule of liability arising from negligence in general, regardless of the object thereof, whereas the Civil
Code constitutes a particular prescription for liability due to defective streets in particular. In the same
manner, the Revised Charter of the City prescribes a rule for the publication of "ordinance" in general,
while the Local Tax Code establishes a rule for the publication of "ordinance levying or imposing taxes
fees or other charges in particular.
In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a
general or broad one. 7 A charter provision may be impliedly modified or superseded by a later statute,
and where a statute is controlling, it must be read into the charter notwithstanding any particular
charter provision. 8 A subsequent general law similarly applicable to all cities prevails over any
conflicting charter provision, for the reason that a charter must not be inconsistent with the general
laws and public policy of the state. 9 A chartered city is not an independent sovereignty. The state
remains supreme in all matters not purely local. Otherwise stated, a charter must yield to the
constitution and general laws of the state, it is to have read into it that general law which governs the
municipal corporation and which the corporation cannot set aside but to which it must yield. When a
city adopts a charter, it in effect adopts as part of its charter general law of such character. 10
2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as having
been violated by private respondent in bringing a direct suit in court. This is because Section 47 of the
Local Tax Code provides that any question or 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
opinion of the city fiscal is appealable to the Secretary of Justice, whose decision shall be final and
executory unless contested before a competent court within thirty (30) days. But, the petition below
plainly shows that the controversy between the parties is deeply rooted in a pure question of law:
whether it is the Revised Charter of the City of Manila or the Local Tax Code that should govern the
publication of the tax ordinance. In other words, the dispute is sharply focused on the applicability of
the Revised City Charter or the Local Tax Code on the point at issue, and not on the legality of the
imposition of the tax. Exhaustion of administrative remedies before resort to judicial bodies is not an
absolute rule. It admits of exceptions. Where the question litigated upon is purely a legal one, the rule
does not apply. 11 The principle may also be disregarded when it does not provide a plain, speedy and
adequate remedy. It may and should be relaxed when its application may cause great and irreparable
damage. 12
3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because
the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-
raising function, so that the procedure for publication under the Local Tax Code finds no application.
The pretense bears its own marks of fallacy. Precisely, the raising of revenues is the principal object of
taxation. Under Section 5, Article XI of the New Constitution, "Each local government unit shall have
the power to create its own sources of revenue and to levy taxes, subject to such provisions as may be
provided by law." 13 And one of those sources of revenue is what the Local Tax Code points to in
particular: "Local governments may collect fees or rentals for the occupancy or use of public markets
and premises * * *." 14 They can provide for and regulate market stands, stalls and privileges, and, also,
the sale, lease or occupancy thereof. They can license, or permit the use of, lease, sell or otherwise
dispose of stands, stalls or marketing privileges. 15
It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated September
30, 1972, insofar as it affects livestock and animal products, because the said decree prescribes the
collection of other fees and charges thereon "with the exception of ante-mortem and post-mortem
inspection fees, as well as the delivery, stockyard and slaughter fees as may be authorized by the
Secretary of Agriculture and Natural Resources." 16Clearly, even the exception clause of the 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 collect fees for the slaughter of animals and
the use of corrals * * * "
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 Corporation since the collection of said
fees had been let by the City of Manila to the said corporation in a "Management and Operating
Contract." The assumption is of course saddled on erroneous premise. The fees collected do not go
direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the corporation
but for the purpose of raising revenues for the city. That is the object it serves. The entrusting of the
collection of the fees does not destroy the public purpose of the ordinance. So long as the purpose is
public, it does not matter whether the agency through which the money is dispensed is public or
private. The right to tax depends upon the ultimate use, purpose and object for which the fund is
raised. It is not dependent on the nature or character of the person or corporation whose intermediate
agency is to be used in applying it. The people may be taxed for a public purpose, although it be under
the direction of an individual or private corporation. 18
Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt
Practices Act because the increased rates of market stall fees as levied by the ordinance will necessarily
inure to the unwarranted benefit and advantage of the corporation. 19 We are concerned only with the
issue whether the ordinance in question is intra vires. Once determined in the affirmative, the measure
may not be invalidated because of consequences that may arise from its enforcement. 20
ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No. 7522 of
the City of Manila, dated June 15, 1975, is hereby held to have been validly enacted. No. costs.
SO ORDERED.

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 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 underscored phrase suggests, its
recommendation is without binding effect on the Municipal Board and the City Mayor. Its prior
acquiescence of an intended or proposed city ordinance is not a condition sine qua non before the
Municipal Board could enact such ordinance. The native power of the Municipal Board to legislate
remains undisturbed even in the slightest degree. It can move in its own initiative and the Market
Committee cannot demur. At most, the Market Committee may serve as a legislative aide of the
Municipal Board in the enactment of city ordinances affecting the city markets or, in plain words, in the
gathering of the necessary data, studies and the collection of consensus for the proposal of ordinances
regarding city markets. Much less could it be said that Republic Act 6039 intended to delegate to the
Market Committee the adoption of regulatory measures for the operation and administration of the
city markets. Potestas delegata non delegare potest.
G.R. No. 115455 October 30, 1995 KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR.,
JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L.
ARTURO M. TOLENTINO, petitioner, GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL,
vs. MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"),
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents. FREEDOM FROM DEBT COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
TAÑADA, petitioners,
vs.
G.R. No. 115525 October 30, 1995
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL
REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.
JUAN T. DAVID, petitioner,
vs.
G.R. No. 115852 October 30, 1995
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their AUTHORIZED AGENTS
OR REPRESENTATIVES, respondents. PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115543 October 30, 1995

G.R. No. 115873 October 30, 1995

RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF
INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B. DE
OCAMPO, in his capacity as Secretary of Finance, respondents.

PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
G.R. No. 115931 October 30, 1995
CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs. PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF PHILIPPINE BOOK
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T. SELLERS, petitioners,
GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his vs.
capacity as Secretary of Finance, respondents. HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity as the
Commissioner of Customs, respondents.
G.R. No. 115754 October 30, 1995

RESOLUTION
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent. MENDOZA, J.:

G.R. No. 115781 October 30, 1995 These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases
for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-
Added Tax Law. The motions, of which there are 10 in all, have been filed by the several petitioners in
these cases, with the exception of the Philippine Educational Publishers Association, Inc. and the Representatives on August 2, 1989, and S. No. 807, which was approved by the Senate on October 21,
Association of Philippine Booksellers, petitioners in G.R. No. 115931. 1991.

The Solicitor General, representing the respondents, filed a consolidated comment, to which the On the other hand, the Ninth Congress passed revenue laws which were also the result of the
Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc., petitioner consolidation of House and Senate bills. These are the following, with indications of the dates on which
in G.R. No. 115544, and Juan T. David, petitioner in G.R. No. 115525, each filed a reply. In turn the the laws were approved by the President and dates the separate bills of the two chambers of Congress
Solicitor General filed on June 1, 1995 a rejoinder to the PPI's reply. were respectively passed:

On June 27, 1995 the matter was submitted for resolution. 1. R.A. NO. 7642

I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino, AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders Association PURPOSE THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE
(CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not "originate exclusively" in (December 28, 1992).
the House of Representatives as required by Art. VI, §24 of the Constitution. Although they admit that
H. No. 11197 was filed in the House of Representatives where it passed three readings and that House Bill No. 2165, October 5, 1992
afterward it was sent to the Senate where after first reading it was referred to the Senate Ways and
Means Committee, they complain that the Senate did not pass it on second and third readings. Instead
Senate Bill No. 32, December 7, 1992
what the Senate did was to pass its own version (S. No. 1630) which it approved on May 24, 1994.
Petitioner Tolentino adds that what the Senate committee should have done was to amend H. No.
11197 by striking out the text of the bill and substituting it with the text of S. No. 1630. That way, it is 2. R.A. NO. 7643
said, "the bill remains a House bill and the Senate version just becomes the text (only the text) of the
House bill." AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE
THE PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL
The contention has no merit. GOVERNMENT UNITS TO SHARE IN VAT REVENUE, AMENDING FOR THIS PURPOSE
CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28,
1992)
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to
a House revenue bill by enacting its own version of a revenue bill. On at least two occasions during
the Eighth Congress, the Senate passed its own version of revenue bills, which, in consolidation with House Bill No. 1503, September 3, 1992
House bills earlier passed, became the enrolled bills. These were:
Senate Bill No. 968, December 7, 1992
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM
FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON 3. R.A. NO. 7646
CAPITAL EQUIPMENT) which was approved by the President on April 10, 1992. This Act is actually a
consolidation of H. No. 34254, which was approved by the House on January 29, 1992, and S. No. 1920, AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE
which was approved by the Senate on February 3, 1992. THE PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS,
AMENDING FOR THIS PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY REVENUE CODE, AS AMENDED (February 24, 1993)
FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President on
May 22, 1992. This Act is a consolidation of H. No. 22232, which was approved by the House of House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS,
INSTRUMENTALITIES OR AGENCIES INCLUDING GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUE-
ADDED TAX DUE AT THE RATE OF THREE PERCENT (3%) ON GROSS PAYMENT FOR
THE PURCHASE OF GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR
SERVICES RENDERED BY CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO
DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS TO THE NATIONAL
GOVERNMENT, AND FOR OTHER PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE
DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS
OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, ALLOCATING FUNDS
FOR SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF
STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH
INITIAL PUBLIC OFFERING, AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, BY INSERTING A NEW SECTION AND REPEALING
CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its
power to propose amendments to bills required to originate in the House, passed its own version of a
House revenue measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners
Tolentino and Roco, as members of the Senate, voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns
a mere matter of form. Petitioner has not shown what substantial difference it would make if, as the
Senate actually did in this case, a separate bill like S. No. 1630 is instead enacted as a substitute
measure, "taking into Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one amendment to the original amendment shall be
considered.
No amendment by substitution shall be entertained unless the text thereof is
submitted in writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
§69. No amendment which seeks the inclusion of a legislative provision foreign to
the subject matter of a bill (rider) shall be entertained.
 xxx xxx xxx
§70-A. A bill or resolution shall not be amended by substituting it with another
which covers a subject distinct from that proposed in the original bill or resolution.
(emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate
possesses less power than the U.S. Senate because of textual differences between constitutional
provisions giving them the power to propose or concur with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but the
Senate may propose or concur with amendments as on other Bills.
Art. VI, §24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with
amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the
phrase "as on other Bills" in the American version, according to petitioners, shows the intention of the
framers of our Constitution to restrict the Senate's power to propose amendments to revenue bills.
Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate" and "the
words 'as in any other bills' (sic) were eliminated so as to show that these bills were not to be like other
bills but must be treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of constitutional
intent are nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be
recalled that the 1935 Constitution originally provided for a unicameral National Assembly. When it
was decided in 1939 to change to a bicameral legislature, it became necessary to provide for the
procedure for lawmaking by the Senate and the House of Representatives. The work of proposing
amendments to the Constitution was done by the National Assembly, acting as a constituent assembly,
some of whose members, jealous of preserving the Assembly's lawmaking powers, sought to curtail
the powers of the proposed Senate. Accordingly they proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application,
and private bills shall originate exclusively in the Assembly, but the Senate may
propose or concur with amendments. In case of disapproval by the Senate of any
such bills, the Assembly may repass the same by a two-thirds vote of all its
members, and thereupon, the bill so repassed shall be deemed enacted and may
be submitted to the President for corresponding action. In the event that the
Senate should fail to finally act on any such bills, the Assembly may, after thirty
days from the opening of the next regular session of the same legislative term,
reapprove the same with a vote of two-thirds of all the members of the Assembly.
And upon such reapproval, the bill shall be deemed enacted and may be submitted
to the President for corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It
deleted everything after the first sentence. As rewritten, the proposal was approved by the National
Assembly and embodied in Resolution No. 38, as amended by Resolution No. 73. (J. ARUEGO, KNOW
YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to the people and
ratified by them in the elections held on June 18, 1940.
This is the history of Art. VI, §18 (2) of the 1935 Constitution, from which Art. VI, §24 of the present
Constitution was derived. It explains why the word "exclusively" was added to the American text from
which the framers of the Philippine Constitution borrowed and why the phrase "as on other Bills" was
not copied. Considering the defeat of the proposal, the power of the Senate to propose amendments
must be understood to be full, plenary and complete "as on other Bills." Thus, because revenue bills
are required to originate exclusively in the House of Representatives, the Senate cannot enact revenue
measures of its own without such bills. After a revenue bill is passed and sent over to it by the House,
however, the Senate certainly can pass its own version on the same subject matter. This follows from
the coequality of the two chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power to concur is
clear from the following commentaries:
The power of the Senate to propose or concur with amendments is apparently
without restriction. It would seem that by virtue of this power, the Senate can
practically re-write a bill required to come from the House and leave only a trace of
the original bill. For example, a general revenue bill passed by the lower house of
the United States Congress contained provisions for the imposition of an
inheritance tax . This was changed by the Senate into a corporation tax. The
amending authority of the Senate was declared by the United States Supreme
Court to be sufficiently broad to enable it to make the alteration. [Flint v. Stone
Tracy Company, 220 U.S. 107, 55 L. ed. 389].
(L. TAÑADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))
 The above-mentioned bills are supposed to be initiated by the House of
Representatives because it is more numerous in membership and therefore also
more representative of the people. Moreover, its members are presumed to be
more familiar with the needs of the country in regard to the enactment of the
legislation involved.
The Senate is, however, allowed much leeway in the exercise of its power to
propose or concur with amendments to the bills initiated by the House of
Representatives. Thus, in one case, a bill introduced in the U.S. House of
Representatives was changed by the Senate to make a proposed inheritance tax a
corporation tax. It is also accepted practice for the Senate to introduce what is
known as an amendment by substitution, which may entirely replace the bill
initiated in the House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills must "originate exclusively in the
House of Representatives," it also adds, "but the Senate may propose or concur with amendments." In
the exercise of this power, the Senate may propose an entirely new bill as a substitute measure. As
petitioner Tolentino states in a high school text, a committee to which a bill is referred may do any of
the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or
adding sections or altering its language; (3) to make and endorse an entirely new
bill as a substitute, in which case it will be known as a committee bill; or (4) to make
no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required to originate in the House by
prescribing that the number of the House bill and its other parts up to the enacting clause must be
preserved although the text of the Senate amendment may be incorporated in place of the original
body of the bill is to insist on a mere technicality. At any rate there is no rule prescribing this form. S.
No. 1630, as a substitute measure, is therefore as much an amendment of H. No. 11197 as any which
the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S.
No. 1630 is an independent and distinct bill. Hence their repeated references to its certification that it
was passed by the Senate "in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734
and H.B. No. 11197," implying that there is something substantially different between the reference to
S. No. 1129 and the reference to H. No. 11197. From this premise, they conclude that R.A. No. 7716
originated both in the House and in the Senate and that it is the product of two "half-baked bills
because neither H. No. 11197 nor S. No. 1630 was passed by both houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere
amendments of the corresponding provisions of H. No. 11197. The very tabular comparison of the
provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition of petitioner
Tolentino, while showing differences between the two bills, at the same time indicates that the
provisions of the Senate bill were precisely intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a
mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate on
second and three readings. It was enough that after it was passed on first reading it was referred to the
Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be passed by the
House of Representatives before the two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the
House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank
deposits), were referred to a conference committee, the question was raised whether the two bills
could be the subject of such conference, considering that the bill from one house had not been passed
by the other and vice versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill
is passed by the House but not passed by the Senate, and a Senate bill of a similar
nature is passed in the Senate but never passed in the House, can the two bills be
the subject of a conference, and can a law be enacted from these two bills? I
understand that the Senate bill in this particular instance does not refer to
investments in government securities, whereas the bill in the House, which was
introduced by the Speaker, covers two subject matters: not only investigation of
deposits in banks but also investigation of investments in government securities.
Now, since the two bills differ in their subject matter, I believe that no law can be
enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely in
cases like this where a conference should be had. If the House bill had been
approved by the Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the same subject matter, the
 conference committee had to be created, and we are now considering the report
of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct
and unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that
because the President separately certified to the need for the immediate enactment of these
measures, his certification was ineffectual and void. The certification had to be made of the version of
the same revenue bill which at the moment was being considered. Otherwise, to follow petitioners'
theory, it would be necessary for the President to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the bill he has already certified. It is enough that
he certifies the bill which, at the time he makes the certification, is under consideration. Since on
March 22, 1994 the Senate was considering S. No. 1630, it was that bill which had to be certified. For
that matter on June 1, 1993 the President had earlier certified H. No. 9210 for immediate enactment
because it was the one which at that time was being considered by the House. This bill was later
substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the main decision
that the phrase "except when the President certifies to the necessity of its immediate enactment, etc."
in Art. VI, §26 (2) qualifies not only the requirement that "printed copies [of a bill] in its final form
[must be] distributed to the members three days before its passage" but also the requirement that
before a bill can become a law it must have passed "three readings on separate days." There is not only
textual support for such construction but historical basis as well.
Art. VI, §21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been printed and
copies thereof in its final form furnished its Members at least three calendar days
prior to its passage, except when the President shall have certified to the necessity
of its immediate enactment. Upon the last reading of a bill, no amendment thereof
shall be allowed and the question upon its passage shall be taken immediately
thereafter, and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, §19 (2):
(2) No bill shall become a law unless it has passed three readings on separate days,
and printed copies thereof in its final form have been distributed to the Members
three days before its passage, except when the Prime Minister certifies to the
necessity of its immediate enactment to meet a public calamity or emergency.
Upon the last reading of a bill, no amendment thereto shall be allowed, and the
vote thereon shall be taken immediately thereafter, and the yeas and nays entered
in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, §26 (2) of the
present Constitution, thus:
(2) No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no amendment thereto shall
be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings on separate
days are required and a bill has to be printed in final form before it can be passed, the need for a law
may be rendered academic by the occurrence of the very emergency or public calamity which it is
meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country
like the Philippines where budget deficit is a chronic condition. Even if this were the case, an enormous
budget deficit does not make the need for R.A. No. 7716 any less urgent or the situation calling for its
enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases) believed that
there was an urgent need for consideration of S. No. 1630, because they responded to the call of the
President by voting on the bill on second and third readings on the same day. While the judicial
department is not bound by the Senate's acceptance of the President's certification, the respect due
coequal departments of the government in matters committed to them by the Constitution and the
absence of a clear showing of grave abuse of discretion caution a stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it
was discussed for six days. Only its distribution in advance in its final printed form was actually
dispensed with by holding the voting on second and third readings on the same day (March 24, 1994).
Otherwise, sufficient time between the submission of the bill on February 8, 1994 on second reading
and its approval on March 24, 1994 elapsed before it was finally voted on by the Senate on third
reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform
the members of Congress of what they must vote on and (2) to give them notice that a measure is
progressing through the enacting process, thus enabling them and others interested in the measure to
prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND STATUTORY
CONSTRUCTION §10.04, p. 282 (1972)). These purposes were substantially achieved in the case of R.A.
No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the Movement
of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of the
constitutional policy of full public disclosure and the people's right to know (Art. II, §28 and Art. III, §7)
the Conference Committee met for two days in executive session with only the conferees present.
As pointed out in our main decision, even in the United States it was customary to hold such sessions
with only the conferees and their staffs in attendance and it was only in 1975 when a new rule was
adopted requiring open sessions. Unlike its American counterpart, the Philippine Congress has not
adopted a rule prescribing open hearings for conference committees.
of the amendment on the bill of the House. This conference committee report is
not accompanied by that detailed statement, Mr. Speaker. Therefore it is out of
order to consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection
with the point of order raised by the gentleman from Pangasinan.
There is no question about the provision of the Rule cited by the gentleman from
Pangasinan, but this provision applies to those cases where only portions of the bill
have been amended. In this case before us an entire bill is presented; therefore, it
can be easily seen from the reading of the bill what the provisions are. Besides, this
procedure has been an established practice.
After some interruption, he continued:

It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for
staff members were present. These were staff members of the Senators and Congressmen, however,
the provisions of the Rules, and the reason for the requirement in the provision
who may be presumed to be their confidential men, not stenographers as in this case who on the last
cited by the gentleman from Pangasinan is when there are only certain words or
two days of the conference were excluded. There is no showing that the conferees themselves did not
phrases inserted in or deleted from the provisions of the bill included in the
take notes of their proceedings so as to give petitioner Kilosbayan basis for claiming that even in secret
conference report, and we cannot understand what those words and phrases mean
diplomatic negotiations involving state interests, conferees keep notes of their meetings. Above all, the
and their relation to the bill. In that case, it is necessary to make a detailed
public's right to know was fully served because the Conference Committee in this case submitted a
statement on how those words and phrases will affect the bill as a whole; but when
report showing the changes made on the differing versions of the House and the Senate.
the entire bill itself is copied verbatim in the conference report, that is not
necessary. So when the reason for the Rule does not exist, the Rule does not exist.
Petitioners cite the rules of both houses which provide that conference committee reports must
contain "a detailed, sufficiently explicit statement of the changes in or other amendments." These
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
changes are shown in the bill attached to the Conference Committee Report. The members of both
houses could thus ascertain what changes had been made in the original bills without the need of a
statement detailing the changes. Congressman Tolentino was sustained by the chair. The record shows that when the ruling was
appealed, it was upheld by viva voce and when a division of the House was called, it was sustained by a
vote of 48 to 5. (Id.,
The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform
p. 4058)
Act of 1955) was reported by the Conference Committee. Congressman Bengzon raised a point of
order. He said:
Nor is there any doubt about the power of a conference committee to insert new provisions as long as
these are germane to the subject of the conference. As this Court held in Philippine Judges Association
MR. BENGZON. My point of order is that it is out of order to consider the report of
v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the jurisdiction of the
the conference committee regarding House Bill No. 2557 by reason of the provision
conference committee is not limited to resolving differences between the Senate and the House. It
of Section 11, Article XII, of the Rules of this House which provides specifically that
may propose an entirely new provision. What is important is that its report is subsequently approved
the conference report must be accompanied by a detailed statement of the effects
by the respective houses of Congress. This Court ruled that it would not entertain allegations that,
because new provisions had been added by the conference committee, there was thereby a violation
of the constitutional injunction that "upon the last reading of a bill, no amendment thereto shall be
allowed."
Applying these principles, we shall decline to look into the petitioners' charges that
an amendment was made upon the last reading of the bill that eventually became
R.A. No. 7354 and that copies thereof in its final form were not distributed among
the members of each House. Both the enrolled bill and the legislative journals
certify that the measure was duly enacted i.e., in accordance with Article VI, Sec. 26
(2) of the Constitution. We are bound by such official assurances from a coordinate
department of the government, to which we owe, at the very least, a becoming
courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the Philippines in a 1979
study:
Conference committees may be of two types: free or instructed. These committees
may be given instructions by their parent bodies or they may be left without
instructions. Normally the conference committees are without instructions, and
this is why they are often critically referred to as "the little legislatures." Once bills
have been sent to them, the conferees have almost unlimited authority to change
the clauses of the bills and in fact sometimes introduce new measures that were
not in the original legislation. No minutes are kept, and members' activities on
conference committees are difficult to determine. One congressman known for his
idealism put it this way: "I killed a bill on export incentives for my interest group
[copra] in the conference committee but I could not have done so anywhere else."
The conference committee submits a report to both houses, and usually it is
accepted. If the report is not accepted, then the committee is discharged and new
members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND
LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We cite it only to
say that conference committees here are no different from their counterparts in the United States
whose vast powers we noted in Philippine Judges Association v. Prado, supra. At all events, under Art.
VI, §16(3) each house has the power "to determine the rules of its proceedings," including those of its
committees. Any meaningful change in the method and procedures of Congress or its committees
must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, §26 (1)
of the Constitution which provides that "Every bill passed by Congress shall embrace only one subject
which shall be expressed in the title thereof." PAL contends that the amendment of its franchise by the
withdrawal of its exemption from the VAT is not expressed in the title of the law.
Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all
other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature, or
description, imposed, levied, established, assessed or collected by any municipal, city, provincial or
national authority or government agency, now or in the future."
PAL was exempted from the payment of the VAT along with other entities by §103 of the National
Internal Revenue Code, which provides as follows:
§103. Exempt transactions. — The following shall be exempt from the value-added
tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements
to which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending §103,
as follows:
§103. Exempt transactions. — The following shall be exempt from the value-added
tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of §103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS
TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES
 AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY]
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED AND FOR OTHER PURPOSES," Congress thereby clearly expresses its intention to amend
any provision of the NIRC which stands in the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific
reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional
requirement, since it is already stated in the title that the law seeks to amend the pertinent provisions
of the NIRC, among which is §103(q), in order to widen the base of the VAT. Actually, it is the bill which
becomes a law that is required to express in its title the subject of legislation. The titles of H. No. 11197
and S. No. 1630 in fact specifically referred to §103 of the NIRC as among the provisions sought to be
amended. We are satisfied that sufficient notice had been given of the pendency of these bills in
Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was
rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING
ITS POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE INDUSTRY AND
FOR OTHER PURPOSES CONNECTED THEREWITH. It contained a provision repealing all franking
privileges. It was contended that the withdrawal of franking privileges was not expressed in the title of
the law. In holding that there was sufficient description of the subject of the law in its title, including
the repeal of franking privileges, this Court held:
To require every end and means necessary for the accomplishment of the general
objectives of the statute to be expressed in its title would not only be unreasonable
but would actually render legislation impossible. [Cooley, Constitutional
Limitations, 8th Ed., p. 297] As has been correctly explained:
The details of a legislative act need not be specifically stated in
its title, but matter germane to the subject as expressed in the
title, and adopted to the accomplishment of the object in view,
may properly be included in the act. Thus, it is proper to create
in the same act the machinery by which the act is to be
enforced, to prescribe the penalties for its infraction, and to
remove obstacles in the way of its execution. If such matters
are properly connected with the subject as expressed in the
title, it is unnecessary that they should also have special
mention in the title. (Southern Pac. Co. v. Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press
is not exempt from the taxing power of the State and that what the constitutional guarantee of free
press prohibits are laws which single out the press or target a group belonging to the press for special
treatment or which in any way discriminate against the press on the basis of the content of the
publication, and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is averred,
"even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The reason
is simple: by granting exemptions, the State does not forever waive the exercise of its sovereign
prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to
which other businesses have long ago been subject. It is thus different from the tax involved in the
cases invoked by the PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660
(1936) was found to be discriminatory because it was laid on the gross advertising receipts only of
newspapers whose weekly circulation was over 20,000, with the result that the tax applied only to 13
out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long who
controlled the state legislature which enacted the license tax. The censorial motivation for the law was
thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575,
75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have been
made liable for the sales tax or, in lieu thereof, for the use tax on the privilege of using, storing or
consuming tangible goods, the press was not. Instead, the press was exempted from both taxes. It was,
however, later made to pay a special use tax on the cost of paper and ink which made these items "the
only items subject to the use tax that were component of goods to be sold at retail." The U.S. Supreme
Court held that the differential treatment of the press "suggests that the goal of regulation is not
related to suppression of expression, and such goal is presumptively unconstitutional." It would
therefore appear that even a law that favors the press is constitutionally suspect. (See the dissent of
Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely
and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously granted
to PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone Authority,
and many more are likewise totally withdrawn, in addition to exemptions which are partially
withdrawn, in an effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions,
which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An enumeration of some
of these transactions will suffice to show that by and large this is not so and that the exemptions are
granted for a purpose. As the Solicitor General says, such exemptions are granted, in some cases, to
encourage agricultural production and, in other cases, for the personal benefit of the end-user rather
than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-
60)
The PPI asserts that it does not really matter that the law does not discriminate against the press
because "even nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional."
PPI cites in support of this assertion the following statement in Murdock v. Pennsylvania, 319 U.S. 105,
87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection
afforded by the First Amendment is not so restricted. A license tax certainly does
not acquire constitutional validity because it classifies the privileges protected by
the First Amendment along with the wares and merchandise of hucksters and
peddlers and treats them all alike. Such equality in treatment does not save the
ordinance. Freedom of press, freedom of speech, freedom of religion are in
preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the
exercise of its right. Hence, although its application to others, such those selling goods, is valid, its
application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with the
latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it
is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax
on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957)
which invalidated a city ordinance requiring a business license fee on those engaged in the sale of
general merchandise. It was held that the tax could not be imposed on the sale of bibles by the
American Bible Society without restraining the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much
less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or
the sale or exchange of services and the lease of properties purely for revenue purposes. To subject
the press to its payment is not to burden the exercise of its right any more than to make the press pay
income tax or subject it to general regulation is not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived
from the sales are used to subsidize the cost of printing copies which are given free to those who
cannot afford to pay so that to tax the sales would be to increase the price, while reducing the volume
of sale. Granting that to be the case, the resulting burden on the exercise of religious freedom is so
incidental as to make it difficult to differentiate it from any other economic imposition that might make
the right to disseminate religious doctrines costly. Otherwise, to follow the petitioner's argument, to
increase the tax on the sale of vestments would be to lay an impermissible burden on the right of the
preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by §107 of the NIRC, as amended by §7 of
R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration and
enforcement of provisions such as those relating to accounting in §108 of the NIRC. That the PBS
distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the payment
of this fee because it also sells some copies. At any rate whether the PBS is liable for the VAT must be
decided in concrete cases, in the event it is assessed this tax by the Commissioner of Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on
taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies
transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes should
be uniform and equitable and that Congress shall "evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing contracts of
the sale of real property by installment or on deferred payment basis would result in substantial
increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it is
pointed out, is something that the buyer did not anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous
sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an
increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of
the Constitution. Even though such taxation may affect particular contracts, as it may increase the debt
of one person and lessen the security of another, or may impose additional burdens upon one class
and release the burdens of another, still the tax must be paid unless prohibited by the Constitution,
nor can it be said that it impairs the obligation of any existing contract in its true legal sense." (La
Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing
laws but also "the reservation of the essential attributes of sovereignty, is . . . read into contracts as a
postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22 SCRA 135, 147
(1968)) Contracts must be understood as having been made in reference to the possible exercise of the
rightful authority of the government and no obligation of contract can extend to the defeat of that
authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be
exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and
services was already exempt under §103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No.
7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these transactions,
while subjecting those of petitioner to the payment of the VAT. Moreover, there is a difference
between the "homeless poor" and the "homeless less poor" in the example given by petitioner,
because the second group or middle class can afford to rent houses in the meantime that they cannot
yet buy their own homes. The two social classes are thus differently situated in life. "It is inherent in
the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly
held that 'inequalities which result from a singling out of one particular class for taxation, or exemption
infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio
v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, §28(1)
which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class
be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or
ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No.
7716 merely expands the base of the tax. The validity of the original VAT Law was questioned
in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds
similar to those made in these cases, namely, that the law was "oppressive, discriminatory, unjust and
regressive in violation of Art. VI, §28(1) of the Constitution." (At 382) Rejecting the challenge to the
law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is
uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to
the public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine
 products, so that the costs of basic food and other necessities, spared as they are
from the incidence of the VAT, are expected to be relatively lower and within the
reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the
Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the mandate of
Congress to provide for a progressive system of taxation because the law imposes a flat rate of 10%
and thus places the tax burden on all taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The
constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be preferred
[and] as much as possible, indirect taxes should be minimized." (E. FERNANDO, THE CONSTITUTION OF
THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress is not to prescribe, but
to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of
indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17(1) of the 1973
Constitution from which the present Art. VI, §28(1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case
of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of
certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to
other transactions. (R.A. No. 7716, §4, amending §103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted from
the VAT:
(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-
60)
On the other hand, the transactions which are subject to the VAT are those which involve goods and
services which are used or availed of mainly by higher income groups. These include real properties
held primarily for sale to customers or for lease in the ordinary course of trade or business, the right or
privilege to use patent, copyright, and other similar property or right, the right or privilege to use
industrial, commercial or scientific equipment, motion picture films, tapes and discs, radio, television,
satellite transmission and cable television time, hotels, restaurants and similar places, securities,
lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services
of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations by
tendering issues not at retail but at wholesale and in the abstract. There is no fully developed record
which can impart to adjudication the impact of actuality. There is no factual foundation to show in
the concrete the application of the law to actual contracts and exemplify its effect on property rights.
For the fact is that petitioner's members have not even been assessed the VAT. Petitioner's case is not
made concrete by a series of hypothetical questions asked which are no different from those dealt
with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A
mere allegation, as here, does not suffice. There must be a factual foundation of
such unconstitutional taint. Considering that petitioner here would condemn such
a provision as void on its face, he has not made out a case. This is merely to adhere
to the authoritative doctrine that where the due process and equal protection
 clauses are invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as would lead to
such a conclusion. Absent such a showing, the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case,
however. Enforcement of the law may give rise to such a case. A test case, provided it is an actual case
and not an abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues. Otherwise,
adjudication would be no different from the giving of advisory opinion that does not really settle legal
issues.
We are told that it is our duty under Art. VIII, §1, ¶2 to decide whenever a claim is made that "there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the government." This duty can only arise if an actual case or controversy
is before us. Under Art . VIII, §5 our jurisdiction is defined in terms of "cases" and all that Art. VIII, §1,
¶2 can plausibly mean is that in the exercise of that jurisdiction we have the judicial power to
determine questions of grave abuse of discretion by any branch or instrumentality of the government.
Put in another way, what is granted in Art. VIII, §1, ¶2 is "judicial power," which is "the power of a
court to hear and decide cases pending between parties who have the right to sue and be sued in the
courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from legislative
and executive power. This power cannot be directly appropriated until it is apportioned among several
courts either by the Constitution, as in the case of Art. VIII, §5, or by statute, as in the case of the
Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P. Blg. 129). The
power thus apportioned constitutes the court's "jurisdiction," defined as "the power conferred by law
upon a court or judge to take cognizance of a case, to the exclusion of all others." (United States v.
Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its jurisdiction, this Court cannot inquire
into any allegation of grave abuse of discretion by the other departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of the
Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a definite
policy of granting tax exemption to cooperatives that the present Constitution embodies provisions on
cooperatives. To subject cooperatives to the VAT would therefore be to infringe a constitutional policy.
Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting cooperatives from the
payment of income taxes and sales taxes but in 1984, because of the crisis which menaced the national
economy, this exemption was withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008 again granted
cooperatives exemption from income and sales taxes until December 31, 1991, but, in the same year,
E.O. No. 93 revoked the exemption; and that finally in 1987 the framers of the Constitution
"repudiated the previous actions of the government adverse to the interests of the cooperatives, that
is, the repeated revocation of the tax exemption to cooperatives and instead upheld the policy of
strengthening the cooperatives by way of the grant of tax exemptions," by providing the following in
Art. XII:
§1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods
and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all, especially the
underprivileged.
The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full
and efficient use of human and natural resources, and which are competitive in
both domestic and foreign markets. However, the State shall protect Filipino
enterprises against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the
country shall be given optimum opportunity to develop. Private enterprises,
including corporations, cooperatives, and similar collective organizations, shall be
encouraged to broaden the base of their ownership.
§15. The Congress shall create an agency to promote the viability and growth of
cooperatives as instruments for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out
cooperatives by withdrawing their exemption from income and sales taxes under P.D. No. 175, §5.
What P.D. No. 1955, §1 did was to withdraw the exemptions and preferential treatments theretofore
granted to private business enterprises in general, in view of the economic crisis which then beset the
nation. It is true that after P.D. No. 2008, §2 had restored the tax exemptions of cooperatives in 1986,
the exemption was again repealed by E.O. No. 93, §1, but then again cooperatives were not the only
ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all, including
government and private entities. In the second place, the Constitution does not really require that
cooperatives be granted tax exemptions in order to promote their growth and viability. Hence, there is
no basis for petitioner's assertion that the government's policy toward cooperatives had been one of
vacillation, as far as the grant of tax privileges was concerned, and that it was to put an end to this
indecision that the constitutional provisions cited were adopted. Perhaps as a matter of policy
cooperatives should be granted tax exemptions, but that is left to the discretion of Congress. If
Congress does not grant exemption and there is no discrimination to cooperatives, no violation of any
constitutional policy can be charged.

Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt
from taxation. Such theory is contrary to the Constitution under which only the following are exempt
from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, §28 (3), and non-
stock, non-profit educational institutions by reason of Art. XIV, §4 (3).

CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the
equal protection of the law because electric cooperatives are exempted from the VAT. The
classification between electric and other cooperatives (farmers cooperatives, producers cooperatives,
marketing cooperatives, etc.) apparently rests on a congressional determination that there is greater
need to provide cheaper electric power to as many people as possible, especially those living in the
rural areas, than there is to provide them with other necessities in life. We cannot say that such
classification is unreasonable.

We have carefully read the various arguments raised against the constitutional validity of R.A. No.
7716. We have in fact taken the extraordinary step of enjoining its enforcement pending resolution of
these cases. We have now come to the conclusion that the law suffers from none of the infirmities
attributed to it by petitioners and that its enactment by the other branches of the government does
not constitute a grave abuse of discretion. Any question as to its necessity, desirability or expediency
must be addressed to Congress as the body which is electorally responsible, remembering that, as
Justice Holmes has said, "legislators are the ultimate guardians of the liberties and welfare of the
people in quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194 U.S.
267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No. 115543 does in arguing that
we should enforce the public accountability of legislators, that those who took part in passing the law
in question by voting for it in Congress should later thrust to the courts the burden of reviewing
measures in the flush of enactment. This Court does not sit as a third branch of the legislature, much
less exercise a veto power over legislation.

WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining
order previously issued is hereby lifted.

SO ORDERED.
G.R. No. L-25043 April 26, 1968 price but by installment, and contracted with the Rehabilitation Finance Corporation to pay its loan
from the proceeds of the yearly amortizations paid by the farmers.
ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial
co-guardians of JOSE ROXAS, petitioners, In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and
vs. P29,500.71. Fifty percent of said net gain was reported for income tax purposes as gain on the sale of
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. capital asset held for more than one year pursuant to Section 34 of the Tax Code.

Leido, Andrada, Perez and Associates for petitioners. RESIDENTIAL HOUSE

Office of the Solicitor General for respondents.
During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate,
BENGZON, J.P., J.: Manila, which they inherited from their grandparents. After Antonio and Eduardo got married, they
resided somewhere else leaving only Jose in the old house. In fairness to his brothers, Jose paid to
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by Roxas y Cia. rentals for the house in the sum of P8,000.00 a year.
hereditary succession the following properties:
ASSESSMENTS
(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of
Nasugbu, Batangas province; On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment of
real estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for late
(2) A residential house and lot located at Wright St., Malate, Manila; and payment, and P150.00 tax for dealers of securities for 1952 plus P10.00 compromise penalty for late
payment. The assessment for real estate dealer's tax was based on the fact that Roxas y Cia. received
house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, an
(3) Shares of stocks in different corporations.
owner of a real estate who derives a yearly rental income therefrom in the amount of P3,000.00 or
more is considered a real estate dealer and is liable to pay the corresponding fixed tax.
To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and
Jose Roxas, formed a partnership called Roxas y Compania.
The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities
against Roxas y Cia., on the fact that said partnership made profits from the purchase and sale of
AGRICULTURAL LANDS securities.

At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas
for generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually Brothers for the years 1953 and 1955, as follows:
occupied. For its part, the Government, in consonance with the constitutional mandate to acquire big
landed estates and apportion them among landless tenants-farmers, persuaded the Roxas brothers to
part with their landholdings. Conferences were held with the farmers in the early part of 1948 and 1953 1955
finally the Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual Antonio Roxas P7,010.00 P5,813.00
occupants for a price of P2,079,048.47 plus P300,000.00 for survey and subdivision expenses. Eduardo Roxas 7,281.00 5,828.00
Jose Roxas 6,323.00 5,588.00
It turned out however that the Government did not have funds to cover the purchase price, and so a
special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia.
the amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported
the farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same 50% of the net profits for 1953 and 1955 derived from the sale of the Nasugbu farm lands to the
tenants, and the disallowance of deductions from gross income of various business expenses and
Baguio City Police Christmas fund
contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that Roxas y Cia. 25.00
subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner
considered the partnership as engaged in the business of real estate, hence, 100% of the profits Pasay City Firemen Christmas fund
25.00
derived therefrom was taxed.
Pasay City Police Christmas fund
50.00
The following deductions were disallowed:
EDUARDO ROXAS:

ROXAS Y CIA.: 1953

Contributions to —
1953
Tickets for Banquet in honor of P Hijas de Jesus' Retiro de Manresa
450.00
S. Osmeña 40.00
Philippines Herald's fund for Manila's neediest
Gifts of San Miguel beer 28.00
families
100.00
Contributions to —
1955
Philippine Air Force Chapel Contributions to Philippines
100.00
Herald's fund for Manila's
Manila Police Trust Fund neediest families 120.00
150.00
JOSE ROXAS:
Philippines Herald's fund for Manila's neediest
families 1955
100.00 Contributions to Philippines
Herald's fund for Manila's
1955
Contributions to Contribution to neediest families 120.00
Our Lady of Fatima Chapel, FEU 50.00

ANTONIO ROXAS: The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted
an appeal in the Court of Tax Appeals on January 9, 1961. The Tax Court heard the appeal and
1953 rendered judgment on July 31, 1965 sustaining the assessment except the demand for the payment of
Contributions to — the fixed tax on dealer of securities and the disallowance of the deductions for contributions to the
Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa. The Tax Court's judgment reads:
Pasay City Firemen Christmas Fund
25.00
WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners
Pasay City Police Dept. X'mas fund Antonio Roxas, Eduardo Roxas, and Jose Roxas who are hereby ordered to pay the
50.00
respondent Commissioner of Internal Revenue the amounts of P12,808.00, P12,887.00 and
1955 P11,857.00, respectively, as deficiency income taxes for the years 1953 and 1955, plus 5%
Contributions to — surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and
modified with respect to the partnership Roxas y Cia. in the sense that it should pay only
P150.00, as real estate dealer's tax. With costs against petitioners.
Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of Internal
Revenue did not appeal.
The issues:
(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100%
taxable?
(2) Are the deductions for business expenses and contributions deductible?
(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers?
The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate
dealer because it engaged in the business of selling real estate. The business activity alluded to was the
act of subdividing the Nasugbu farm lands and selling them to the farmers-occupants on installment.
To bolster his stand on the point, he cites one of the purposes of Roxas y Cia. as contained in its articles
of partnership, quoted below:
4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer a
ella en el futuro, alquilandoles por los plazos y demas condiciones, estime convenientes y
vendiendo aquellas que a juicio de sus gerentes no deben conservarse;
The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue
cannot be favorably accepted by Us in this isolated transaction with its peculiar circumstances in spite
of the fact that there were hundreds of vendees. Although they paid for their respective holdings in
installment for a period of ten years, it would nevertheless not make the vendor Roxas y Cia. a real
estate dealer during the ten-year amortization period.
It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them
for generations was not only in consonance with, but more in obedience to the request and pursuant
to the policy of our Government to allocate lands to the landless. It was the bounden duty of the
Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas,
and to subsequently subdivide them among the farmers at very reasonable terms and prices. However,
the Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered
the Government's burden, went out of its way and sold lands directly to the farmers in the same way
and under the same terms as would have been the case had the Government done it itself. For this
magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's
gratitude.
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order to
maintain the general public's trust and confidence in the Government this power must be used justly
and not treacherously. It does not conform with Our sense of justice in the instant case for the
Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly
answering the urgent call.
In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant
to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived
from the sale thereof is capital gain, taxable only to the extent of 50%.
DISALLOWED DEDUCTIONS
Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in
honor of Sergio Osmena and P28.00 for San Miguel beer given as gifts to various persons. The
deduction were claimed as representation expenses. Representation expenses are deductible from
gross income as expenditures incurred in carrying on a trade or business under Section 30(a) of the Tax
Code provided the taxpayer proves that they are reasonable in amount, ordinary and necessary, and
incurred in connection with his business. In the case at bar, the evidence does not show such link
between the expenses and the business of Roxas y Cia. The findings of the Court of Tax Appeals must
therefore be sustained.
The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen,
and Baguio City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's
neediest families and Our Lady of Fatima chapel at Far Eastern University.
The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City
Police are not deductible for the reason that the Christmas funds were not spent for public purposes
but as Christmas gifts to the families of the members of said entities. Under Section 39(h), a
contribution to a government entity is deductible when used exclusively for public purposes. For this
reason, the disallowance must be sustained. On the other hand, the contribution to the Manila Police
trust fund is an allowable deduction for said trust fund belongs to the Manila Police, a government
entity, intended to be used exclusively for its public functions.
The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on
the ground that the Philippines Herald is not a corporation or an association contemplated in Section
30 (h) of the Tax Code. It should be noted however that the contributions were not made to the
Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald solely for
charitable purposes. There is no question that the members of this group of citizens do not receive
profits, for all the funds they raised were for Manila's neediest families. Such a group of citizens may be
P 7,113.69
classified as an association organized exclusively for charitable purposes mentioned in Section 30(h) of
the Tax Code. Contributions disallowed 115.00

Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima
chapel at the Far Eastern University on the ground that the said university gives dividends to its P 7,228.69
stockholders. Located within the premises of the university, the chapel in question has not been shown
to belong to the Catholic Church or any religious organization. On the other hand, the lower court Less 1/3 share of contributions amounting to
P21,126.06 disallowed from partnership but allowed to
found that it belongs to the Far Eastern University, contributions to which are not deductible under
Section 30(h) of the Tax Code for the reason that the net income of said university injures to the partners 7,042.02 186.67
benefit of its stockholders. The disallowance should be sustained.
Net income per review P315,663.26
Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because
although it earned a rental income of P8,000.00 per annum in 1952, said rental income came from Jose Less: Exemptions 4,200.00
Roxas, one of the partners. Section 194 of the Tax Code, in considering as real estate dealers owners of
real estate receiving rentals of at least P3,000.00 a year, does not provide any qualification as to the
persons paying the rentals. The law, which states: 1äwphï1.ñët Net taxable income P311,463.26

Tax due 154,169.00

. . . "Real estate dealer" includes any person engaged in the business of buying, selling,
exchanging, leasing or renting property on his own account as principal and holding himself Tax paid 154,060.00
out as a full or part-time dealer in real estate or as an owner of rental property or properties
rented or offered to rent for an aggregate amount of three thousand pesos or more a year: . .
. (Emphasis supplied) . Deficiency P 109.00
==========
is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is
EDUARDO ROXAS
sustained.1äwphï1.ñët
P
Net income per return
To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose 304,166.92
Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00,
respectively, computed as follows: * Add: 1/3 share, profits in Roxas y Cia P 153,249.15

Less profits declared 146,052.58

ANTONIO ROXAS

Net income per return P315,476.59 Amount understated P 7,196.57

Add: 1/3 share, profits in Roxas y Cia. P 153,249.15 Less 1/3 share in contributions amounting to
P21,126.06 disallowed from partnership but allowed to
Less amount declared 146,135.46 partners 7,042.02 155.55

Amount understated Net income per review

 P304,322.47

Less: Exemptions 4,800.00

Net taxable income P299,592.47 WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay the sum of
P150.00 as real estate dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and Jose Roxas
Tax Due P147,250.00 are ordered to pay the respective sums of P109.00, P91.00 and P49.00 as their individual deficiency
income tax all corresponding for the year 1955. No costs. So ordered.
Tax paid 147,159.00

Deficiency P91.00
===========

JOSE ROXAS

Net income per return P222,681.76

Add: 1/3 share, profits in Roxas y Cia. P153,429.15

Less amount reported 146,135.46

Amount understated 7,113.69

Less 1/3 share of contributions disallowed from

partnership but allowed as deductions to partners 7,042.02 71.67

Net income per review P222,753.43

Less: Exemption 1,800.00

Net income subject to tax P220,953.43

Tax due P102,763.00

Tax paid 102,714.00

Deficiency P 49.00
===========
G.R. No. 81311 June 30, 1988

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. PADILLA, J.:

DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA, petitioners,
vs. These four (4) petitions, which have been consolidated because of the similarity of the main issues
HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent. involved therein, seek to nullify Executive Order No. 273 (EO 273, for short), issued by the President of
the Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections
G.R. No. 81820 June 30, 1988 of the National Internal Revenue Code and adopted the value-added tax (VAT, for short), for being
unconstitutional in that its enactment is not alledgedly within the powers of the President; that the
KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated labor federations and VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses
alliances, petitioners, and other provisions of the 1987 Constitution.
vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE, The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have
and SECRETARY OF BUDGET, respondents. failed to show justification for the exercise of its judicial powers, viz. (1) the existence of an appropriate
case; (2) an interest, personal and substantial, of the party raising the constitutional questions; (3) the
G.R. No. 81921 June 30, 1988 constitutional question should be raised at the earliest opportunity; and (4) the question of
constitutionality is directly and necessarily involved in a justiciable controversy and its resolution is
essential to the protection of the rights of the parties. According to the Solicitor General, only the third
INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES and JESUS B.
requisite — that the constitutional question should be raised at the earliest opportunity — has been
BANAL, petitioners,
complied with. He also questions the legal standing of the petitioners who, he contends, are merely
vs.
asking for an advisory opinion from the Court, there being no justiciable controversy for resolution.
The HON. COMMISSIONER, BUREAU OF INTERNAL REVENUE, respondent.

Objections to taxpayers' suit for lack of sufficient personality standing, or interest are, however, in the
G.R. No. 82152 June 30, 1988
main procedural matters. Considering the importance to the public of the cases at bar, and in keeping
with the Court's duty, under the 1987 Constitution, to determine wether or not the other branches of
RICARDO C. VALMONTE, petitioner, government have kept themselves within the limits of the Constitution and the laws and that they have
vs. not abused the discretion given to them, the Court has brushed aside technicalities of procedure and
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, COMMISSIONER OF INTERNAL REVENUE and has taken cognizance of these petitions.
SECRETARY OF BUDGET, respondent.
But, before resolving the issues raised, a brief look into the tax law in question is in order.
Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.
The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every
Jaime C. Opinion for individual petitioners in G.R. No. 81311. seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his
purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross
Banzuela, Flores, Miralles, Rañeses, Sy, Taquio and Associates for petitioners in G.R. No 81820. selling price of goods or gross receipts realized from the sale of services.

Union of Lawyers and Advocates for Peoples Right collaborating counsel for petitioners in G.R. No The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and
81820. 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;
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921. and make the tax system more equitable, to enable the country to attain economic recovery.
The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As
pointed out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273,
was essentially a single stage value added tax system computed under the "cost subtraction method"
or "cost deduction method" and was imposed only on original sale, barter or exchange of articles by
manufacturers, producers, or importers. Subsequent sales of such articles were not subject to sales
tax. However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second
sale, which was reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1
January 1986. Reduced sales taxes were imposed not only on the second sale, but on every subsequent
sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or exempt.
Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no
authority to issue EO 273 on 25 July 1987.
The contention is without merit.
It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole
legislative authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states:
Sec. 1. Until a legislature is elected and convened under a new Constitution, the
President shall continue to exercise legislative powers.
On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the
Republic of the Philippines which was ratified in a plebiscite conducted on 2 February 1987. Article
XVIII, sec. 6 of said Constitution, hereafter referred to as the 1987 Constitution, provides:
Sec. 6. The incumbent President shall continue to exercise legislative powers until
the first Congress is convened.
It should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested
with legislative powers until a legislature under a new Constitution is convened. The first Congress,
created and elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the
enactment of EO 273 on 25 July 1987, two (2) days before Congress convened on 27 July 1987, was
within the President's constitutional power and authority to legislate.
Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27
July 1987). He contends that the word "convene" is synonymous with "the date when the elected
members of Congress assumed office."
The contention is without merit. The word "convene" which has been interpreted to mean "to call
together, cause to assemble, or convoke," 1 is clearly different from assumption of office by
the individual members of Congress or their taking the oath of office. As an example, we call to mind
the interim National Assembly created under the 1973 Constitution, which had not been "convened"
but some members of the body, more particularly the delegates to the 1971 Constitutional Convention
who had opted to serve therein by voting affirmatively for the approval of said Constitution, had taken
their oath of office.
To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene" a
bit too far. It would also defeat the purpose of the framers of the 1987 Constitutional and render
meaningless some other provisions of said Constitution. For example, the provisions of Art. VI, sec. 15,
requiring Congress to convene once every year on the fourth Monday of July for its regular session
would be a contrariety, since Congress would already be deemed to be in session after the individual
members have taken their oath of office. A portion of the provisions of Art. VII, sec. 10, requiring
Congress to convene for the purpose of enacting a law calling for a special election to elect a President
and Vice-President in case a vacancy occurs in said offices, would also be a surplusage. The portion of
Art. VII, sec. 11, third paragraph, requiring Congress to convene, if not in session, to decide a conflict
between the President and the Cabinet as to whether or not the President and the Cabinet as to
whether or not the President can re-assume the powers and duties of his office, would also be
redundant. The same is true with the portion of Art. VII, sec. 18, which requires Congress to convene
within twenty-four (24) hours following the declaration of martial law or the suspension of the
privilage of the writ of habeas corpus.
The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the
framers of said Constitution had intended to terminate the exercise of legislative powers by the
President at the beginning of the term of office of the members of Congress, they should have so
stated (but did not) in clear and unequivocal terms. The Court has not power to re-write the
Constitution and give it a meaning different from that intended.
The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in grave
abuse of discretion amounting to lack or excess of jurisdiction. "Grave abuse of discretion" has been
defined, as follows:
Grave abuse of discretion" implies such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction (Abad Santos vs. Province of Tarlac,
38 Off. Gaz. 834), or, in other words, where the power is exercised in an arbitrary
or despotic manner by reason of passion or personal hostility, and it must be so
patent and gross as to amount to an evasion of positive duty or to a virtual refusal
to perform the duty enjoined or to act at all in contemplation of law. (Tavera-Luna,
Inc. vs. Nable, 38 Off. Gaz. 62). 2
Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary
or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of
the VAT had been extensively discussed by this framers and other government agencies involved in its
implementation, even under the past administration. As the Solicitor General correctly sated. "The
signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative
process started long before the signing when the data were gathered, proposals were weighed and the
final wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the
President made a jump, so to speak, on the Congress, two days before it convened." 3
Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation
of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their
conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust.
Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value.
To justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution,
not a doubtful and argumentative implication. 4
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court, in City
of Baguio vs. De Leon, 5 said:
... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for
the Court, stated: "A tax is considered uniform when it operates with the same
force and effect in every place where the subject may be found."
There was no occasion in that case to consider the possible effect on such a
constitutional requirement where there is a classification. The opportunity came in
Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862). Thus: "Equality and uniformity
in taxation means that all taxable articles or kinds of property of the same class
shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation; . . ." About two
years later, Justice Tuason, speaking for this Court in Manila Race Horses Trainers
Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his opinion
and continued; "Taking everything into account, the differentiation against which
the plaintiffs complain conforms to the practical dictates of justice and equity and
is not discriminatory within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided
two years later, (Uy Matias v. City of Cebu, 93 Phil. 300) is that the statute or
ordinance in question "applies equally to all persons, firms and corporations placed
in similar situation." This Court is on record as accepting the view in a leading
American case (Carmichael v. Southern Coal and Coke Co., 301 US 495) that
"inequalities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation." (Lutz v. Araneta, 98 Phil. 148,
153).
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which
are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons
engage in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-
sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of
farm and marine products, spared as they are from the incidence of the VAT, are expected to be
relatively lower and within the reach of the general public. 6
The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers
Association of the Philippines that EO 273, more particularly the new Sec. 103 (r) of the National
Internal Revenue Code, unduly discriminates against customs brokers. The contested provision states:
Sec. 103. Exempt transactions. — The following shall be exempt from the value-
added tax:
xxx xxx xxx
(r) Service performed in the exercise of profession or calling (except customs
brokers) subject to the occupation tax under the Local Tax Code, and professional
services performed by registered general professional partnerships;
The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was
inserted in Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which makes the services
of customs brokers subject to the payment of the VAT and to distinguish customs brokers from other
professionals who are subject to the payment of an occupation tax under the Local Tax Code. Pertinent
provisions of Sec. 102 read:
Sec. 102. Value-added tax on sale of services. — There shall be levied, assessed and
collected, a value-added tax equivalent to 10% percent of gross receipts derived by
any person engaged in the sale of services. The phrase sale of services" means the
performance of all kinds of services for others for a fee, remuneration or
consideration, including those performed or rendered by construction and service
 contractors; stock, real estate, commercial, customs and immigration brokers;
lessors of personal property; lessors or distributors of cinematographic films;
persons engaged in milling, processing, manufacturing or repacking goods for
others; and similar services regardless of whether or not the performance thereof
call for the exercise or use of the physical or mental faculties: ...

With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a potential
conflict between the two sections, (Secs. 102 and 103), insofar as customs brokers are concerned, is
averted.

At any rate, the distinction of the customs brokers from the other professionals who are subject to
occupation tax under the Local Tax Code is based upon material differences, in that the activities of
customs brokers (like those of stock, real estate and immigration brokers) partake more of a business,
rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the National
Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and
replaced it with the VAT. If the petitioner Association did not protest the classification of customs
brokers then, the Court sees no reason why it should protest now.

The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the
fears expressed by the petitioners that the adoption of the VAT will trigger skyrocketing of prices of
basic commodities and services, as well as mass actions and demonstrations against the VAT should by
now be evident. The fact that nothing of the sort has happened shows that the fears and
apprehensions of the petitioners appear to be more imagined than real. It would seem that the VAT is
not as bad as we are made to believe.

In any event, if petitioners seriously believe that the adoption and continued application of the VAT are
prejudicial to the general welfare or the interests of the majority of the people, they should seek
recourse and relief from the political branches of the government. The Court, following the time-
honored doctrine of separation of powers, cannot substitute its judgment for that of the President as
to the wisdom, justice and advisability of the adoption of the VAT. The Court can only look into and
determine whether or not EO 273 was enacted and made effective as law, in the manner required by,
and consistent with, the Constitution, and to make sure that it was not issued in grave abuse of
discretion amounting to lack or excess of jurisdiction; and, in this regard, the Court finds no reason to
impede its application or continued implementation.

WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.

SO ORDERED.
G.R. No. L-10405 December 29, 1960
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.
CONCEPCION, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued,
without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this
action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An
Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a)
thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and
improvement" of Pasig feeder road terminals (Gen. Roxas — Gen. Araneta — Gen. Lucban — Gen.
Capinpin — Gen. Segundo — Gen. Delgado — Gen. Malvar — Gen. Lim)"; that, at the time of the
passage and approval of said Act, the aforementioned feeder roads were "nothing but projected and
planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . .
Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near Shaw
Boulevard, not far away from the intersection between the latter and Highway 54), which projected
feeder roads "do not connect any government property or any important premises to the main
highway"; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder
roads were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time of
the passage and approval of said Act, was a member of the Senate of the Philippines; that on May,
1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering to
donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the offer
was accepted by the council, subject to the condition "that the donor would submit a plan of the said
roads and agree to change the names of two of them"; that no deed of donation in favor of the
municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote another
letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum of
P85,000.00 appropriated therein for the construction of the projected feeder roads in question; that
the municipal council of Pasig endorsed said letter of respondent Zulueta to the District Engineer of
Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch as the projected
feeder roads in question were private property at the time of the passage and approval of Republic Act
No. 920, the appropriation of P85,000.00 therein made, for the construction, reconstruction, repair,
extension and improvement of said projected feeder roads, was illegal and, therefore, void ab initio";
that said appropriation of P85,000.00 was made by Congress because its members were made to
believe that the projected feeder roads in question were "public roads and not private streets of a
private subdivision"'; that, "in order to give a semblance of legality, when there is absolutely none, to
the aforementioned appropriation", respondents Zulueta executed on December 12, 1953, while he
was a member of the Senate of the Philippines, an alleged deed of donation — copy of which is
annexed to the petition — of the four (4) parcels of land constituting said projected feeder roads, in
favor of the Government of the Republic of the Philippines; that said alleged deed of donation was, on
the same date, accepted by the then Executive Secretary; that being subject to an onerous condition,
said donation partook of the nature of a contract; that, such, said donation violated the provision of
our fundamental law prohibiting members of Congress from being directly or indirectly financially
interested in any contract with the Government, and, hence, is unconstitutional, as well as null and
void ab initio, for the construction of the projected feeder roads in question with public funds would
greatly enhance or increase the value of the aforementioned subdivision of respondent Zulueta, "aside
from relieving him from the burden of constructing his subdivision streets or roads at his own
expense"; that the construction of said projected feeder roads was then being undertaken by the
Bureau of Public Highways; and that, unless restrained by the court, the respondents would continue
to execute, comply with, follow and implement the aforementioned illegal provision of law, "to the
irreparable damage, detriment and prejudice not only to the petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and
void; that the alleged deed of donation of the feeder roads in question be "declared unconstitutional
and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and
Communications, the Director of the Bureau of Public Works and Highways and Jose C. Zulueta from
ordering or allowing the continuance of the above-mentioned feeder roads project, and from making
and securing any new and further releases on the aforementioned item of Republic Act No. 920, and
the disbursing officers of the Department of Public Works and Highways from making any further
payments out of said funds provided for in Republic Act No. 920; and that pending final hearing on the
merits, a writ of preliminary injunction be issued enjoining the aforementioned parties respondent
from making and securing any new and further releases on the aforesaid item of Republic Act No. 920
and from making any further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to
sue", and that the petition did "not state a cause of action". In support to this motion, respondent
Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the
Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said respondent is
" not aware of any law which makes illegal the appropriation of public funds for the improvements of .
. . private property"; and that, the constitutional provision invoked by petitioner is inapplicable to the
donation in question, the same being a pure act of liberality, not a contract. The other respondents, in
turn, maintained that petitioner could not assail the appropriation in question because "there is no
actual bona fide case . . . in which the validity of Republic Act No. 920 is necessarily involved" and
petitioner "has not shown that he has a personal and substantial interest" in said Act "and that its
enforcement has caused or will cause him a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated
October 29, 1953, holding that, since public interest is involved in this case, the Provincial Governor of
Rizal and the provincial fiscal thereof who represents him therein, "have the requisite personalities" to
question the constitutionality of the disputed item of Republic Act No. 920; that "the legislature is
without power appropriate public revenues for anything but a public purpose", that the instructions
and improvement of the feeder roads in question, if such roads where private property, would not be a
public purpose; that, being subject to the following condition:
The within donation is hereby made upon the condition that the Government of the Republic
of the Philippines will use the parcels of land hereby donated for street purposes only and for
no other purposes whatsoever; it being expressly understood that should the Government of
the Republic of the Philippines violate the condition hereby imposed upon it, the title to the
land hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C.
ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is "absolutely
forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the
Philippines, declares in existence and void from the very beginning contracts "whose cause, objector
purpose is contrary to law, morals . . . or public policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and
that, accordingly, the appropriation in question "should be upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the aforementioned
motions to dismiss, which as much, are deemed to have admitted hypothetically the allegations of fact
made in the petition of appellant herein. According to said petition, respondent Zulueta is the owner of
several parcels of residential land situated in Pasig, Rizal, and known as the Antonio Subdivision,
certain portions of which had been reserved for the projected feeder roads aforementioned, which,
admittedly, were private property of said respondent when Republic Act No. 920, appropriating
P85,000.00 for the "construction, reconstruction, repair, extension and improvement" of said roads,
was passed by Congress, as well as when it was approved by the President on June 20, 1953. The
petition further alleges that the construction of said roads, to be undertaken with the aforementioned
appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of the burden of
constructing his subdivision streets or roads at his own expenses, 1and would "greatly enhance or
increase the value of the subdivision" of said respondent. The lower court held that under these
circumstances, the appropriation in question was "clearly for a private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent
Zulueta contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal because
Congress is the source of all laws . . . Aside from the fact that movant is not aware of any law
which makes illegal the appropriation of public funds for the improvement of what we, in the
meantime, may assume as private property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature of the
Government established under the Constitution of the Republic of the Philippines and the system of
checks and balances underlying our political structure. Moreover, it is refuted by the decisions of this
Court invalidating legislative enactments deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose, the principle
according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. . . . It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of
the interest to be affected nor the degree to which the general advantage of the community,
and thus the public welfare, may be ultimately benefited by their promotion. Incidental to
the public or to the state, which results from the promotion of private interest and the
prosperity of private enterprises or business, does not justify their aid by the use public
money. (25 R.L.C. pp. 398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes only,
discussed suprasec. 14, money raised by taxation can be expended only for public purposes
and not for the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may be
used only for public purpose. The right of the legislature to appropriate funds is correlative
with its right to tax, and, under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to
another purpose, no appropriation of state funds can be made for other than for a public
purpose.
 xxx xxx xxx
The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interest, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve the
public. (81 C.J.S. pp. 1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently
sound, are a necessary corollary to our democratic system of government, which, as such, exists
primarily for the promotion of the general welfare. Besides, reflecting as they do, the established
jurisprudence in the United States, after whose constitutional system ours has been patterned, said
views and jurisprudence are, likewise, part and parcel of our own constitutional law.lawphil.net
This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon
the ground that petitioner may not contest the legality of the donation above referred to because the
same does not affect him directly. This conclusion is, presumably, based upon the following premises,
namely: (1) that, if valid, said donation cured the constitutional infirmity of the aforementioned
appropriation; (2) that the latter may not be annulled without a previous declaration of
unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the Civil Code
is absolute, and admits of no exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or approval,
not upon events occurring, or acts performed, subsequently thereto, unless the latter consists of an
amendment of the organic law, removing, with retrospective operation, the constitutional limitation
infringed by said statute. Referring to the P85,000.00 appropriation for the projected feeder roads in
question, the legality thereof depended upon whether said roads were public or private property when
the bill, which, latter on, became Republic Act 920, was passed by Congress, or, when said bill was
approved by the President and the disbursement of said sum became effective, or on June 20, 1953
(see section 13 of said Act). Inasmuch as the land on which the projected feeder roads were to be
constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private
purpose, and hence, was null and void. 4 The donation to the Government, over five (5) months after
the approval and effectivity of said Act, made, according to the petition, for the purpose of giving a
"semblance of legality", or legalizing, the appropriation in question, did not cure its aforementioned
basic defect. Consequently, a judicial nullification of said donation need not precede the declaration of
unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions.
For instance, the creditors of a party to an illegal contract may, under the conditions set forth in Article
1177 of said Code, exercise the rights and actions of the latter, except only those which are inherent in
his person, including therefore, his right to the annulment of said contract, even though such creditors
are not affected by the same, except indirectly, in the manner indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a
direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the
instance of taxpayers, laws providing for the disbursement of public funds, 5upon the theory that "the
expenditure of public funds by an officer of the State for the purpose of administering
an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the
request of a taxpayer. 6Although there are some decisions to the contrary, 7the prevailing view in the
United States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite standing to
attack the constitutionality of a statute, the general rule is that not only persons individually
affected, but also taxpayers, have sufficient interest in preventing the illegal expenditure of
moneys raised by taxation and may therefore question the constitutionality of statutes
requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262
U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer of
the U.S. to its Federal Government is different from that of a taxpayer of a municipal corporation to its
government. Indeed, under the composite system of government existing in the U.S., the states of the
Union are integral part of the Federation from an international viewpoint, but, each state enjoys
internally a substantial measure of sovereignty, subject to the limitations imposed by the Federal
Constitution. In fact, the same was made by representatives of each state of the Union, not of the
people of the U.S., except insofar as the former represented the people of the respective States, and
the people of each State has, independently of that of the others, ratified said Constitution. In other
words, the Federal Constitution and the Federal statutes have become binding upon the people of the
U.S. in consequence of an act of, and, in this sense, through the respective states of the Union of which
they are citizens. The peculiar nature of the relation between said people and the Federal Government
of the U.S. is reflected in the election of its President, who is chosen directly, not by the people of the
U.S., but by electors chosen by each State, in such manner as the legislature thereof may direct (Article
II, section 2, of the Federal Constitution).lawphi1.net
The relation between the people of the Philippines and its taxpayers, on the other hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people and
taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that
existing between the people and taxpayers of each state and the government thereof, except that the
authority of the Republic of the Philippines over the people of the Philippines is more fully direct than
that of the states of the Union, insofar as the simple and unitary type of our national government is not
subject to limitations analogous to those imposed by the Federal Constitution upon the states of the
Union, and those imposed upon the Federal Government in the interest of the Union. For this reason,
the rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating
local or state public funds — which has been upheld by the Federal Supreme Court
(Crampton vs. Zabriskie, 101 U.S. 601) — has greater application in the Philippines than that adopted
with respect to acts of Congress of the United States appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the
Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting
the price being paid to the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President
of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government was not permitted to
question the constitutionality of an appropriation for backpay of members of Congress. However, in
Rodriguez vs. Treasurer of the Philippines and Barredo vs.Commission on Elections (84 Phil., 368; 45
Off. Gaz., 4411), we entertained the action of taxpayers impugning the validity of certain
appropriations of public funds, and invalidated the same. Moreover, the reason that impelled this
Court to take such position in said two (2) cases — the importance of the issues therein raised — is
present in the case at bar. Again, like the petitioners in the Rodriguez and Barredo cases, petitioner
herein is not merely a taxpayer. The Province of Rizal, which he represents officially as its Provincial
Governor, is our most populated political subdivision, 8and, the taxpayers therein bear a substantial
portion of the burden of taxation, in the Philippines.

Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify
petitioners action in contesting the appropriation and donation in question; that this action should not
have been dismissed by the lower court; and that the writ of preliminary injunction should have been
maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower
court for further proceedings not inconsistent with this decision, with the costs of this instance against
respondent Jose C. Zulueta. It is so ordered.
G.R. No. 87479 June 4, 1990 prescribed therein, the tax and duty exemption privileges of NPC as provided under
Commonwealth Act No. 120, as amended, effective March 10, 1987, is hereby
NATIONAL POWER CORPORATION, petitioner, confirmed and approved. 2
vs.
THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R. SALALIMA, and ALBAY PROVINCIAL On March 10, 1989, the Court resolved to issue a temporary restraining order directing the Albay
TREASURER ABUNDIO M. NUÑEZ, respondents. provincial government "to CEASE AND DESIST from selling and disposing of the NAPOCOR properties
subject matter of this petition. 3 It appears, however, that "the temporary restraining order failed to
Romulo L. Ricafort and Jesus R. Cornago for respondents. reach respondents before the scheduled bidding at 10:00 a.m. on March 30, 1989 ... [h]ence, the
respondents proceeded with the bidding wherein the Province of Albay was the highest bidder. 4

The Court gathers from the records that:

SARMIENTO, J.:
(1) Under Section 13, of Republic Act No. 6395, amending Commonwealth Act No. 120 (charter of
NAPOCOR):
The National Power Corporation (NAPOCOR) questions the power of the provincial government of
Albay to collect real property taxes on its properties located at Tiwi, Albay, amassed between June 11,
1984 up to March 10, 1987. Section 13. Non-profit Character of the Corporation; Exemption from All Taxes,
Duties, Fees, Imposts and Other Charges by the Government and Government
Instrumentalities. The Corporation shall be non-profit and shall devote all its
It appears that on March 14 and 15, 1989, the respondents caused the publication of a notice of
returns from its capital investment as well as excess revenues from its operation,
auction sale involving the properties of NAPOCOR and the Philippine Geothermal Inc. consisting of
for expansion, To enable the Corporation to pay its indebtedness and obligations
buildings, machines, and similar improvements standing on their offices at Tiwi, Albay. The amounts to
and in furtherance and effective implementation of the policy enunciated in
be realized from this advertised auction sale are supposed to be applied to the tax delinquencies
Section One of this Act, the Corporation, including its subsidiaries, is hereby
claimed, as and for, as we said, real property taxes. The back taxes NAPOCOR has supposedly
declared exempt from the payment of all forms of taxes, duties, fees, imposts as
accumulated were computed at P214,845,184.76.
well as costs and service fees including filing fees, appeal bonds, supersedeas
bonds, in any court or administrative proceedings. 5
NAPOCOR opposed the sale, interposing in support of its non-liability Resolution No. 17-87, of the
Fiscal Incentives Review Board (FIRB), which provides as follows:
(2) On August 24, 1975, Presidential Decree No. 776 was promulgated, creating the Fiscal Incentives
Review Board (FIRB). Among other things, the Board was tasked as follows:
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption
privileges of the National Power Corporation, including those pertaining to its
Section 2. A Fiscal Incentives Review Board is hereby created for the purpose of
domestic purchases of petroleum and petroleum products, granted under the
determining what subsidies and tax exemptions should be modified, withdrawn,
terms and conditions of Commonwealth Act No. 120 (Creating the National Power
revoked or suspended, which shall be composed of the following officials:
Corporation, defining its powers, objectives and functions, and for other purposes),
as amended, are restored effective March 10, 1987, subject to the following
conditions: 1 Chairman - Secretary of Finance
Members - Secretary of Industry
- Director General of the National Economic and
as well as the Memorandum of Executive Secretary Catalino Macaraig, which also states thus:
Development Authority
- Commissioner of Internal Revenue
Pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93, series of 1986, FIRB - Commissioner of Customs
Resolution No. 17-87, series of 1987, restoring, subject to certain conditions
 The Board may recommend to the President of the Philippines and for reasons of
compatibility with the declared economic policy, the withdrawal, modification,
revocation or suspension of the enforceability of any of the abovestated statutory
subsidies or tax exemption grants, except those granted by the Constitution. To
attain its objectives, the Board may require the assistance of any appropriate
government agency or entity. The Board shall meet once a month, or oftener at the
call of the Secretary of Finance. 6
(3) On June 11, 1984, Presidential Decree No. 1931 was promulgated, prescribing,
among other things, that:
Section 1. The provisions of special or general law to the contrary notwithstanding,
all exemptions from the payment of duties, taxes, fees, impost and other charges
heretofore granted in favor of government-owned or controlled corporations
including their subsidiaries are hereby withdrawn. 7
(4) Meanwhile, FIRB Resolution No. 10-85 was issued, "restoring" NAPOCOR's tax exemption effective
June 11, 1984 to June 30, 1985;
(5) Thereafter, FIRB Resolution No. 1-86 was issued, granting tax exemption privileges to NAPOCOR
from July 1, 1985 and indefinitely thereafter;
(6) Likewise, FIRB Resolution No. 17-87 was promulgated, giving NAPOCOR tax exemption privileges
effective until March 10, 1987; 8
(7) On December 17, 1986, Executive Order No. 93 was promulgated by President Corazon Aquino,
providing, among other things, as follows:
SECTION 1. The provisions of any general or special law to the contrary
notwithstanding, all tax and duty incentives granted to government and private
entities are hereby withdrawn, except. 9
and
SECTION 2. The Fiscal Incentives Review Board created under Presidential Decree
No. 776, as amended, is hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;
b) revise the scope and coverage of tax and/or duty exemption that may be
restored;
c) impose conditions for the restoration of tax and/or duty exemption;
d) prescribe the date or period of effectivity of the restoration of tax and/or duty
exemption;
e) formulate and submit to the President for approval, a complete system for the
grant of subsidies to deserving beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential treatment in taxation,
indicating the source of funding therefor, eligible beneficiaries and the terms and
conditions for the grant thereof taking into consideration the international
commitments of the Philippines and the necessary precautions such that the grant
of subsidies does not become the basis for countervailing action. 10
(8) On October 5, 1987, the Office of the President issued the Memorandum, confirming NAPOCOR's
tax exemption aforesaid. 11
The provincial government of Albay now defends the auction sale in question on the theory that the
various FIRB issuances constitute an undue delegation of the taxing Power and hence, null and void,
under the Constitution. It is also contended that, insofar as Executive Order No. 93 authorizes the FIRB
to grant tax exemptions, the same is of no force and effect under the constitutional provision allowing
the legislature alone to accord tax exemption privileges.
It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was merely to
"recommend to the President of the Philippines and for reasons of compatibility with the declared
economic policy, the withdrawal, modification, revocation or suspension of the enforceability of any of
the above-cited statutory subsidies or tax exemption grants, except those granted by the Constitution."
It has no authority to impose taxes or revoke existing ones, which, after all, under the Constitution,
only the legislature may accomplish. 12 The question therefore is whether or not the various tax
exemptions granted by virtue of FIRB Resolutions Nos. 10-85, 1-86, and 17-87 are valid and
constitutional.
We shall deal with FIRB No. 17-87 later, but with respect to FIRB Resolutions Nos. 10- 85 and 1-86, we
sustain the provincial government of Albay.
As we said, the FIRB, under its charter, Presidential Decree No. 776, had been empowered merely to
"recommend" tax exemptions. By itself, it could not have validly prescribed exemptions or restore
taxability. Hence, as of June 11, 1984 (promulgation of Presidential Decree No. 1931), NAPOCOR had
ceased to enjoy tax exemption privileges.
The fact that under Executive Order No. 93, the FIRB has been given the prerogative to "restore tax
and/or duty exemptions withdrawn hereunder in whole or in part," 13 and "impose conditions for ... tax
and/or duty exemption" 14is of no moment. These provisions are prospective in character and can not
affect the Board's past acts.
The Court is aware that in its preamble, Executive Order No. 93 states:
WHEREAS, a number of affected entities, government and private were able to get back their tax and
duty exemption privileges through the review mechanism implemented by the Fiscal Incentives Review
Board (FIRB); 15but by no means can we say that it has "ratified" the acts of FIRB. It is to misinterpret
the scope of FIRB's powers under Presidential Decree No. 776 to say that it has. Apart from that,
Section 2 of the Executive Order was clearly intended to amend Presidential Decree No. 776, which
means, mutatis mutandis, that FIRB did not have the right, in the first place, to grant tax exemptions or
withdraw existing ones.
Does Executive Order No. 93 constitute an unlawful delegation of legislative power? It is to be stressed
that the provincial government of Albay admits that as of March 10, 1987 (the date Resolution No. 17-
87 was affirmed by the Memorandum of the Office of the President, dated October 5, 1987),
NAPOCOR's exemption had been validly restored. What it questions is NAPOCOR's liability in the
interregnum between June 11, 1984, the date its tax privileges were withdrawn, and March 10, 1987,
the date they were purportedly restored. To be sure, it objects to Executive Order No. 93 as alledgedly
a delegation of legislative power, but only insofar as its (NAPOCOR's) June 11, 1984 to March 10, 1987
tax accumulation is concerned. We therefore leave the issue of "delegation" to the future and its
constitutionality when the proper case arises. For the nonce, we leave Executive Order No. 93 alone,
and so also, its validity as far as it grants tax exemptions (through the FIRB) beginning December 17,
1986, the date of its promulgation.
NAPOCOR must then be held liable for the intervening years aforesaid. So it has been held:
xxx xxx xxx
The last issue to be resolved is whether or not the private-respondent is liable for
the fixed and deficiency percentage taxes in the amount of P3,025.96 (i.e. for the
period from January 1, 1946 to February 29, 1948) before the approval of its
municipal franchises. As aforestated, the franchises were approved by the
President only on February 24,1948. Therefore, before the said date, the private
respondent was liable for the payment of percentage and fixed taxes as seller of
light, heat, and power which, as the petitioner claims, amounted to P3,025.96. The
legislative franchise (R.A. No. 3843) exempted the grantee from all kinds of taxes
other than the 2% tax from the date the original franchise was granted. The
exemption, therefore, did not cover the period before the franchise was granted,
i.e. before February 24, 1948. ... 16
Actually, the State has no reason to decry the taxation of NAPOCOR's properties, as and by way of real
property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the
Government in development and nation-building, particularly in the local government level, Thus:
SEC. 86. Distribution of proceeds. — (a) The proceeds of the real property tax,
except as otherwise provided in this Code, shall accrue to the province, city or
municipality where the property subject to the tax is situated and shall be applied
by the respective local government unit for its own use and benefit.
(b) Barrio shares in real property tax collections. — The annual shares of the barrios
in real property tax collections shall be as follows:
(1) Five per cent of the real property tax collections of the province and another
five percent of the collections of the municipality shall accrue to the barrio where
the property subject to the tax is situated.
(2) In the case of the city, ten per cent of the collections of the tax shag likewise
accrue to the barrio where the property is situated.
Thirty per cent of the barrio shares herein referred to may be spent for salaries or per diems of the
barrio officials and other administrative expenses, while the remaining seventy per cent shall be
utilized for development projects approved by the Secretary of Local Government and Community
Development or by such committee created, or representatives designated, by him.
SEC. 87. Application of proceeds. — (a) The proceeds of the real property tax
pertaining to the city and to the municipality shall accrue entirely to their
respective general funds. In the case of the province, one-fourth thereof shall
accrue to its road and bridge fund and the remaining three-fourths, to its general
fund.
(b) The entire proceeds of the additional one per cent real property tax levied for
the Special Education Fund created under R.A. No. 5447 collected in the province
or city on real property situated in their respective territorial jurisdictions shall be
distributed as follows:
 (1) Collections in the provinces: Fifty per cent shall accrue to the municipality
where the property subject to the tax is situated; twenty per cent shall accrue to
the province; and thirty per cent shall be remitted to the Treasurer of the
Philippines to be expended exclusively for stabilizing the Special Education Fund in
municipalities, cities and provinces in accordance with the provisions of Section
seven of R.A. No. 5447.
Taxes are the lifeblood of the nation. 20 Their primary purpose is to generate funds for the State to
finance the needs of the citizenry and to advance the common weal.
WHEREFORE, the petition is DENIED. No costs. The auction sale of the petitioner's properties to answer
for real estate taxes accumulated between June 11, 1984 through March 10, 1987 is hereby declared
valid.

(2) Collections in the cities: Sixty per cent shall be retained by the city; and forty per SO ORDERED.
cent shall be remitted to the Treasurer of the Philippines to be expended
exclusively for stabilizing the special education fund in municipalities, cities and
provinces as provided under Section 7 of R.A. No. 5447.

However, any increase in the shares of provinces, cities and

municipalities from said additional tax accruing to their
respective local school boards commencing with fiscal year
1973-74 over what has been actually realized during the fiscal
year 1971-72 which, for purposes of this Code, shall remain as
the based year, shall be divided equally between the general
fund and the special education fund of the local government
units concerned. The Secretary of Finance may, however, at his
discretion, increase to not more than seventy-five per cent the
amount that shall accrue annually to the local general fund.

(c) The proceeds of all delinquent taxes and penalties, as well as the income
realized from the use, lease or other disposition of real property acquired by the
province or city at a public auction in accordance with the provisions of this Code,
and the proceeds of the sale of the delinquent real property or, of the redemption
thereof shall accrue to the province, city or municipality in the same manner and
proportion as if the tax or taxes had been paid in regular course.

(d) The proceeds of the additional real property tax on Idle private lands shall
accrue to the respective general funds of the province, city and municipality where
the land subject to the tax is situated. 17

To all intents and purposes, real property taxes are funds taken by the State with one hand and given
to the other. In no measure can the Government be said to have lost anything.

As a rule finally, claims of tax exemption are construed strongly against the claimant. 18 They must also
be shown to exist clearly and categorically, and supported by clear legal provisions. 19
G.R. No. 88291 May 31, 1991
ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President; HON.
VICENTE R. JAYME, in his capacity as Secretary of the Department of Finance; HON. SALVADOR
MISON, in his capacity as Commissioner, Bureau of Customs; HON. JOSE U. ONG, in his capacity as
Commissioner of Internal Revenue; NATIONAL POWER CORPORATION; the FISCAL INCENTIVES
REVIEW BOARD; Caltex (Phils.) Inc.; Pilipinas Shell Petroleum Corporation; Philippine National Oil
Corporation; and Petrophil Corporation, respondents.
Villamor & Villamor Law Offices for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex (Phils.), Inc.
GANCAYCO, J.:
This petition seeks to nullify certain decisions, orders, rulings, and resolutions of respondents Executive
Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs and the
Fiscal Incentives Review Board FIRB for exempting the National Power Corporation (NPC) from indirect
tax and duties.
The relevant facts are not in dispute.
On November 3, 1986, Commonwealth Act No. 120 created the NPC as a public corporation to
undertake the development of hydraulic power and the production of power from other sources.1
On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges under—
Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities.
On September 10, 1971, Republic Act No. 6395 revised the charter of the NPC wherein Congress
declared as a national policy the total electrification of the Philippines through the development of
power from all sources to meet the needs of industrial development and rural electrification which
should be pursued coordinately and supported by all instrumentalities and agencies of the
government, including its financial institutions.2 The corporate existence of NPC was extended to carry
out this policy, specifically to undertake the development of hydro electric generation of power and
the production of electricity from nuclear, geothermal and other sources, as well as the transmission of
electric power on a nationwide basis.3 Being a non-profit corporation, Section 13 of the law provided in
detail the exemption of the NPC from all taxes, duties, fees, imposts and other charges by the
government and its instrumentalities.
On January 22, 1974, Presidential Decree No. 380 amended section 13, paragraphs (a) and (d) of
Republic Act No. 6395 by specifying, among others, the exemption of NPC from such taxes, duties,
fees, imposts and other charges imposed "directly or indirectly," on all petroleum products used by
NPC in its operation. Presidential Decree No. 938 dated May 27, 1976 further amended the aforesaid
provision by integrating the tax exemption in general terms under one paragraph.
On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges granted in favor
of government-owned or controlled corporations including their subsidiaries.4 However, said law
empowered the President and/or the then Minister of Finance, upon recommendation of the FIRB to
restore, partially or totally, the exemption withdrawn, or otherwise revise the scope and coverage of
any applicable tax and duty.
Pursuant to said law, on February 7, 1985, the FIRB issued Resolution No. 10-85 restoring the tax and
duty exemption privileges of NPC from June 11, 1984 to June 30, 1985. On January 7, 1986, the FIRB
issued resolution No. 1-86 indefinitely restoring the NPC tax and duty exemption privileges effective
July 1, 1985.
However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and duty
incentives granted to government and private entities which had been restored under Presidential
Decree Nos. 1931 and 1955 but it gave the authority to FIRB to restore, revise the scope and prescribe
the date of effectivity of such tax and/or duty exemptions.
On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty exemption
privileges effective March 10, 1987. On October 5, 1987, the President, through respondent Executive
Secretary Macaraig, Jr., confirmed and approved FIRB Resolution No. 17-87.
As alleged in the petition, the following are the background facts:
The following are the facts relevant to NPC's questioned claim for refunds of taxes and duties
originally paid by respondents Caltex, Petrophil and Shell for specific and ad valorem taxes to
the BIR; and for Customs duties and ad valorem taxes paid by PNOC, Shell and Caltex to the
Bureau of Customs on its crude oil importation.
Many of the factual statements are reproduced from the Senate Committee on
Accountability of Public Officers and Investigations (Blue Ribbon) Report No. 474 dated
January 12, 1989 and approved by the Senate on April 21, 1989 (copy attached hereto as
Annex "A") and are identified in quotation marks:
1. Since May 27, 1976 when P.D. No. 938 was issued until June 11, 1984 when P.D. No. 1931
was promulgated abolishing the tax exemptions of all government-owned or-controlled
corporations, the oil firms never paid excise or specific and ad valorem taxes for petroleum
products sold and delivered to the NPC. This non-payment of taxes therefore spanned a
period of eight (8) years. (par. 23, p. 7, Annex "A")
During this period, the Bureau of Internal Revenue was not collecting specific taxes on the
purchases of NPC of petroleum products from the oil companies on the erroneous belief that
the National Power Corporation (NPC) was exempt from indirect taxes as reflected in the
letter of Deputy Commissioner of Internal Revenue (DCIR) Romulo Villa to the NPC dated
October 29, 1980 granting blanket authority to the NPC to purchase petroleum products
from the oil companies without payment of specific tax (copy of this letter is attached hereto
as petitioner's Annex "B").
2. The oil companies started to pay specific and ad valorem taxes on their sales of oil
products to NPC only after the promulgation of P.D. No. 1931 on June 11, 1984, withdrawing
all exemptions granted in favor of government-owned or-controlled corporations and
empowering the FIRB to recommend to the President or to the Minister of Finance the
restoration of the exemptions which were withdrawn. "Specifically, Caltex paid the total
amount of P58,020,110.79 in specific and ad valorem taxes for deliveries of petroleum
products to NPC covering the period from October 31, 1984 to April 27, 1985." (par. 23, p. 7,
Annex "A")
3. Caltex billings to NPC until June 10, 1984 always included customs duty without the tax
portion. Beginning June 11, 1984, when P.D. 1931 was promulgated abolishing NPC's tax
exemptions, Caltex's billings to NPC always included both duties and taxes. (Caturla, tsn, Oct.
10, 1988, pp. 1-5) (par. 24, p, 7, Annex "A")
4. For the sales of petroleum products delivered to NPC during the period from October,
1984 to April, 1985, NPC was billed a total of P522,016,77.34 (sic) including both duties and
taxes, the specific tax component being valued at P58,020,110.79. (par. 25, p. 8, Annex "A").
5. Fiscal Incentives Review Board (FIRB) Resolution 10-85, dated February 7, 1985, certified
true copy of which is hereto attached as Annex "C", restored the tax exemption privileges of
NPC effective retroactively to June 11, 1984 up to June 30, 1985. The first paragraph of said
resolution reads as follows:
1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the
National Power Corporation under C.A. No. 120, as amended, are restored up to
June 30, 1985.
Because of this restoration (Annex "G") the NPC applied on September 11, 1985 with the BIR
for a "refund of Specific Taxes paid on petroleum products . . . in the total amount of
P58,020,110.79. (par. 26, pp. 8-9, Annex "A")
6. In a letter to the president of the NPC dated May 8, 1985 (copy attached as petitioner's
Annex "D"), Acting BIR Commissioner Ruben Ancheta declared:
FIRB Resolution No. 10-85 serves as sufficient basis to allow NPC to purchase
petroleum products from the oil companies free of specific and ad valorem taxes,
during the period in question.
The "period in question" is June 1 1, 1 984 to June 30, 1 985.
7. On June 6, 1985—The president of the NPC, Mr. Gabriel Itchon, wrote Mr. Cesar Virata,
Chairman of the FIRB (Annex "E"), requesting "the FIRB to resolve conflicting rulings on the
tax exemption privileges of the National Power Corporation (NPC)." These rulings involve
FIRB Resolutions No. 1-84 and 10-85. (par. 40, p. 12, Annex "A")
8. In a letter to the President of NPC (Annex "F"), dated June 26, 1985, Minister Cesar Virata
confirmed the ruling of May 8, 1985 of Acting BIR Commissioner Ruben Ancheta, (par. 41, p.
12, Annex "A")
9. On October 22, 1985, however, under BIR Ruling No. 186-85, addressed to Hanil
Development Co., Ltd., a Korean contractor of NPC for its infrastructure projects, certified
true copy of which is attached hereto as petitioner's Annex "E", BIR Acting Commissioner
Ruben Ancheta ruled:
In Reply please be informed that after a re-study of Section 13, R.A. 6395, as
amended by P.D. 938, this Office is of the opinion, and so holds, that the scope of
the tax exemption privilege enjoyed by NPC under said section covers only taxes for
which it is directly liable and not on taxes which are only shifted to it. (Phil.
Acetylene vs. C.I.R. et al., G.R. L-19707, Aug. 17, 1967) Since contractor's tax is
directly payable by the contractor, not by NPC, your request for exemption, based
 on the stipulation in the aforesaid contract that NPC shall assume payment of your
contractor's tax liability, cannot be granted for lack of legal basis." (Annex "H")
(emphasis added)
Said BIR ruling clearly states that NPC's exemption privileges covers (sic) only taxes for which
it is directly liable and does not cover taxes which are only shifted to it or for indirect taxes.
The BIR, through Ancheta, reversed its previous position of May 8, 1985 adopted by Ancheta
himself favoring NPC's indirect tax exemption privilege.
10. Furthermore, "in a BIR Ruling, unnumbered, "dated June 30, 1986, "addressed to Caltex
(Annex "F"), the BIR Commissioner declared that PAL's tax exemption is limited to taxes for
which PAL is directly liable, and that the payment of specific and ad valorem taxes on
petroleum products is a direct liability of the manufacturer or producer thereof". (par. 51, p.
15, Annex "A")
11. On January 7, 1986, FIRB Resolution No. 1-86 was issued restoring NPC's tax exemptions
retroactively from July 1, 1985 to a indefinite period, certified true copy of which is hereto
attached as petitioner's Annex "H".
12. NPC's total refund claim was P468.58 million but only a portion thereof i.e. the
P58,020,110.79 (corresponding to Caltex) was approved and released by way of a Tax Credit
Memo (Annex "Q") dated July 7, 1986, certified true copy of which [is) attached hereto as
petitioner's Annex "F," which was assigned by NPC to Caltex. BIR Commissioner Tan approved
the Deed of Assignment on July 30, 1987, certified true copy of which is hereto attached as
petitioner's Annex "G"). (pars. 26, 52, 53, pp. 9 and 15, Annex "A")
The Deed of Assignment stipulated among others that NPC is assigning the tax credit to
Caltex in partial settlement of its outstanding obligations to the latter while Caltex, in turn,
would apply the assigned tax credit against its specific tax payments for two (2) months. (per
memorandum dated July 28, 1986 of DCIR Villa, copy attached as petitioner Annex "G")
13. As a result of the favorable action taken by the BIR in the refund of the P58.0 million tax
credit assigned to Caltex, the NPC reiterated its request for the release of the balance of its
pending refunds of taxes paid by respondents Petrophil, Shell and Caltex covering the period
from June 11, 1984 to early part of 1986 amounting to P410.58 million. (The claim of the first
two (2) oil companies covers the period from June 11, 1984 to early part of 1986; while that
of Caltex starts from July 1, 1985 to early 1986). This request was denied on August 18, 1986,
under BIR Ruling 152-86 (certified true copy of which is attached hereto as petitioner's Annex
"I"). The BIR ruled that NPC's tax free privilege to buy petroleum products covered only the
period from June 11, 1984 up to June 30, 1985. It further declared that, despite FIRB No. 1-
86, NPC had already lost its tax and duty exemptions because it only enjoys special privilege
for taxes for which it is directly liable. This ruling, in effect, denied the P410 Million tax refund
application of NPC (par. 28, p. 9, Annex "A")
14. NPC filed a motion for reconsideration on September 18, 1986. Until now the BIR has not
resolved the motion. (Benigna, II 3, Oct. 17, 1988, p. 2; Memorandum for the Complainant,
Oct. 26, 1988, p. 15)." (par. 29, p. 9, Annex "A")
15. On December 22, 1986, in a 2nd Indorsement to the Hon. Fulgencio S. Factoran, Jr., BIR
Commissioner Tan, Jr. (certified true copy of which is hereto attached and made a part
hereof as petitioner's Annex "J"), reversed his previous position and states this time that all
deliveries of petroleum products to NPC are tax exempt, regardless of the period of delivery.
16. On December 17, 1986, President Corazon C. Aquino enacted Executive Order No. 93,
entitled "Withdrawing All Tax and Duty Incentives, Subject to Certain Exceptions, Expanding
the Powers of the Fiscal Incentives Review Board and Other Purposes."
17. On June 24, 1987, the FIRB issued Resolution No. 17-87, which restored NPC's tax
exemption privilege and included in the exemption "those pertaining to its domestic
purchases of petroleum and petroleum products, and the restorations were made to retroact
effective March 10, 1987, a certified true copy of which is hereto attached and made a part
hereof as Annex "K".
18. On August 6, 1987, the Hon. Sedfrey A. Ordoñez, Secretary of Justice, issued Opinion No.
77, series of 1987, opining that "the power conferred upon Fiscal Incentives Review Board by
Section 2a (b), (c) and (d) of Executive order No. 93 constitute undue delegation of legislative
power and, therefore, [are] unconstitutional," a copy of which is hereto attached and made a
part hereof as Petitioner's Annex "L."
19. On October 5, 1987, respondent Executive Secretary Macaraig, Jr. in a Memorandum to
the Chairman of the FIRB a certified true copy of which is hereto attached and made a part
hereof as petitioner's Annex "M," confirmed and approved FIRB Res. No. 17-87 dated June
24, 1987, allegedly pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93.
20. Secretary Vicente Jayme in a reply dated May 20, 1988 to Secretary Catalino Macaraig,
who by letter dated May 2, 1988 asked him to rule "on whether or not, as the law now
stands, the National Power Corporation is still exempt from taxes, duties . . . on its local
purchases of . . . petroleum products . . ." declared that "NPC under the provisions of its
Revised Charter retains its exemption from duties and taxes imposed on the petroleum
products purchased locally and used for the generation of electricity," a certified true copy of
which is attached hereto as petitioner's Annex "N." (par. 30, pp. 9-10, Annex "A")
21. Respondent Executive Secretary came up likewise with a confirmatory letter dated June 1
5, 1988 but without the usual official form of "By the Authority of the President," a certified
true copy of which is hereto attached and made a part hereof as Petitioner's Annex "O".
22. The actions of respondents Finance Secretary and the Executive Secretary are based on
the RESOLUTION No. 17-87 of FIRB restoring the tax and duty exemption of the respondent
NPC pertaining to its domestic purchases of petroleum products (petitioner's Annex K supra).
23. Subsequently, the newspapers particularly, the Daily Globe, in its issue of July 11, 1988
reported that the Office of the President and the Department of Finance had ordered the BIR
to refund the tax payments of the NPC amounting to Pl.58 Billion which includes the P410
Million Tax refund already rejected by BIR Commissioner Tan, Jr., in his BIR Ruling No. 152-
86. And in a letter dated July 28, 1988 of Undersecretary Marcelo B. Fernando to BIR
Commissioner Tan, Jr. the Pl.58 Billion tax refund was ordered released to NPC (par. 31, p. 1
0, Annex "A")
24. On August 8, 1988, petitioner "wrote both Undersecretary Fernando and Commissioner
Tan requesting them to hold in abeyance the release of the Pl.58 billion and await the
outcome of the investigation in regard to Senate Resolution No. 227," copies attached as
Petitioner's Annexes "P" and "P-1 " (par. 32, p. 10, Annex "A").
Reacting to this letter of the petitioner, Undersecretary Fernando wrote Commissioner Tan
of the BIR dated August, 1988 requesting him to hold in abeyance the release of the tax
refunds to NPC until after the termination of the Blue Ribbon investigation.
25. In the Bureau of Customs, oil companies import crude oil and before removal thereof
from customs custody, the corresponding customs duties and ad valorem taxes are paid.
Bunker fuel oil is one of the petroleum products processed from the crude oil; and same is
sold to NPC. After the sale, NPC applies for tax credit covering the duties and ad valorem
exemption under its Charter. Such applications are processed by the Bureau of Customs and
the corresponding tax credit certificates are issued in favor of NPC which, in turn assigns it to
the oil firm that imported the crude oil. These certificates are eventually used by the
assignee-oil firms in payment of their other duty and tax liabilities with the Bureau of
Customs. (par. 70, p. 19, Annex "A")
A lesser amount totalling P740 million, covering the period from 1985 to the present, is being
sought by respondent NPC for refund from the Bureau of Customs for duties paid by the oil
companies on the importation of crude oil from which the processed products sold locally by
them to NPC was derived. However, based on figures submitted to the Blue Ribbon
Committee of the Philippine Senate which conducted an investigation on this matter as
mandated by Senate Resolution No. 227 of which the herein petitioner was the sponsor, a
much bigger figure was actually refunded to NPC representing duties and ad valorem taxes
paid to the Bureau of Customs by the oil companies on the importation of crude oil from
1979 to 1985.
26. Meantime, petitioner, as member of the Philippine Senate introduced P.S. Res. No. 227,
entitled:
Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, To
conduct a Formal and Extensive Inquiry into the Reported Massive Tax
Manipulations and Evasions by Oil Companies, particularly Caltex (Phils.) Inc.,
Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the
Non-Existing Exemption of National Power Corporation (NPC) from Indirect Taxes,
Resulting Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the
Department of Finance, Their Refusal to Pay Since 1976 Customs Duties Amounting
to Billions of Pesos on Imported Crude Oil Purportedly for the Use of the National
Power Corporation, the Non-Payment of Surtax on Windfall Profits from Increases
in the Price of Oil Products in August 1987 amounting Maybe to as Much as Pl.2
Billion Surtax Paid by Them in 1984 and For Other Purposes.
27. Acting on the above Resolution, the Blue Ribbon Committee of the Senate did conduct a
lengthy formal inquiry on the matter, calling all parties interested to the witness stand
including representatives from the different oil companies, and in due time submitted its
Committee Report No. 474 . . . — The Blue Ribbon Committee recommended the following
courses of action.
1. Cancel its approval of the tax refund of P58,020,110.70 to the National Power
Corporation (NPC) and its approval of Tax Credit memo covering said amount
(Annex "P" hereto), dated July 7, 1986, and cancel its approval of the Deed of
Assignment (Annex "Q" hereto) by NPC to Caltex, dated July 28, 1986, and collect
from Caltex its tax liabilities which were erroneously treated as paid or settled with
the use of the tax credit certificate that NPC assigned to said firm.:
1.1. NPC did not have any indirect tax exemption since May 27, 1976
when PD 938 was issued. Therefore, the grant of a tax refund to NPC in
the amount of P58 million was illegal, and therefore, null and void. Such
refund was a nullity right from the beginning. Hence, it never transferred
any right in favor of NPC.
 2. Stop the processing and/or release of Pl.58 billion tax refund to NPC and/or oil
companies on the same ground that the NPC, since May 27, 1976 up to June 17,
1987 was never granted any indirect tax exemption. So, the P1.58 billion represent
taxes legally and properly paid by the oil firms.
3. Start collection actions of specific or excise and ad valorem taxes due on
petroleum products sold to NPC from May 27, 1976 (promulgation of PD 938) to
June 17, 1987 (issuance of EO 195).
B. For the Bureau of Customs (BOC) to do the following:
1. Start recovery actions on the illegal duty refunds or duty credit certificates for purchases of
petroleum products by NPC and allegedly granted under the NPC charter covering the years
1978-1988 . . .
28. On March 30, 1989, acting on the request of respondent Finance Secretary for clearance
to direct the Bureau of Internal Revenue and of Customs to proceed with the processing of
claims for tax credits/refunds of the NPC, respondent Executive Secretary rendered his ruling,
the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, the clearance is hereby GRANTED and, accordingly, unless restrained by
proper authorities, that department and/or its line-tax bureaus may now proceed with the processing
of the claims of the National Power Corporation for duty and tax free exemption and/or tax credits/
refunds, if there be any, in accordance with the ruling of that Department dated May 20,1988, as
confirmed by this Office on June 15, 1988 . . .5
Hence, this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary
injunction and/or restraining order, praying among others that:
1. Upon filing of this petition, a temporary restraining order forthwith be issued against
respondent FIRB Executive Secretary Macaraig, and Secretary of Finance Jayme restraining
them and other persons acting for, under, and in their behalf from enforcing their resolution,
orders and ruling, to wit:
A. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");
B. Memorandum-Order of the Office of the President dated October 5, 1987
(petitioner's Annex "M");
C. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");
D. Order of the Executive Secretary dated March 30, l989 (petitioner's Annex "Q");
and
E. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N").
2. Said temporary restraining order should also include respondent Commissioners of
Customs Mison and Internal Revenue Ong restraining them from processing and releasing
any pending claim or application by respondent NPC for tax and duty refunds.
3. Thereafter, and during the pendency of this petition, to issue a writ or preliminary
injunction against above-named respondents and all persons acting for and in their behalf.
4. A decision be rendered in favor of the petitioner and against the respondents:
A. Declaring that respondent NPC did not enjoy indirect tax exemption privilege since May
27, 1976 up to the present;
B. Nullifying the setting aside the following:
1. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");
2. Memorandum-Order of the Office of the President dated October 5, 1987
(petitioner's Annex "M");
3. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");
4. Order of the Executive Secretary dated March 30, 1989 (petitioner's Annex "Q");
5. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N"
6. Tax Credit memo dated July 7, 1986 issued to respondent NPC representing tax
refund for P58,020,110.79 (petitioner's Annex "F");
7. Deed of Assignment of said tax credit memo to respondent Caltex dated July 30,
1987 (petitioner's Annex "G");
 8. Application of the assigned tax credit of Caltex in payment of its tax liabilities
with the Bureau of Internal Revenue and
9. Illegal duty and tax refunds issued by the Bureau of Customs to respondent NPC
by way of tax credit certificates from 1979 up to the present.
C. Declaring as illegal and null and void the pending claims for tax and duty refunds by
respondent NPC with the Bureau of Customs and the Bureau of Internal Revenue;
D. Prohibiting respondents Commissioner of Customs and Commissioner of Internal Revenue
from enforcing the abovequestioned resolution, orders and ruling of respondents Executive
Secretary, Secretary of Finance, and FIRB by processing and releasing respondent NPC's tax
and duty refunds;
E. Ordering the respondent Commissioner of Customs to deny as being null and void the
pending claims for refund of respondent NPC with the Bureau of Customs covering the
period from 1985 to the present; to cancel and invalidate the illegal payment made by
respondents Caltex, Shell and PNOC by using the tax credit certificates assigned to them by
NPC and to recover from respondents Caltex, Shell and PNOC all the amounts appearing in
said tax credit certificates which were used to settle their duty and tax liabilities with the
Bureau of Customs.
F. Ordering respondent Commissioner of Internal Revenue to deny as being null and void the
pending claims for refund of respondent NPC with the Bureau of Internal Revenue covering
the period from June 11, 1984 to June 17, 1987.
PETITIONER prays for such other relief and remedy as may be just and equitable in the
premises.6
The issues raised in the petition are the following:
To determine whether respondent NPC is legally entitled to the questioned tax and duty
refunds, this Honorable Court must resolve the following issues:
Main issue—
Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption
with the enactment of P.D. No. 938 on May 27, 1976 which amended P.D. No. 380, issued on
January 11, 1974.
Corollary issues—
1. Whether or not FIRB Resolution No. 10-85 dated February 7, 1985 which restored NPC's
tax exemption privilege effective June 11, 1984 to June 30, 1985 and FIRB Resolution No. 1-
86 dated January 7, 1986 restoring NPC's tax exemption privilege effective July 1, 1985
included the restoration of indirect tax exemption to NPC and
2. Whether or not FIRB could validly and legally issue Resolution No. 17-87 dated June 24,
1987 which restored NPC's tax exemption privilege effective March 10, 1987; and if said
Resolution was validly issued, the nature and extent of the tax exemption privilege restored
to NPC.7
In a resolution dated June 6, 1989, the Court, without giving due course to the petition, required
respondents to comment thereon, within ten (10) days from notice. The respondents having submitted
their comment, on October 10, 1989 the Court required petitioner to file a consolidated reply to the
same. After said reply was filed by petitioner on November 15, 1989 the Court gave due course to the
petition, considering the comments of respondents as their answer to the petition, and requiring the
parties to file simultaneously their respective memoranda within twenty (20) days from notice. The
parties having submitted their respective memoranda, the petition was deemed submitted for
resolution.
First the preliminary issues.
Public respondents allege that petitioner does not have the standing to challenge the questioned
orders and resolution.
In the petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a
duly-elected Senator of the Philippines." Public respondent argues that petitioner must show he has
sustained direct injury as a result of the action and that it is not sufficient for him to have a mere
general interest common to all members of the public.8
The Court however agrees with the petitioner that as a taxpayer he may file the instant petition
following the ruling in Lozada when it involves illegal expenditure of public money. The petition
questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said
assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR and
Bureau of Customs.
Assuming petitioner has the personality to file the petition, public respondents also allege that the
proper remedy for petitioner is an appeal to the Court of Tax Appeals under Section 7 of R.A. No. 125
instead of this petition. However Section 11 of said law provides—
 Sec. 11. Who may appeal; effect of appeal—Any person, association or corporation adversely
affected by a decision or ruling of the Commissioner of Internal Revenue, the Collector of
Customs (Commissioner of Customs) or any provincial or City Board of Assessment Appeals
may file an appeal in the Court of Tax Appeals within thirty days after receipt of such decision
or ruling.
From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the
Commissioner of Internal Revenue, the Commissioner of Customs or any provincial or city Board of
Assessment Appeal who may appeal to the Court of Tax Appeals. Petitioner does not fall under this
category.
Public respondents also contend that mandamus does not lie to compel the Commissioner of Internal
Revenue to impose a tax assessment not found by him to be proper. It would be tantamount to a
usurpation of executive functions.9
Even in Meralco, this Court recognizes the situation when mandamus can control the discretion of the
Commissioners of Internal Revenue and Customs when the exercise of discretion is tainted with
arbitrariness and grave abuse as to go beyond statutory authority.10
Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an
unlawful exercise of jurisdiction11 or to prevent the oppressive exercise of legal authority.12 Precisely,
petitioner questions the lawfulness of the acts of public respondents in this case.
Now to the main issue.
It may be useful to make a distinction, for the purpose of this disposition, between a direct tax and an
indirect tax. A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in. Examples are the custom duties and ad valorem taxes paid by the oil companies to the
Bureau of Customs for their importation of crude oil, and the specific and ad valorem taxes they pay to
the Bureau of Internal Revenue after converting the crude oil into petroleum products.
On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else ."13 For example, the excise and ad valorem taxes that oil companies pay to the Bureau
of Internal Revenue upon removal of petroleum products from its refinery can be shifted to its buyer,
like the NPC, by adding them to the "cash" and/or "selling price."
The main thrust of the petition is that under the latest amendment to the NPC charter by Presidential
Decree No. 938, the exemption of NPC from indirect taxation was revoked and repealed. While
petitioner concedes that NPC enjoyed broad exemption privileges from both direct and indirect taxes
on the petroleum products it used, under Section 13 of Republic Act No, 6395 and more so under
Presidential Decree No. 380, however, by the deletion of the phrases "directly or indirectly" and "on all
petroleum products used by the Corporation in the generation, transmission, utilization and sale of
electric power" he contends that the exemption from indirect taxes was withdrawn by P.D. No. 938.
Petitioner further states that the exemption of NPC provided in Section 13 of Presidential Decree No.
938 regarding the payments of "all forms of taxes, etc." cannot be interpreted to include indirect tax
exemption. He cites Philippine Aceytelene Co. Inc. vs. Commissioner of Internal Revenue.14 Petitioner
emphasizes the principle in taxation that the exception contained in the tax statutes must be strictly
construed against the one claiming the exemption, and that the rule that a tax statute granting
exemption must be strictly construed against the one claiming the exemption is similar to the rule that
a statute granting taxing power is to be construed strictly, with doubts resolved against its
existence.15 Petitioner cites rulings of the BIR that the phrase exemption from "all taxes, etc." from "all
forms of taxes" and "in lieu of all taxes" covers only taxes for which the taxpayer is directly liable. 16
On the corollary issues. First, FIRB Resolution Nos. 10-85 and 10-86 issued under Presidential Decree
No. 1931, the relevant provision of which are to wit:
P.D. No. 1931 provides as follows:
Sec. 1. The provisions of special or general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes . . . heretofore granted in favor of government-
owned or controlled corporations are hereby withdrawn. (Emphasis supplied.)
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon
the recommendation of the Fiscal Incentives Review Board . . . is hereby empowered to
restore, partially or totally, the exemptions withdrawn by Section 1 above . . . (Emphasis
supplied.)
The relevant provisions of FIRB resolution Nos. 10-85 and 1-86 are the following:
Resolution. No. 10-85
BE IT RESOLVED AS IT IS HEREBY RESOLVED, That:
1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power
Corporation under C.A. No. 120 as amended are restored up to June 30, 1985.
2. Provided, That to restoration does not apply to the following:
 a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-
84;
b. commercially-funded importations; and
c. interest income derived from any investment source.
3. Provided further, That in case of importations funded by international financing agreements, the
NPC is hereby required to furnish the FIRB on a periodic basis the particulars of items received or to be
received through such arrangements, for purposes of tax and duty exemptions privileges.17
Resolution No. 1-86
BE IT RESOLVED AS IT IS HEREBY RESOLVED: That:
1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power
Corporation (NPC) under Commonwealth Act No. 120, as amended, are restored: Provided, That
importations of fuel oil (crude oil equivalent), and coal of the herein grantee shall be subject to the
basic and additional import duties; Provided, further, that the following shall remain fully taxable:
a. Commercially-funded importations; and
b. Interest income derived by said grantee from bank deposits and yield or any
other monetary benefits from deposit substitutes, trust funds and other similar
arrangements.
2. The NPC as a government corporation is exempt from the real property tax on land and
improvements owned by it provided that the beneficial use of the property is not transferred to
another pursuant to the provisions of Sec. 10(a) of the Real Property Tax Code, as amended.18
Petitioner does not question the validity and enforceability of FIRB Resolution Nos. 10-85 and 1-86.
Indeed, they were issued in compliance with the requirement of Section 2, P.D. No. 1931, whereby the
FIRB should make the recommendation subject to the approval of "the President of the Philippines
and/or the Minister of Finance." While said Resolutions do not appear to have been approved by the
President, they were nevertheless approved by the Minister of Finance who is also duly authorized to
approve the same. In fact it was the Minister of Finance who signed and promulgated said
resolutions.19
The observation of Mr. Justice Sarmiento in the dissenting opinion that FIRB Resolution Nos. 10-85 and
1-86 which were promulgated by then Acting Minister of Finance Alfredo de Roda, Jr. and Minister of
Finance Cesar E.A Virata, as Chairman of FIRB respectively, should be separately approved by said
Minister of Finance as required by P.D. 1931 is, a superfluity. An examination of the said resolutions
which are reproduced in full in the dissenting opinion show that the said officials signed said
resolutions in the dual capacity of Chairman of FIRB and Minister of Finance.
Mr. Justice Sarmiento also makes reference to the case National Power Corporation vs. Province of
Albay,20wherein the Court observed that under P.D. No. 776 the power of the FIRB was only
recommendatory and requires the approval of the President to be valid. Thus, in said case the Court
held that FIRB Resolutions Nos. 10-85 and 1-86 not having been approved by the President were not
valid and effective while the validity of FIRB 17-87 was upheld as it was duly approved by the Office of
the President on October 5, 1987.
However, under Section 2 of P.D. No. 1931 of June 11, 1984, hereinabove reproduced, which amended
P.D. No. 776, it is clearly provided for that such FIRB resolution, may be approved by the "President of
the Philippines and/or the Minister of Finance." To repeat, as FIRB Resolutions Nos. 10-85 and 1-86
were duly approved by the Minister of Finance, hence they are valid and effective. To this extent, this
decision modifies or supersedes the Court's earlier decision in Albay afore-referred to.
Petitioner, however, argues that under both FIRB resolutions, only the tax and duty exemption
privileges enjoyed by the NPC under its charter, C.A. No. 120, as amended, are restored, that is, only its
direct tax exemption privilege; and that it cannot be interpreted to cover indirect taxes under the
principle that tax exemptions are construed stricissimi juris against the taxpayer and liberally in favor of
the taxing authority.
Petitioner argues that the release by the BIR of the P58.0 million refund to respondent NPC by way of a
tax credit certificate21 which was assigned to respondent Caltex through a deed of assignment
approved by the BIR22 is patently illegal. He also contends that the pending claim of respondent NPC in
the amount of P410.58 million with respondent BIR for the sale and delivery to it of bunker fuel by
respondents Petrophil, Shell and Caltex from July 1, 1985 up to 1986, being illegal, should not be
released.
Now to the second corollary issue involving the validity of FIRB Resolution No. 17-87 issued on June 24,
1987. It was issued under authority of Executive Order No. 93 dated December 17, 1986 which grants
to the FIRB among others, the power to recommend the restoration of the tax and duty
exemptions/incentives withdrawn thereunder.
Petitioner stresses that on August 6, 1987 the Secretary of Justice rendered Opinion No. 77 to the
effect that the powers conferred upon the FIRB by Section 2(a), (b), and (c) and (4) of Executive Order
No. 93 "constitute undue delegation of legislative power and is, therefore, unconstitutional." Petitioner
observes that the FIRB did not merely recommend but categorically restored the tax and duty
exemption of the NPC so that the memorandum of the respondent Executive Secretary dated October
5, 1987 approving the same is a surplusage.
Further assuming that FIRB Resolution No. 17-87 to have been legally issued, following the doctrine
in Philippine Aceytelene, petitioner avers that the restoration cannot cover indirect taxes and it cannot
create new indirect tax exemption not otherwise granted in the NPC charter as amended by
Presidential Decree No. 938.
The petition is devoid of merit.
The NPC is a non-profit public corporation created for the general good and welfare23 wholly owned by
the government of the Republic of the Philippines.24 From the very beginning of its corporate
existence, the NPC enjoyed preferential tax treatment25 to enable the Corporation to pay the
indebtedness and obligation and in furtherance and effective implementation of the policy enunciated
in Section one of "Republic Act No. 6395"26 which provides:
Sec. 1. Declaration of Policy—Congress hereby declares that (1) the comprehensive
development, utilization and conservation of Philippine water resources for all beneficial
uses, including power generation, and (2) the total electrification of the Philippines through
the development of power from all sources to meet the need of rural electrification are
primary objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government including its financial institutions.
From the changes made in the NPC charter, the intention to strengthen its preferential tax treatment is
obvious.
Under Republic Act No. 358, its exemption is provided as follows:
Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities."
Under Republic Act No. 6395:
Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and other Charges by Government and Governmental Instrumentalities.— The
Corporation shall be non-profit and shall devote all its returns from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any
court or administrative proceedings in which it may be a party, restrictions and duties to the
Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on
import of foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power. (Emphasis supplied.)
Under Presidential Decree No. 380:
Sec. 13. Non-profit Character of the Corporation: Exemption from all Taxes, Duties, Fees,
Imposts and other Charges by the Government and Government Instrumentalities.— The
Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation, including its subsidiaries, is
hereby declared, exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and services fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other governmental agencies and
instrumentalities;
 (c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on
import of foreign goods required for its operation and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum produced used by the Corporation in the
generation, transmission, utilization, and sale of electric power. (Emphasis supplied.)
Under Presidential Decree No. 938:
Sec. 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Fees,
Imposts and Other Charges by the Government and Government Instrumentalities.—The
Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
the indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section One of this Act, the Corporation, including its subsidiaries hereby
declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs
and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. (Emphasis supplied.)
It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to cover
"all taxes, duties, fees, imposts, charges, etc. . . ." However, the amendment under Republic Act No.
6395 enumerated the details covered by the exemption. Subsequently, P.D. No. 380, made even more
specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on
all petroleum products used in its operation. Presidential Decree No. 938 amended the tax exemption
by simplifying the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties,
fees, imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds,
in any court or administrative proceedings."
The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax
exemptions it has been enjoying before. The rationale for this exemption is that being non-profit the
NPC "shall devote all its returns from its capital investment as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay the indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section one of this Act, . . ."27
The preamble of P.D. No. 938 states—
WHEREAS, in the application of the tax exemption provision of the Revised Charter, the non-
profit character of the NPC has not been fully utilized because of restrictive interpretations of
the taxing agencies of the government on said provisions. . . . (Emphasis supplied.)
It is evident from the foregoing that the lawmaker did not intend that the said provisions of P.D. No.
938 shall be construed strictly against NPC. On the contrary, the law mandates that it should be
interpreted liberally so as to enhance the tax exempt status of NPC.
Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation of
statutes granting tax exemptions to NPC.
Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of
exemptions in favor of a government political subdivision or instrumentality.28
The basis for applying the rule of strict construction to statutory provisions granting tax
exemptions or deductions, even more obvious than with reference to the affirmative or
levying provisions of tax statutes, is to minimize differential treatment and foster
impartiality, fairness, and equality of treatment among tax payers.
The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely
to reduce the amount of money that has to be handled by government in the course of its
operations. For these reasons, provisions granting exemptions to government agencies may
be construed liberally, in favor of non tax liability of such agencies.29
In the case of property owned by the state or a city or other public corporations, the express
exemption should not be construed with the same degree of strictness that applies to exemptions
contrary to the policy of the state, since as to such property "exemption is the rule and taxation the
exception."30
The contention of petitioner that the exemption of NPC from indirect taxes under Section 13 of R.A.
No. 6395 and P.D. No. 380, is deemed repealed by P.D. No. 938 when the reference to it was deleted is
not well-taken.
Repeal by implication is not favored unless it is manifest that the legislature so intended. As laws are
presumed to be passed with deliberation and with knowledge of all existing ones on the subject, it is
logical to conclude that in passing a statute it is not intended to interfere with or abrogate a former law
relating to the same subject matter, unless the repugnancy between the two is not only irreconcilable
but also clear and convincing as a result of the language used, or unless the latter Act fully embraces
the subject matter of the earlier.31 The first effort of a court must always be to reconcile or adjust the
provisions of one statute with those of another so as to give sensible effect to both provisions. 32
The legislative intent must be ascertained from a consideration of the statute as a whole, and not of an
isolated part or a particular provision alone.33 When construing a statute, the reason for its enactment
should be kept in mind and the statute should be construed with reference to its intended scope and
purpose34 and the evil sought to be remedied.35
The NPC is a government instrumentality with the enormous task of undertaking development of
hydroelectric generation of power and production of electricity from other sources, as well as the
transmission of electric power on a nationwide basis, to improve the quality of life of the people
pursuant to the State policy embodied in Section E, Article II of the 1987 Constitution.
It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax exemption of
NPC from all forms of taxes including indirect taxes as provided for under R.A. No. 6895 and P.D. No.
380 if it is to attain its goals.
Further, the construction of P.D. No. 938 by the Office charged with its implementation should be
given controlling weight.36
Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the Secretary of Finance of June
26, 1985 confirming said ruling, the letters of the BIR of August 18, 1986, and December 22, 1986, the
letter of the Secretary of Finance of February 19, 1987, the Memorandum of the Executive Secretary of
October 9, 1987, by authority of the President, confirming and approving FIRB Resolution No. 17-87,
the letter of the Secretary of Finance of May 20, 1988 to the Executive Secretary rendering his opinion
as requested by the latter, and the latter's reply of June 15, 1988, it was uniformly held that the grant
of tax exemption to NPC under C.A. No. 120, as amended, included exemption from payment of all
taxes relative to NPC's petroleum purchases including indirect taxes.37 Thus, then Secretary of Finance
Vicente Jayme in his letter of May 20, 1988 to the Executive Secretary Macaraig aptly stated the
justification for this tax exemption of NPC —
The issue turns on the effect to the exemption of NPC from taxes of the deletion of the phrase
'taxes imposed indirectly on oil products and its exemption from 'all forms of taxes.' It is
suggested that the change in language evidenced an intention to exempt NPC only from
taxes directly imposed on or payable by it; since taxes on fuel-oil purchased by it; since taxes
on fuel-oil purchased by NPC locally are levied on and paid by its oil suppliers, NPC thereby
lost its exemption from those taxes. The principal authority relied on is the 1967 case
of Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20 SCRA 1056.
First of all, tracing the changes made through the years in the Revised Charter, the
strengthening of NPC's preferential tax treatment was clearly the intention. To the extent
that the explanatory "whereas clauses" may disclose the intent of the law-maker, the
changes effected by P.D. 938 can only be read as being expansive rather than restrictive,
including its version of Section 13.
Our Tax Code does not recognize that there are taxes directly imposed and those imposed
indirectly. The textbook distinction between a direct and an indirect tax may be based on the
possibility of shifting the incidence of the tax. A direct tax is one which is demanded from the
very person intended to be the payor, although it may ultimately be shifted to another. An
example of a direct tax is the personal income tax. On the other hand, indirect taxes are
those which are demanded from one person in the expectation and intention that he shall
indemnify himself at the expense of another. An example of this type of tax is the sales tax
levied on sales of a commodity.
The distinction between a direct tax and one indirectly imposed (or an indirect tax) is really of
no moment. What is more relevant is that when an "indirect tax" is paid by those upon
whom the tax ultimately falls, it is paid not as a tax but as an additional part of the cost or of
the market price of the commodity.
This distinction was made clear by Chief Justice Castro in the Philippine Acetylene case, when
he analyzed the nature of the percentage (sales) tax to determine whether it is a tax on the
producer or on the purchaser of the commodity. Under out Tax Code, the sales tax falls upon
the manufacturer or producer. The phrase "pass on" the tax was criticized as being
inaccurate. Justice Castro says that the tax remains on the manufacturer alone. The
purchaser does not pay the tax; he pays an amount added to the price because of the tax.
Therefore, the tax is not "passed on" and does not for that reason become an "indirect tax"
on the purchaser. It is eminently possible that the law maker in enacting P.D. 938 in 1976
may have used lessons from the analysis of Chief Justice Castro in 1967 Philippine Acetylene
case.
When P.D. 938 which exempted NPC from "all forms of taxes" was issued in May 1976, the
so-called oil crunch had already drastically pushed up crude oil Prices from about $1.00 per
bbl in 1971 to about $10 and a peak (as it turned out) of about $34 per bbl in 1981. In 1974-
78, NPC was operating the Meralco thermal plants under a lease agreement. The power
generated by the leased plants was sold to Meralco for distribution to its customers. This
lease and sale arrangement was entered into for the benefit of the consuming public, by
reducing the burden on the swiftly rising world crude oil prices. This objective was achieved by
the use of NPC's "tax umbrella under its Revised Charter—the exemption from specific taxes
on locally purchased fuel oil. In this context, I can not interpret P.D. 938 to have withdrawn
the exemption from tax on fuel oil to which NPC was already entitled and which exemption
Government in fact was utilizing to soften the burden of high crude prices.
There is one other consideration which I consider pivotal. The taxes paid by oil companies on
oil products sold to NPC, whether paid to them by NPC or no never entered into the rates
charged by NPC to its customers not even during those periods of uncertainty engendered by
the issuance of P.D. 1931 and E. 0. 93 on NP/Cs tax status. No tax component on the fuel have
been charged or recovered by NPC through its rates.
There is an import duty on the crude oil imported by the local refineries. After the refining
process, specific and ad valorem taxes are levied on the finished products including fuel oil or
residue upon their withdrawal from the refinery. These taxes are paid by the oil companies
as the manufacturer thereof.
In selling the fuel oil to NPC, the oil companies include in their billings the duty and tax
component. NPC pays the oil companies' invoices including the duty component but net of the
tax component. NPC then applies for drawback of customs duties paid and for a credit in
amount equivalent to the tax paid (by the oil companies) on the products purchased. The tax
credit is assigned to the oil companies—as payment, in effect, of the tax component shown in
the sales invoices. (NOTE: These procedures varied over time—There were instances when
NPC paid the tax component that was shifted to it and then applied for tax credit. There were
also side issues raised because of P.D. 1931 and E.O. 93 which withdrew all exemptions of
government corporations. In these latter instances, the resolutions of the Fiscal Incentives
Review Board (FIRB) come into play. These incidents will not be touched upon for purposes
of this discussion).
NPC rates of electricity are structured such that changes in its cost of fuel are automatically
(without need of fresh approvals) reflected in the subsequent months billing rates.
This Fuel Cost Adjustment clause protects NPC's rate of return. If NPC should ever accept
liability to the tax and duty component on the oil products, such amount will go into its fuel
cost and be passed on to its customers through corresponding increases in rates. Since 1974,
when NPC operated the oil-fired generating stations leased from Meralco (which plants it
bought in 1979), until the present time, no tax on fuel oil ever went into NPC's electric rates.
That the exemption of NPC from the tax on fuel was not withdrawn by P.D. 938 is impressed
upon me by yet another circumstance. It is conceded that NPC at the very least, is exempt
from taxes to which it is directly liable. NPC therefore could very well have imported its fuel oil
or crude residue for burning at its thermal plants. There would have been no question in such
a case as to its exemption from all duties and taxes, even under the strictest interpretation
that can be put forward. However, at the time P.D. 938 was issued in 1976, there were
already operating in the Philippines three oil refineries. The establishment of these refineries
in the Philippines involved heavy investments, were economically desirable and enabled the
country to import crude oil and process / refine the same into the various petroleum products
at a savings to the industry and the public. The refining process produced as its largest
output, in volume, fuel oil or residue, whose conventional economic use was for burning in
electric or steam generating plants. Had there been no use locally for the residue, the oil
refineries would have become largely unviable.
Again, in this circumstances, I cannot accept that P.D. 938 would have in effect forced NPC to
by-pass the local oil refineries and import its fossil fuel requirements directly in order to avail
itself of its exemption from "direct taxes." The oil refineries had to keep operating both for
economic development and national security reasons. In fact, the restoration by the FIRB of
NPC's exemption after P.D. 1931 and E.O. 93 expressly excluded direct fuel oil importations,
so as not to prejudice the continued operations of the local oil refineries.
To answer your query therefore, it is the opinion of this Department that NPC under the
provisions of its Revised Charter retains its exemption from duties and taxes imposed on the
petroleum products purchased locally and used for the generation of electricity.
The Department in issuing this ruling does so pursuant to its power and function to supervise
and control the collection of government revenues by the application and implementation of
revenue laws. It is prepared to take the measures supplemental to this ruling necessary to
carry the same into full effect.
As presented rather extensively above, the NPC electric power rates did not carry the taxes
and duties paid on the fuel oil it used. The point is that while these levies were in fact paid to
the government, no part thereof was recovered from the sale of electricity produced. As a
consequence, as of our most recent information, some P1.55 B in claims represent amounts
for which the oil suppliers and NPC are "out-of-pocket. There would have to be specific order
to the Bureaus concerned for the resumption of the processing of these claims."38
In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of Finance,
the said opinion ruling of the latter was confirmed and its implementation was directed.39
The Court finds and so holds that the foregoing reasons adduced in the aforestated letter of the
Secretary of Finance as confirmed by the then Executive Secretary are well-taken. When the NPC was
exempted from all forms of taxes, duties, fees, imposts and other charges, under P.D. No. 938, it means
exactly what it says, i.e., all forms of taxes including those that were imposed directly or indirectly on
petroleum products used in its operation.
Reference is made in the dissenting opinion to contrary rulings of the BIR that the exemption of the
NPC extends only to taxes for which it is directly liable and not to taxes merely shifted to it. However,
these rulings are predicated on Philippine Acytelene.
The doctrine in Philippine Acytelene decided in 1967 by this Court cannot apply to the present case. It
involved the sales tax of products the plaintiff sold to NPC from June 2, 1953 to June 30,1958 when
NPC was enjoying tax exemption from all taxes under Commonwealth Act No. 120, as amended by
Republic Act No. 358 issued on June 4, 1949 hereinabove reproduced.
In said case, this Court held, that the sales tax is due from the manufacturer and not the buyer, so
plaintiff cannot claim exemptions simply because the NPC, the buyer, was exempt.
However, on September 10, 1971, Republic Act No. 6395 was passed as the revised charter of NPC
whereby Section 13 thereof was amended by emphasizing its non-profit character and expanding the
extent of its tax exemption.
As petitioner concedes, Section 13(d) aforestated of this amendment under Republic Act No. 6345
spells out clearly the exemption of the NPC from indirect taxes. And as hereinabove stated, in P.D. No.
380, the exemption of NPC from indirect taxes was emphasized when it was specified to include those
imposed "directly and indirectly."
Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated under Section 13 defining the
same in general terms to cover "all forms of taxes, duties, fees, imposts, etc." which, as hereinabove
discussed, logically includes exemption from indirect taxes on petroleum products used in its
operation.
This is the status of the tax exemptions the NPC was enjoying when P.D. No. 1931 was passed, on the
authority of which FIRB Resolution Nos. 10-85 and 1-86 were issued, and when Executive Order No. 93
was promulgated, by which FIRB Resolution 17-87 was issued.
Thus, the ruling in Philippine Acetylene cannot apply to this case due to the different environmental
circumstances. As a matter of fact, the amendments of Section 13, under R.A. No. 6395, P.D. No, 380
and P.D. No. 838 appear to have been brought about by the earlier inconsistent rulings of the tax
agencies due to the doctrine in Philippine Acetylene, so as to leave no doubt as to the exemption of the
NPC from indirect taxes on petroleum products it uses in its operation. Effectively, said amendments
superseded if not abrogated the ruling in Philippine Acetylene that the tax exemption of NPC should be
limited to direct taxes only.
In the light of the foregoing discussion the first corollary issue must consequently be resolved in the
affirmative, that is, FIRB Resolution No. 10-85 dated February 7, 1985 and FIRB Resolution No. 1-86
dated January 7, 1986 which restored NPC's tax exemption privileges included the restoration of the
indirect tax exemption of the NPC on petroleum products it used.
On the second corollary issue as to the validity of FIRB resolution No. 17-87 dated June 24, 1987 which
restored NPC's tax exemption privilege effective March 10, 1987, the Court finds that the same is valid
and effective.
It provides as follows:
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of
the National Power Corporation, including those pertaining to its domestic purchases of
petroleum and petroleum products, granted under the terms and conditions of
Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers,
objectives and functions, and for other purposes), as amended, are restored effective March
10, 1987, subject to the following conditions:
1. The restoration of the tax and duty exemption privileges does not apply to the following:
1.1. Importation of fuel oil (crude equivalent) and coal;
1.2. Commercially-funded importations (i.e., importations which include but are
not limited to those financed by the NPC's own internal funds, domestic
borrowings from any source whatsoever, borrowing from foreign-based private
financial institutions, etc.); and
1.3. Interest income derived from any source.
2. The NPC shall submit to the FIRB a report of its expansion program, including details of
disposition of relieved tax and duty payments for such expansion on an annual basis or as
often as the FIRB may require it to do so. This report shall be in addition to the usual FIRB
reporting requirements on incentive availment.40
Executive Order No. 93 provides as follows—
Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax
and duty incentives granted " to government and private entities are hereby withdrawn,
except:
a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective international agreements to which the Government
of the Republic of the Philippines is a signatory;
 c) those enjoyed-by enterprises registered with:
(i) the Board of Investments pursuant to Presidential Decree No. 1789, as
amended;
(ii) the Export Processing Zone Authority, pursuant to Presidential Decree
No. 66, as amended;
(iii) the Philippine Veterans Investment Development Corporation
Industrial Authority pursuant to Presidential Decree No. 538, as
amended;
d) those enjoyed by the copper mining industry pursuant to the provisions of Letter
of Instruction No. 1416;
e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
f) those approved by the President upon the recommendation of the Fiscal
Incentives Review Board.
Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as
amended, is hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;
b) revise the scope and coverage of tax and/of duty exemption that may be
restored.
c) impose conditions for the restoration of tax and/or duty exemption;
d) prescribe the date or period of effectivity of the restoration of tax and/or duty
exemption;
e) formulate and submit to the President for approval, a complete system for the
grant of subsidies to deserving beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential treatment in taxation,
indicating the source of funding therefor, eligible beneficiaries and the terms and
conditions for the grant thereof taking into consideration the international
commitments of the Philippines and the necessary precautions such that the grant
of subsidies does not become the basis for countervailing action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall
take into account any or all of the following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation effort;
c) nature of the activity the beneficiary is engaged;
d) in general, the greater national interest to be served.
True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of the view that
the powers conferred upon the FIRB by Sections 2(a), (b), (c), and (d) of Executive Order No. 93
constitute undue delegation of legislative power and is therefore unconstitutional. However, he was
overruled by the respondent Executive Secretary in a letter to the Secretary of Finance dated March
30, 1989. The Executive Secretary, by authority of the President, has the power to modify, alter or
reverse the construction of a statute given by a department secretary.41
A reading of Section 3 of said law shows that it set the policy to be the greater national interest. The
standards of the delegated power are also clearly provided for.
The required "standard" need not be expressed. In Edu vs. Ericta42 and in De la Llana vs. Alba43 this
Court held: "The standard may be either express or implied. If the former, the non-delegated objection
is easily met. The standard though does not have to be spelled out specifically. It could be implied from
the policy and purpose of the act considered as a whole."
In People vs. Rosenthal44 the broad standard of "public interest" was deemed sufficient. In Calalang vs.
Williams,45, it was "public welfare" and in Cervantes vs. Auditor General,46 it was the purpose of
promotion of "simplicity, economy and efficiency." And, implied from the purpose of the law as a
whole, "national security" was considered sufficient standard47 and so was "protection of fish fry or
fish eggs.48
The observation of petitioner that the approval of the President was not even required in said
Executive Order of the tax exemption privilege approved by the FIRB unlike in previous similar
issuances, is not well-taken. On the contrary, under Section l(f) of Executive Order No. 93, aforestated,
such tax and duty exemptions extended by the FIRB must be approved by the President. In this case,
FIRB Resolution No. 17-87 was approved by the respondent Executive Secretary, by authority of the
President, on October 15, 1987.49
Mr. Justice Isagani A. Cruz commenting on the delegation of legislative power stated —
The latest in our jurisprudence indicates that delegation of legislative power has become the
rule and its non-delegation the exception. The reason is the increasing complexity of modern
life and many technical fields of governmental functions as in matters pertaining to tax
exemptions. This is coupled by the growing inability of the legislature to cope directly with
the many problems demanding its attention. The growth of society has ramified its activities
and created peculiar and sophisticated problems that the legislature cannot be expected
reasonably to comprehend. Specialization even in legislation has become necessary. To many
of the problems attendant upon present day undertakings, the legislature may not have the
competence, let alone the interest and the time, to provide the required direct and
efficacious, not to say specific solutions.50
Thus, in the case of Tablarin vs. Gutierrez,51 this Court enunciated the rationale in favor of delegation
of legislative functions—
One thing however, is apparent in the development of the principle of separation of powers
and that is that the maxim of delegatus non potest delegare or delegati potestas non potest
delegare, adopted this practice (Delegibus et Consuetudiniis Anglia edited by G.E. Woodline,
Yale University Press, 1922, Vol. 2, p. 167) but which is also recognized in principle in the
Roman Law d. 17.18.3) has been made to adapt itself to the complexities of modern
government, giving rise to the adoption, within certain limits, of the principle of subordinate
legislation, not only in the United States and England but in practically all modern
governments. (People vs. Rosenthal and Osmeña, 68 Phil. 318, 1939). Accordingly, with the
growing complexities of modern life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws, there is a constantly
growing tendency toward the delegation of greater power by the legislative, and toward the
approval of the practice by the Courts. (Emphasis supplied.)
The legislative authority could not or is not expected to state all the detailed situations wherein the tax
exemption privileges of persons or entities would be restored. The task may be assigned to an
administrative body like the FIRB.
Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute.
Such presumption can be overturned if its invalidity is proved beyond reasonable doubt. Otherwise, a
liberal interpretation in favor of constitutionality of legislation should be adopted.52
E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB And
as above discussed, the tax exemption privilege that was restored to NPC by FIRB Resolution No. 17-87
of June 1987 includes exemption from indirect taxes and duties on petroleum products used in its
operation.
Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been upheld
in Albay.53
In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos. 1931 and 1955 issued by
President Marcos in 1984 are invalid as they were presumably promulgated under the infamous
Amendment No. 6 and that as they cover tax exemption, under Section 17(4), Article VIII of the 1973
Constitution, the same cannot be passed "without the concurrence of the majority of all the members
of the Batasan Pambansa." And, even conceding that the reservation of legislative power in the
President was valid, it is opined that it was not validly exercised as there is no showing that such
presidential encroachment was justified under the conditions then existing. Consequently, it is
concluded that Executive Order No. 93, which was intended to implement said decrees, is also illegal.
The authority of the President to sub-delegate to the FIRB powers delegated to him is also questioned.
In Albay,54 as above stated, this Court upheld the validity of P.D. Nos. 776 and 1931. The latter decree
withdrew tax exemptions of government-owned or controlled corporations including their subsidiaries
but authorized the FIRB to restore the same. Nevertheless, in Albay, as above-discussed, this Court
ruled that the tax exemptions under FIRB Resolution Nos. 10-85 and 1-86 cannot be enforced as said
resolutions were only recommendatory and were not duly approved by the President of the Philippines
as required by P.D. No. 776.55 The Court also sustained in Albaythe validity of Executive Order No. 93,
and of the tax exemptions restored under FIRB Resolution No. 17-87 which was issued pursuant
thereto, as it was duly approved by the President as required by said executive order.
Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987 Constitution, it is
provided that:
 All existing laws, decrees, executive orders, proclamation, letters of instructions, and other
executive issuances not inconsistent with this constitution shall remain operative until
amended, repealed or revoked.
Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown that they are inconsistent with
the Constitution.1âwphi1
Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order No. 93 are not valid and are
unconstitutional, the result would be the same, as then the latest applicable law would be P.D. No. 938
which amended the NPC charter by granting exemption to NPC from all forms of taxes. As above
discussed, this exemption of NPC covers direct and indirect taxes on petroleum products used in its
operation. This is as it should be, if We are to hold as invalid and inoperative the withdrawal of such tax
exemptions under P.D. No. 1931 as well as under Executive Order No. 93 and the delegation of the
power to restore these exemptions to the FIRB.
The Court realizes the magnitude of the consequences of this decision. To reiterate, in Albay this Court
ruled that the NPC is liable for real estate taxes as of June 11, 1984 (the date of promulgation of P.D.
No. 1931) when NPC had ceased to enjoy tax exemption privileges since FIRB Resolution Nos. 1085 and
1-86 were not validly issued. The real estate tax liability of NPC from June 11, 1984 to December 1,
1990 is estimated to amount to P7.49 billion plus another P4.76 billion in fuel import duties the firm
had earlier paid to the government which the NPC now proposed to pass on to the consumers by
another 33-centavo increase per kilowatt hour in power rates on top of the 17-centavo increase per
kilowatt hour that took effect just over a week ago.,56 Hence, another case has been filed in this Court
to stop this proposed increase without a hearing.
As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86 were issued, P.D. No. 776 dated
August 24, 1975 was already amended by P.D. No. 1931 ,57 wherein it is provided that such FIRB
resolutions may be approved not only by the President of the Philippines but also by the Minister of
Finance. Such resolutions were promulgated by the Minister of Finance in his own right and also in his
capacity as FIRB Chairman. Thus, a separate approval thereof by the Minister of Finance or by the
President is unnecessary.
As earlier stated a reexamination of the ruling in Albay on this aspect is therefore called for and
consequently, Albaymust be considered superseded to this extent by this decision. This is because P.D.
No. 938 which is the latest amendment to the NPC charter granting the NPC exemption from all forms
of taxes certainly covers real estate taxes which are direct taxes.
This tax exemption is intended not only to insure that the NPC shall continue to generate electricity for
the country but more importantly, to assure cheaper rates to be paid by the consumers.
The allegation that this is in effect allowing tax evasion by oil companies is not quite
correct.1a\^/phi1 There are various arrangements in the payment of crude oil purchased by NPC from
oil companies. Generally, the custom duties paid by the oil companies are added to the selling price
paid by NPC. As to the specific and ad valorem taxes, they are added a part of the seller's price, but
NPC pays the price net of tax, on condition that NPC would seek a tax refund to the oil companies. No
tax component on fuel had been charged or recovered by NPC from the consumers through its power
rates.58 Thus, this is not a case of tax evasion of the oil companies but of tax relief for the NPC. The
billions of pesos involved in these exemptions will certainly inure to the ultimate good and benefit of
the consumers who are thereby spared the additional burden of increased power rates to cover these
taxes paid or to be paid by the NPC if it is held liable for the same.
The fear of the serious implication of this decision in that NPC's suppliers, importers and contractors
may claim the same privilege should be dispelled by the fact that (a) this decision particularly treats of
only the exemption of the NPC from all taxes, duties, fees, imposts and all other charges imposed by
the government on the petroleum products it used or uses for its operation; and (b) Section 13(d) of
R.A. No. 6395 and Section 13(d) of P.D. No. 380, both specifically exempt the NPC from all taxes,
duties, fees, imposts and all other charges imposed by the government on all petroleum products used
in its operation only, which is the very exemption which this Court deems to be carried over by the
passage of P.D. No. 938. As a matter of fact in Section 13(d) of P.D. No. 380 it is specified that the
aforesaid exemption from taxes, etc. covers those "directly or indirectly" imposed by the "Republic of
the Philippines, its provincies, cities, municipalities and other government agencies and
instrumentalities" on said petroleum products. The exemption therefore from direct and indirect tax
on petroleum products used by NPC cannot benefit the suppliers, importers and contractors of NPC of
other products or services.
The Court realizes the laudable objective of petitioner to improve the revenue of the government. The
amount of revenue received or expected to be received by this tax exemption is, however, not going to
any of the oil companies. There would be no loss to the government. The said amount shall accrue to
the benefit of the NPC, a government corporation, so as to enable it to sustain its tremendous task of
providing electricity for the country and at the least cost to the consumers. Denying this tax exemption
would mean hampering if not paralyzing the operations of the NPC. The resulting increased revenue in
the government will also mean increased power rates to be shouldered by the consumers if the NPC is
to survive and continue to provide our power requirements. 59 The greater interest of the people must
be paramount.
WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.
SO ORDERED.
Narvasa, Melencio-Herrera, Feliciano, Bidin, Medialdea and Regalado, JJ., concur.
Fernan C.J., No part.
Paras, J., I dissent, but the NPC should be refunded not by the consuming public but by the oil
companies for ultimately these oil companies get the benefit of the alleged tax exemption.
Padilla, J., took no part.
Separate Opinions
CRUZ, J., Dissenting:
I join Mr. Justice Abraham F. Sarmiento in his excellent dissent and would stress only the following
additional observations.
A tax exemption represents a loss of revenue to the State and must therefore not be lightly granted or
inferred. When claimed, it must be strictly construed against the taxpayer, who must prove that he
comes under the exemption rather than the rule that every one must contribute his just share in the
maintenance of the government.
In the case at bar, the ponencia would justify the tax exemption as having been validly granted under
P.D. Nos. 1931 and 1955 and Resolutions Nos. 10-85 and 1-86 of the Fiscal Incentives Review Board. It
is also asserted that FIRB Resolution No. 17-87, which restored MPC's tax exemption effective March
10 1987, was lawfully adopted pursuant to a valid delegation of power made by Executive Order No.
93.
When P.D. Nos. 1931 and 1955 were issued by President Marcos in 1984, the Batasang Pambansa was
already in existence and discharging its legislative powers. Presumably, these decrees were
promulgated under the infamous Amendment No. 6. Assuming that the reservation of legislative
power in the President was then valid, I submit that the power was nevertheless not validly exercised.
My reason is that the President could legislate under the said amendment only if the Batasang
Pambansa "failed or was unable to act adequately on any matter that in his judgment required
immediate action" to meet the "exigency." There is no showing that the presidential encroachment on
legislative prerogatives was justified under these conditions. Simply because the rubber-stamp
legislature then meekly submitted did not make the usurpation valid.
By these decrees, President Marcos, exercising legislative power, delegated it to himself as executive
and empowered himself and/or the Minister of Finance to restore the exemptions previously
withdrawn.
As the decrees themselves were invalid it should follow that Executive Order No. 93, which was
intended only to implement them, should also be illegal. But even assuming the legality of the said
decrees, I would still question the authority of the President to sub-delegate the powers delegated to
her thereunder.
Such sub-delegation was not permissible because potestas delegata non delegari potest Even if we
were to disregard the opinion of Secretary of Justice Sedfrey A. Ordoñez that there were no sufficient
standards in Executive Order No. 93 (although he was reversed on this legal questions by the Executive
Secretary), the President's delegated authority could still not be extended to the FIRB which was not a
delegate of the legislature.
It is remarkable that the respondents could seriously argue that a mere administrative body like the
FIRB can exercise the legislative power to grant tax exemptions. I am not aware that any other such
agency, including the Bureau of Internal Revenue and the Bureau of Customs, has this authority. An
administrative body can apply tax exemptions under existing law but it cannot itself create such
exemptions. This is a prerogative of the Congress that cannot be usurped by or even delegated to a
mere administrative body.
In fact, the decrees clearly provided that it was the President and/or the Minister of Finance who could
restore the exemption, subject only to the recommendation of the FIRB. The FIRB was not empowered
to directly restore the exemption. And even if it be accepted that the FIRB merely recommended the
exemption, which was approved by the Finance Minister, there would still be the curious anomaly of
Minister Virata upholding his very own act as chairman of the FIRB.
This Court called it a "travesty of justice" when in Zambales Chromite vs. Court of Appeals, 94 SCRA
261, the Secretary of Agriculture and Natural Resources approved a decision earlier rendered by him
when he was the Director of Mines, and in Anzaldo vs. Clave, 119 SCRA 353, where the respondent, as
presidential executive assistant, affirmed on appeal to Malacañang his own decision as chairman of the
Civil Service Commission.
It is important to note that when P.D. Nos. 1931 and 1955 were issued by President Marcos, the rule
under the 1973 Constitution was that "no law granting a tax exemption shall be passed without the
concurrence of a majority of all the members of the Batasang Pambansa." (Art. VIII, Sec. 17[4]). Laws
are usually passed by only a majority of those present in the chamber, there being a quorum, but not
where it grants a tax exemption. This requires an absolute majority. Yet, despite this stringent
limitation on the national legislature itself, such stricture does not inhibit the President and the FIRB in
the exercise of their delegated power. It would seem that the delegate has more power than the
principal. Significantly, this limitation is maintained in the present Constitution under Article VI, Section
28(4).
The ponencia holds that the rule of strict construction is not applicable where the grantee is an agency
of the government itself, like the MPC in the case before us. I notice, however, that the ultimate
beneficiaries of the expected tax credit will be the oil companies, which certainly are not part of the
Republic of the Philippines. As the tax refunds will not be enjoyed by the MPC itself, I see no reason
why we should be exceptionally lenient in applying the exception.
The tax credits involved in this petition are tremendous—no less than Pl.58 billion. This amount could
go a long way in improving the national economy and the well-being of the Filipino people, who
deserve the continuing solicitude of the government, including this Court. I respectfully submit that it is
to them that we owe our foremost loyalty.
Gutierrez, Jr., J., concurs
SARMIENTO, J., dissenting:
I would like to point out specifically two things in connection with the majority's disposition as to: (1)
Finance Incentives Review Board FIRB Resolutions Nos. 10-85 and 186; and (2) the National Power
Corporation's tax exemption vis-a-vis our decision in the case of Philippine Acetylene Co., Inc. vs.
Commission of Internal Revenue,1and in the light of the provisions of its charter, Republic Act No. 6395,
and the various amendments entered into it.
(1)
On pages 20-23 of the Decision, the majority suggests that FIRB Resolutions Nos. 10-85 and 1-86 had
validly restored the National Power Corporation's tax exemption privileges, which Presidential Decree
No. 1931 had meanwhile suspended. I wish to stress that in the case of National Power Corporation vs.
Province of Albay,2 the Court held that the FIRB Resolutions Nos. 10-85 and 1-86 had the bare force of
recommendations and did not operate as a restoration, in the absence of an approval by the President
(in then President Marcos' exercise of legislative powers), of tax exemptions. The Court noted that
there is nothing in Presidential Decree No. 776, the FIRB charter, conferring on it the authority to grant
or restore exemptions, other than to make recommendations on what exemptions to grant or restore.
I quote:
xxx xxx xxx
It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was
merely to "recommend to the President of the Philippines and for reasons of compatibility
with the declared economic policy, the withdrawal, modification, revocation or suspension of
the enforceability of any of the abovecited statutory subsidies or tax exemption grants,
except those granted by the Constitution." It has no authority to impose taxes or revoke
existing ones, which, after all, under the Constitution, only the legislature may accomplish. . .
.3
xxx xxx xxx
As the Court held there, it was only on March 10, 1987 that the restoration became effective, not
because Resolutions Nos. 10-85 and 1-86 decreed a restoration, but because of Resolution No. 17-87
which, on the other hand, carried the approval of the Office of the President .4 (FIRB Resolution No. 17-
87 made the National Power Corporation's exemption effective March 10, 1987.) Hence, the National
Power Corporation, so the Court held, was liable for payment of real property taxes to the Province of
Albay between. June 11, 1984, the date Presidential Decree No. 1931 (withdrawing its tax exemptions)
took effect, and March 10, 1987,
As far therefore as the majority in the present case rules that the National Power Corporation is also
entitled to a refund as a result of FIRB Resolutions Nos. 10-15 and 1-86, I respectfully submit that a
serious conflict has arisen.
While it is true that FIRB Resolutions Nos. 10-85 and 1-86 were signed by the Finance Minister Cesar
Virata,5 I submit nonetheless, as Albay in fact held, that the signature of the Mr. Virata is not enough to
restore an exemption. The reason is that Mr. Virata signed them (FIRB Resolutions Nos. 10-85 and 1-
86) in his capacity as chairman of the Finance Incentives Review Board FIRB. I find this clear from the
very Resolutions in question:
FISCAL INCENTIVES REVIEW BOARD
RESOLUTION NO. 10-85
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That:
1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National
Power Corporation under C.A. No. 120 as amended are restored up to June 30, 1985.
2. Provided, That this restoration does not apply to the following:
a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-
84;
 b. commercially-funded importations; and
c. interest income derived from any investment source.
3. Provided further, That in case of importations funded by international financing
agreements, the NPC is hereby required to furnish the FIRB on a periodic basis the particulars
of items received or to be received through such arrangements, for purposes of tax and duty
exemption privileges.
I respectfully submit that to say that Mr. Virata's signature is sufficient (please note that Resolution No.
10-85 was not even signed by Mr. Virata, but rather by Mr. Alfredo Pio de Roda, Jr.) is in fact to confer
on the Board actual "restoration" or even exemption powers, because in all cases, FIRB Resolutions are
signed by Mr. Virata (or the acting chairman) in his capacity as Board Chairman. I submit that we can
not consider an FIRB Resolution as an act of Mr. Virata in his capacity as Minister of Finance (and
therefore, as a grant or restoration of tax exemption) although Mr. Virata also happened to be
concurrently, Minister of Finance, because to do so would be to blur the distinction between the
capacities in which he, Mr. Virata, actually acted. I submit that he, Mr. Virata, need have issued
separate approvals of the Resolutions in question, in his capacity as Finance Minister.

(Sgd.) ALFREDO PIO DE RODA, JR.

Acting Minister of Finance
Acting Chairman, FIRB
FISCAL INCENTIVES REVIEW BOARD
RESOLUTION NO. 1-86
BE IT RESOLVED, AS IT IS HEREBY RESOLVED: That:
1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National
Power Corporation (NPC) under Commonwealth Act No. 120, as amended, are
restored; Provided, That importations of fuel oil (crude oil equivalent) and coal of the herein
grantee shall be subject to the basic and additional import duties; Provided, further, That the
following shall remain fully taxable:
a. Commercially-funded importations; and
b. Interest income derived by said grantee from bank deposits and yield or any
other monetary benefits from deposit substitutes, trust fund and other similar
arrangements.
2. The NPC as a government corporation is exempt from the real property tax on land and
improvements owned by it provided that the beneficial use of the property is not transferred
to another pursuant to the provisions of Sec. 40(a) of the Real Property Tax Code, as
amended.
Parenthetically, on the issue of the constitutional validity of Executive Order No. 93, insofar as it
"delegates" the power to restore exemptions to the FIRB, I hold that in the first place, Executive Order
No. 93 makes no delegation at all. As the majority points out, "[u]nder Section 1 (f) of Executive Order
No. 93, aforestated, such tax and duty exemptions extended by the FIRB must be approved by the
President."6 Hence, the FIRB does not exercise any power—and as I had held, its powers does not
merely recommendatory—and it is the President who in fact exercises it. It is true that Executive Order
No. 93 has set out certain standards by which the FIRB as a reviewing body, may act, but I do not
believe that a genuine delegation question has arisen because precisely, the acts of the Board are
subject to approval by the President, in the exercise of her legislative powers under the Freedom
Constitution.7
(2)
According to the Decision, the National Power Corporation, under its charter, is also exempt from
indirect taxes, and that there is nothing irregular about what is apparently standard operating
procedure between the Corporation and the oil firms in which the latter sell to the Corporation of "net
of tax" and that thereafter, the Corporation assigns to them its tax credit.
I gather first, and with all due respect, that there has been a misunderstanding about so-called indirect
taxes and the theory of shifting taxes. In Philippine Acetylene Co., Inc., supra, the Court intimated that
there are no such things as indirect taxes for purposes of exemption, and that the National Power
Corporation's exemption from taxes can not be claimed, as well, by a manufacturer (who sells his
products to the Corporation) on the theory that the taxes he will shift will be shifted to a tax-exempt
entity. According to the Court, "the purchaser does not pay the tax . . . [h]e pays or may pay the seller
more for the goods because of the seller's obligation, but that is all and the amount added because of
the tax is paid to get the goods and for nothing else."8

(Sgd.) CESAR E.A. VIRATA

Minister of Finance It is true that a tax may be shifted, that is, to enable the payor to escape its effects by adding it to the
Chairman-FIRB price, thereby transferring the burden to the purchaser of whom the incidence of the tax settles
(indirect tax). I submit, however, that it is only for purposes of escape from taxation. As Acetylene has
clarified, the tax which the manufacturer is liable to pay directly under a statute is still a personal tax
and in "passing and tax on" to the purchaser, he does not really make the latter pay the tax, and what
the latter pays actually is just the price. Thus, for purposes of exemption, and so Acetylene tells us, the
manufacturer can not claim one because the purchaser happens to be exempted from taxes. Mutatis
mutandis and so I respectfully submit, the purchaser can not be allowed to accept the goods "net of
tax" because it never paid for the tax in the first place, and was never liable therefor in the second
place.
According to the majority, Philippine Acetylene has been "abrogated," and the majority points to the
various amendments to the charter of the National Power Corporation as authority for its view.
First, there is nothing in those amendments that would remotely point to this conclusion.
Second, Acetylene's pronouncement is founded on the very science of taxation—that indirect taxes are
no taxes for purposes of exemption, and that consequently, one who did not pay taxes can not claim
an exemption although the price he paid for the goods included taxes. To enable him to claim an
exemption, as the majority would now enable him (Acetylene having been "abrogated"), is, I submit, to
defeat the very laws of science.
The theory of "indirect taxes" and that no exemption is possible therefrom, so I reiterate, are well-
settled concepts of taxation, as the law of supply and demand is to the law of economics. A President is
said (unfairly) to have attempted it, but one can not repeal the law on supply and demand.
I do not find the National Power Corporation's alleged exemption from indirect tax evident, as the
majority finds it evident, from the Corporation's charter, Republic Act No. 6395, as amended by
Presidential Decrees Nos. 380 and 938. It is true that since Commonwealth Act No. 120 (the
Corporation's original charter, which Republic Act No. 6395 repealed), the Corporation has enjoyed a
"preferential tax treatment," I seriously doubt, however, whether or not that preference embraces
"indirect taxes" as well—which, as I said, are no taxes for purposes of claims for exemptions by the
"indirect payor." And albeit Presidential Decree No. 938 refers to "all forms of taxes," I can not take
that to include, as a matter of logic, "indirect taxes," and as discussed above, that scenario is not
possible.
I quite agree that the legislative intent, based on a perusal of Republic Act No. 6395 and subsequent
amendatory statutes was to give the National Power Corporation a broad tax preference on account of
the vital functions it performs, indeed, "to enable the Corporation to pay the indebtedness and
obligation and in furtherance and effective implementation of the policy initiated" by its charter. I
submit, however, that that alone can not entitle the Corporation to claim an exemption for indirect
taxes. I also believe that its existing exemption from direct taxes is sufficient to serve the legislative
purpose.
The fact that the National Power Corporation has been tasked with an enormous undertaking "to
improve," as the majority puts it, "the quality of life of the people" pursuant to constitutional
mandates is no reason, I believe, to include indirect taxes within the coverage of its preferential tax
treatment. After all, it is exempt from direct taxes, and the fact that it will be made to shoulder indirect
taxes (which are no taxes) will not defeat its exemption or frustrate the intent of both legislature and
Constitution.
I do not think that the majority can point to the various executive constructions as authorities for its
own construction. First and foremost, with respect to then Commissioner Ruben Ancheta's ruling of
May 8, 1985 cited on pages 32-33 of the Decision, it is notable that in his BIR Ruling No. 183-85, dated
October 22, 1985, he in fact reversed himself, I quote:
In reply please be informed that after a re-study of Section 13, R.A. 6395 as amended by P.D.
No. 938, this Office is of the opinion, and so holds, that the scope of the tax exemption
privilege enjoyed by NPC under said section covers only taxes for which it is directly liable
and not on taxes which are merely shifted to it. (Phil. Acetylene Co. vs. Comm. of Internal
Revenue, 20 SCRA 1056,1967). Since contractor's tax is directly payable by the contractor,
not by NPC, your request for exemption, based on the stipulation in the aforesaid contract
that NPC shall assume payment of your contractor's tax liability, cannot be granted for lack of
legal basis. (emphasis added)9
In yet another ruling, then Commissioner Bienvenido Tan likewise declared, in connection with an
apparent claim for refund by the Philippine Airlines, that "PAL's tax exemption is limited to taxes for
which PAL is directly liable, and that the payment of specific and ad valorem taxes on petroleum
products is a direct liability of the manufacturer or producer thereof . . ."10
Again, under BIR Ruling No. 152-86, the Bureau of Internal Revenue reiterated, as to the National
Power Corporation's claim for a refund I quote:
. . . this Office has maintained the stand that your tax exemption privileges covers only taxes
for which you are directly liable.11
Per BIR Ruling No. 70-043, dated August 27, 1970, the Bureau likewise held that the term "all forms of
taxes" covers only direct taxes,12
In his letter addressed to former BIR Commissioner Tan, Atty. Reynoso Floreza, BIR Assistant
Commissioner for Legal, opposed Caltex Philippines' claim for a P58-million refund, and although the
Commissioner at that time hedged he was later persuaded by Special Assistant Abraham De la Viña and
in fact, instructed Atty. De la Viña to "prepare [the] corresponding notice to NPC and Caltex"13 to
inform them that their claim has been denied. (Although strangely, he changed his mind later.)
Hence, I do not think that we can judiciously rely on executive construction because executive
construction has been at best, erratic, and at worst, conflicting.
I do not find that majority's historical construction a reliable yardstick in this case, for if the historical
development of the law were any indication, the legislative intent is, on the contrary, to exclude
indirect taxes from the coverage of the National Power Corporation's tax exemption. Thus, under
Commonwealth Act No. 120, the Corporation was made exempt from the payment of all taxes in
connection with the issuance of bonds. Under Republic Act No. 358, it was made exempt from the
payment of all taxes, duties, fees, imposts, and charges of the national and local governments.
Under Republic Act No. 6395, the National Power Corporation was further declared exempt:
(e) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation . . .
By virtue of Presidential Decree No. 380, it was made exempt:
(d) from all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the corporation in the
generation, transmission, utilization and sale of electric power.
By virtue however of Presidential Decree No. 938, reference to "indirect taxes" was omitted thus:
. . .To enable the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section One of this Act, the
Corporation, including its subsidiaries, is hereby declared exempt from the payment of all
forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees,
appeal bonds, supersedeas bonds, in any court or administrative proceedings.
The deletion of "indirect taxes" in the Decree is, so I hold, significant, because if the intent of the law
were truly to exempt the National Power Corporation from so-called indirect taxes as well, the law
would have said so specifically, as it said so specifically in Presidential Decree No. 380.
I likewise do not think that the reference to the whereas clauses of Presidential Decree No. 938 is
warranted, in particular, the following whereas clause:
WHEREAS, in the application of the tax exemption provisions of the Revised Charter, the non-
profit character of NPC has not been fully utilized because of the restrictive interpretations of
the taxing agencies of the government on said provisions;
I am not certain whether it can be basis for a "liberal" construction. I am more inclined to believe that
the term "restrictive interpretations" refers to BIR rulings confining the exemption to the Corporation
alone (but not its subsidiaries), and not, rather, to the scope of its exemption. Indeed, as Presidential
Decree No. 938 specifically declares, "the Corporation, including its subsidiaries, is hereby declared
exempt . . . "14
The majority expresses the apprehension that if the National Power Corporation were to be made to
assume "indirect taxes," the latter will be forced to pass them on to the consuming public.
First, and as Acetylene held, we do not even know if the payor will in fact "pass them on." "A decision
to absorb the burden of the tax is largely a matter of economics."15 Furthermore:
In the long run a sales tax is probably shifted to the consumer, but during the period when
supply is being adjusted to changes in demand it must be in part absorbed. In practice the
businessman will treat the levy as an added cost of operation and distribute it over his sales
as he would any other cost, increasing by more than the amount of the tax prices of goods
demand for which will be least affected and leaving other prices unchanged. 47 Harv. Ld. Rev.
860, 869 (1934).16
It therefore appears to me that any talk of the public ultimately absorbing the tax is pure speculation.
Second, it has typically been the bogeyman that business, with due respect, has invoked to avoid the
payment of tax. And to be sure, the populist allure of that argument has appealed to many, yet it has
probably also obscured what is as fundamental as protecting consumers—preserving public revenue,
the very lifeblood of the nation. I am afraid that this is not healthy policy, and what occurs to me—and
what indeed leaves me very uncomfortable—is that by the stroke of the pen, we should have in fact
given away P13,750,214,639.00 (so it is said) of legitimate government money.
According moreover to Committee Report No. 474 of the Senate, "NPC itself says that it does not use
taxes to increase prices of electricity to consumers because the cost of electric generation and sale
already takes into account the tax component. "17
I can not accept finally, what to me is an unabashed effort by the oil firms to evade taxes, the
arrangement (as I gather from the Decision) between the National Power Corporation and the oil
companies in which the former assigns its tax credit to the latter. I also presume that this is the natural
consequence of the "understanding," as I discussed above, to purchase oil "net of tax" between
NAPOCOR and the oil firms, because logically, the latter will look for other sources from which to
recoup the taxes they had failed to shift and recover their losses as a result. According to the Decision,
no tax is left unpaid because they have been pre-paid before the oil is delivered to the National Power
Corporation. But whatever taxes are paid are in fact wiped out because the subsequent credit transfer
will enable the oil companies to recover the taxes pre- paid.
According to the majority, "[t]his is not a case of tax evasion of the oil companies but a tax relief for the
NPC."18 The problem, precisely, is that while it is NPC which is entitled to "tax relief," the arrangement
between NPC and the oil companies has enabled instead the latter to enjoy relief — when relief is due
to NPC alone. The point still remains that no tax money actually reaches our coffers because as I said,
that arrangement enables them to wipe it out. If the NPC were the direct importer, I would then have
no reason to object, after all, the NPC is exempt from direct taxation and secondly, the money it is
paying to finance its importations belongs to the government. The law, however, gave the exemption
to NPC, not the oil companies.
According to the Decision: "The amount of revenue received or expected to be received by this tax
exemption is, however, not going to any of the oil companies. . . "19 and that "[t]here would be no loss
to the government."20
With due respect to the majority, it is erroneous, if not misleading, to say that no money is going to the
oil companies and that the government is not losing anything. Definitely, the tax credit assignment
arrangement between the NPC and the oil firms enables the latter to recover revenue they have paid.
And definitely, that means loss for the government.
The majority is concerned with the high cost of electricity. The increasing cost of electricity is however
due to myriad factors, foremost of which, is the devaluation of the peso21 and as recent events have
suggested, "miscalculations" at the top levels of NPC. I can not however attribute it, as the majority in
all earnest attributes it, to the fact, far-fetched as it is, that the NPC has not been allowed to enjoy
exemption from indirect taxes.
Tax exemptions furthermore are a matter of personal privilege of the grantee. It has been held that as
such, they can not be assigned, unless the statute granting them permits an assignment.22
While "shifting the burden of tax" is a permissible method of avoiding a tax, evading it is a totally
different matter. And while I agree with the National Power Corporation should be given the widest
financial assistance possible, assistance should not be an excuse for plain tax evasion, if not tax fraud,
by Big Business, in particular, Big Oil.
(3) Postscripts
With all due respect, I do not think that the majority has appreciated enough the serious implications
of its decision—to the contrary, in particular, its shrinking coffers. I do not think that we are, after all,
talking here of "simple" billions, but in fact, billions upon billions in lost revenue looming large.
I am also afraid that the majority is not quite aware that it is setting a precedent not only for the oil
companies but in fact, for the National Power Corporation's suppliers, importers, and contractors.
Although I am not, as of this writing, aware of their exact number or the precise amount the National
Power Corporation has spent in payment of supplies and equipment, I can imagine that the
Corporation's assets consisting of those supplies and equipment, machines and machinery, are worth
no fewer than billions.
With this precedent, there is no stopping indeed the NAPOCOR's suppliers, from makers of storage
tanks, steel towers, cables and cable poles, to builders of dikes, to layers of pipelines, and pipes, from
claiming the same privilege.
There is no stopping the NPC's contractors, from suppliers of cement for plant fixtures and lumber for
edifices, to the very engineers and technicians who designed them, from demanding equal rights.
There will be no stopping the Corporation's transporters, from container van and rig owners to
suppliers of service vehicles of NPC executives, from demanding the privilege.
What is to stop, indeed, caterers of food served in board meetings or in NAPOCOR cafeterias from
asking for exemption, since food billed includes sales taxes shifted to a tax-exempt entity and,
following the theory of the majority, taxes that may be refunded?
What is, indeed, to stop all imagined claimants from demanding all imagined claims, since as we are
aware, the rule of taxation—and consequently, tax exemption—is uniform and equitable?23
Of course, we have discussed NAPOCOR alone; we have not touched other tax-exempt entities, say,
the Marinduque Mining Corporation and Nonoc Mining Corporation. Per existing records and per
reliable information, Caltex Philippines, between 1979 and 1986, successfully recovered the total sum
of P49,835,791.00. In 1985, Caltex was said to have been refunded the amount of P4,217,423.00
arising from the same tax arrangement with the Nonoc Mining Corporation.
Again, what is stopping—by virtue of this decision not—only the oil firms but also Marinduque's and
Nonoc's suppliers, importers, and ridiculously, caterers, from claiming a future refund?
The Decision, to be sure, attempts to allay these apprehensions and "dispel[s] [them] by the fact that . .
. the decision particularly treats of only the exemption of the NPC from all taxes, duties, fees, imposts
and all other charges imposed by the government on the petroleum products it need or uses for its
operation . . . "24 Firstly, under Presidential Decree No. 938, the supposed tax exemption of the
National Power Corporation covers "all forms of taxes.25 If therefore "all forms of taxes covers as well
indirect taxes because Presidential Decree No. 380 supposedly extended the Corporation's exemption
to indirect taxes (and the majority "deems Presidential Decree No. 380 to have been carried over to
Presidential Decree No. 938"), then the conclusion seems in escapable—following the logic of the
majority—that the Corporation is exempt from all indirect taxes, on petroleum and any and all other
products and services.

The fact of the matter, second of all, is that the Decision is premised on the alleged exemption of the
National Power Corporation from all forms of taxes, meaning, direct and indirect taxes. It is a premise
that is allegedly supported by statutory history, and the legislature's alleged intent to grant the
Corporation awesome exemptions. If that were the case, the Corporation must logically be exempt
from all kinds of taxes payable. Logically, the majority can not limit the sweep of its pronouncement by
exempting the National Power Corporation from "indirect taxes on petroleum" alone. What is sauce
for the goose (taxes on petroleum) is also sauce for the gander (all other taxes).

I still would have reason for my fears.

I can not, in all candor, accept the majority's efforts, and going back to the Corporation's charters, to
"carry over," in particular, Section 13(d) of Presidential Decree No. 380, to Presidential Decree No. 938.
First of all, if Presidential Decree No. 938 meant to absorb Presidential Decree No. 380 it would have
said so specifically, or at the very least, left it alone. Obviously, Presidential Decree No. 938 meant
otherwise, to begin with, because it is precisely an amendatory statute. Secondly, a "carry-over" would
have allowed this Court to make law, so only it can fit in its theories.

The country has gone to lengths fashioning an elaborate tax system and an efficient tax collection
machinery. Planners' efforts have seen various shifts in the taxing system, from specific, to ad valorem,
to value-added taxation, purportedly to minimize collection. For this year, the Bureau of Internal
Revenue has a collection target of P130 billion, and significantly, it has been unrelenting in its tax and
tax-consciousness drive. I am not prepared to cite numbers but I figure that the money it will lose by
virtue of this Decision is a meaningful chunk off its target, and a significant setback to the government's
programs.

I am afraid that by this Decision, the majority has ignored the forest (the welfare of the entire nation)
in favor of a tree (the welfare of a government corporation). The issue, in my opinion, is not the
viability of the National Power Corporation—as if the fate of the nation depended alone on it—but the
very survival of the Republic. I am not of course to be mistaken as being less concerned with
NAPOCOR's fiscal chart. The picture, as I see it however, is that we are in fact assisting the oil
companies, out of that alleged concern, in evading taxes at the expense, needless to state, of our
coffers. I do not think that that is a question of legal hermeneutics, but rather, of plain love of country.
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor
General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.
MARTIN, J.:
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 delegated to municipalities under the Local Autonomy Act
(Republic Act No. 2264, as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the 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 No. 2264.1 otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23
and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state
that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the
production tax rates imposed therein are practically the same, and second, that on January 17, 1963,
the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the
Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the
provisions of said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, 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 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
On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and
collects "on soft drinks produced or manufactured within the territorial jurisdiction of this municipality
a tax of ONE CENTAVO (P0.01) on each 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 soft drinks shall submit to the Municipal Treasurer a monthly report of the total number of
gallons produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal 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 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."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which,
in turn, elevated the case to Us pursuant to Section 31 of the 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 power,
confiscatory and oppressive?
2. — Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes?
3. — Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of
right to every independent government, without being expressly conferred by the people. 6 It is a
power that is purely legislative and which the central legislative body cannot delegate either to the
executive or judicial department of the government without infringing upon the theory of separation
of powers. The exception, however, lies in the case of municipal corporations, to which, said theory
does not apply. Legislative powers may be delegated to local governments in respect of matters of
local concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the legislative
power to create political corporations for purposes of local self-government carries with it the power
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 own sources of revenue and to levy
taxes. Section 5, Article XI provides: "Each local government unit shall have the power to create its
sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal, it
cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the
legislative power to enact and vest in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense,
would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority,
the State is not limited 6 the exact measure of that which is exercised by itself. When it is said that the
taxing power may be delegated to municipalities and the like, it is meant that there may be delegated
such measure of power to impose and collect taxes as the legislature may deem expedient. Thus,
municipalities may be permitted to tax subjects which for reasons of public policy the State has not
deemed wise to tax for more general purposes. 10 This is not to say though that the constitutional
injunction against deprivation of property without due process of law may be passed over under the
guise of the taxing power, except when the taking of the property is in the lawful exercise of the taxing
power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3)
either the person or property taxed is within the jurisdiction of the government levying the tax; and (4)
in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are
provided. 11 Due process is usually violated where the tax imposed is for a private as distinguished from
a public purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation; and
arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate
the due process clause, as applied to a particular taxpayer, although the purpose of the tax will result
in an injury rather than a benefit to such taxpayer. Due process does not require that the property
subject to the tax or the amount of tax to be raised should be determined by judicial inquiry, and a
notice and hearing as to the amount of the tax and the manner in which it shall be apportioned are
generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be declared unconstitutional on
the theory of double taxation. It must be observed that the delegating authority specifies the
limitations and enumerates the taxes over which local taxation may not be exercised. 13 The reason is
that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in
general, is not forbidden by our fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of the United States and some states of
the Union.14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the
benefit of the same governmental entity 15 or by the same jurisdiction for the same purpose, 16 but not
in a case where one tax is imposed by the State and the other by the city or municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because
these two ordinances cover the same subject matter and impose practically the same tax rate. The
thesis proceeds from its assumption that both ordinances are valid and legally enforceable. This is not
so. As earlier quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or collects
from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo 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 contents of the bottle and still pay the same tax
rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28, 1962, imposing
a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The difference
between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No.
23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on
each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of
Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. 18 Plaintiff-
appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27,
series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of
Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said
Ordinance No. 27, series of 1962. The aforementioned admission shows that only Ordinance No. 27,
series of 1962 is being enforced by defendants-appellees. Even the Provincial Fiscal, counsel for
defendants-appellees admits in his brief "that Section 7 of Ordinance No. 27, series of 1962 clearly
repeals Ordinance No. 23 as the provisions of the latter are inconsistent with the provisions of the
former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a
specific tax. Undoubtedly, the taxing authority conferred on local governments under Section 2,
Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which are
mentioned therein." As long as the text levied under the authority of a city or municipal ordinance is
not within the exceptions and limitations in the law, the same comes within the ambit of the general
rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in 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 any form based thereon nor impose taxes on
articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue
Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio
between the amount of the tax and the volume of sale of the taxpayer imposes a sales 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 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 sold or
not) and not on the sales. The volume capacity of the taxpayer's production of 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 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.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks,
produced or manufactured, or an equivalent of 1-½ centavos per case, 23 cannot be considered unjust
and unfair. 24 an increase in the tax alone would not support the claim that the tax is oppressive,
unjust and confiscatory. Municipal corporations are allowed much discretion in determining the reates
of imposable taxes. 25 This is in line with the constutional policy of according the widest possible
autonomy to local governments in matters of local taxation, an aspect that is given expression in the
Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be prohibitive,
courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance should not deter
compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen
local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten
crowners or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers,
producers, importers and dealers of soft drinks and/or mineral waters under Ordinance No. 54, series
of 1964, as amended by Ordinance No. 41, series of 1968, of defendant Municipality, 29 appears not to
affect the resolution of the validity of Ordinance No. 27. Municipalities are empowered to impose, not
only municipal license taxes upon persons engaged in any business or occupation but also to levy for
public purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within
the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the
Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the
Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is
hereby declared of valid and legal effect. Costs against petitioner-appellant.
SO ORDERED.
Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muñoz Palma, Aquino and Concepcion,
Jr., JJ., concur.
Separate Opinions
FERNANDO, J., concurring:
The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive
character. Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I
am only in agreement. If I limit myself to concurrence in the result, it is primarily because with the
article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in restating
doctrines that arose from a different basic premise as to the scope of such power in accordance with
the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am unable to share fully what
for me are the nuances and implications that could arise from the approach taken by my brethren.
Likewise as to the constitutional aspect of the thorny question of double taxation, I would limit myself
to what has been set forth in City of Baguio v. De Leon.1
1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "Each local government unit shall have the power to
create its own sources of revenue and to levy taxes subject to such limitations as may be provided by
law. 2 That was not the case under the 1935 Charter. The only limitation then on the authority, plenary
in character of the national government, was that while the President of the Philippines was vested
with the power of control over all executive departments, bureaus, or 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 concerned, no restriction whatsoever was placed on the
Congress of the Philippines. 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 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
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 corporation cannot assume
and exercise it, and that any such power granted must be construed strictly, any doubt or ambiguity
arising from the terms of the grant to be resolved against the municipality."7
Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao,8 "is an
attribute of sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as
to weakness of a claim "based merely by inferences, implications and deductions, [as they have no
place in the interpretation of the power to tax of a municipal corporation." 10 As the conclusion
reached by the 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 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 Holmes made clear in this language: 'The objection to the taxation
as double may be 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 (confiscation or proceedings
unconstitutional on other grouse With that decision rendered at a time when American sovereignty in
the Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered
the coup justice to the bogey of double taxation as a constitutional bar to the exercise of the taxing
power. It would seem though that in the United States, as with us, its ghost, as noted by an eminent
critic, still stalks the juridical stage. 'In a 1947 decision, however, 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 though double taxation results. 12
So I would view the issues in this suit and accordingly concur in the result.
Separate Opinions
FERNANDO, J., concurring:
The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive
character. Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I
am only in agreement. If I limit myself to concurrence in the result, it is primarily because with the
article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in restating
doctrines that arose from a different basic premise as to the scope of such power in accordance with
the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am unable to share fully what
for me are the nuances and implications that could arise from the approach taken by my brethren.
Likewise as to the constitutional aspect of the thorny question of double taxation, I would limit myself
to what has been set forth in City of Baguio v. De Leon.1
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 Holmes made clear in this language: 'The objection to the taxation
as double may be 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 (confiscation or proceedings
unconstitutional on other grouse With that decision rendered at a time when American sovereignty in
the Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered
the coup justice to the bogey of double taxation as a constitutional bar to the exercise of the taxing
power. It would seem though that in the United States, as with us, its ghost, as noted by an eminent
critic, still stalks the juridical stage. 'In a 1947 decision, however, 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 though double taxation results. 12
So I would view the issues in this suit and accordingly concur in the result.

1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "Each local government unit shall have the power to
create its own sources of revenue and to levy taxes subject to such limitations as may be provided by
law. 2 That was not the case under the 1935 Charter. The only limitation then on the authority, plenary
in character of the national government, was that while the President of the Philippines was vested
with the power of control over all executive departments, bureaus, or 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 concerned, no restriction whatsoever was placed on the
Congress of the Philippines. 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 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
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 corporation cannot assume
and exercise it, and that any such power granted must be construed strictly, any doubt or ambiguity
arising from the terms of the grant to be resolved against the municipality."7

Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao,8 "is an
attribute of sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as
to weakness of a claim "based merely by inferences, implications and deductions, [as they have no
place in the interpretation of the power to tax of a municipal corporation." 10 As the conclusion
reached by the 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 prefer to rely on the
G.R. No. 120082 September 11, 1996
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial Court,
Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor HON. TOMAS R. OSMEÑA, and
EUSTAQUIO B. CESA, respondents.
DAVIDE, JR., J.:
For review under Rule 45 of the Rules of Court on a pure question of law are the decision of
22 March 19951of the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing the
petition for declaratory relief in Civil Case No. CEB-16900 entitled "Mactan Cebu
International Airport Authority vs. City of Cebu", and its order of 4, May 19952 denying the
motion to reconsider the decision.
We resolved to give due course to this petition for its raises issues dwelling on the scope of
the taxing power of local government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in the instant petition as follows:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by
virtue of Republic Act No. 6958, mandated to "principally undertake the
economical, efficient and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu
City, . . . and such other Airports as may be established in the Province of Cebu . . .
(Sec. 3, RA 6958). It is also mandated to:
a) encourage, promote and develop
international and domestic air traffic in the
Central Visayas and Mindanao regions as a
means of making the regions centers of
international trade and tourism, and
accelerating the development of the means
of transportation and communication in the
country; and
b) upgrade the services and facilities of the
airports and to formulate internationally
acceptable standards of airport
accommodation and service.
Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption
from payment of realty taxes in accordance with Section 14 of its Charter.
Sec. 14. Tax Exemptions. — The authority shall be exempt from
realty taxes imposed by the National Government or any of its
political subdivisions, agencies and instrumentalities . . .
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of
the Treasurer of the City of Cebu, demanded payment for realty taxes on several
parcels of land belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A,
989-A, 474, 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, Cebu City, in the total
amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless and unjustified,
claiming in its favor the aforecited Section 14 of RA 6958 which exempt it from
payment of realty taxes. It was also asserted that it is an instrumentality of the
government performing governmental functions, citing section 133 of the Local
Government Code of 1991 which puts limitations on the taxing powers of local
government units:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. — Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities,
municipalities, and barangay shall not extend to the levy of the
following:
a) . . .
xxx xxx xxx
o) Taxes, fees or charges of any kind on the
National Government, its agencies and
instrumentalities, and local government
units. (Emphasis supplied)
Respondent City refused to cancel and set aside petitioner's realty tax account,
insisting that the MCIAA is a government-controlled corporation whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the
Local Governmental Code that took effect on January 1, 1992:
Sec. 193. Withdrawal of Tax Exemption Privilege. — Unless otherwise provided in
this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under RA
No. 6938, non-stock, and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)
xxx xxx xxx
Sec. 234. Exemptions from Real Property taxes. — . . .
(a) . . .
xxx xxx xxx
(c) . . .
Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-
owned or controlled corporations are hereby withdrawn upon
the effectivity of this Code.
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 Declaratory Relief with the Regional Trial Court of
Cebu, Branch 20, on December 29, 1994. MCIAA basically contended that the
taxing powers of local government units do not extend to the levy of taxes or fees
of any kind on an instrumentality of the national government. Petitioner insisted
that while it is indeed a government-owned corporation, it nonetheless stands on
the same footing as an agency or instrumentality of the national government.
Petitioner insisted that while it is indeed a government-owned corporation, it
nonetheless stands on the same footing as an agency or instrumentality of the
national government by the very nature of its powers and functions.
Respondent City, however, asserted that MACIAA is not an instrumentality of the
government but merely a government-owned corporation performing proprietary
functions As such, all exemptions previously granted to it were deemed withdrawn
by operation of law, as provided under Sections 193 and 234 of the Local
Government Code when it took effect on January 1, 1992.3
The petition for declaratory relief was docketed as Civil Case No. CEB-16900.
In its decision of 22 March 1995,4 the trial court dismissed the petition in light of its findings,
to wit:
A close reading of the New Local Government Code of 1991 or RA 7160 provides
the express cancellation and withdrawal of exemption of taxes by government
owned and controlled corporation per Sections after the effectivity of said Code on
January 1, 1992, to wit: [proceeds to quote Sections 193 and 234]
Petitioners claimed that its real properties assessed by respondent 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).
However, RA 7160 expressly provides that "All general and special laws, acts, city
charters, decress [sic], executive orders, proclamations and administrative
regulations, or part or parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified accordingly." ([f], Section
534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and state that the tax
exemption provided for in RA 6958 creating petitioner 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 its properties
effective after January 1, 1992 until the present.
This Court's ruling finds expression to give impetus and meaning to the overall
objectives of the New Local Government Code of 1991, RA 7160. "It is hereby
declared the policy of the State that the territorial and political subdivisions of the
State shall enjoy genuine and meaningful local autonomy to enable them to attain
their fullest development as self-reliant communities and make them more
effective partners in the attainment of national goals. Towards this end, the State
shall provide for a more responsive and accountable local government structure
 instituted through a system of decentralization whereby local government units
shall be given more powers, authority, responsibilities, and resources. The process
of decentralization shall proceed from the national government to the local
government units. . . .5
Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order,
the petitioner filed the instant petition based on the following assignment of errors:
I RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE
PETITIONER IS VESTED WITH GOVERNMENT POWERS AND
FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS AN
INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT.
II RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS
LIABLE TO PAY REAL PROPERTY TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that although it is a government-owned
or controlled corporation it is mandated to perform functions in the same category as an
instrumentality of Government. An instrumentality of Government is one created to perform
governmental functions primarily to promote certain aspects of the economic life of the
people.6 Considering its task "not merely to efficiently operate and manage the Mactan-Cebu
International Airport, but more importantly, to carry out the Government policies of
promoting and developing the Central Visayas and Mindanao regions as centers of
international trade and tourism, and accelerating the development of the means of
transportation and communication in the country,"7and that it is an attached agency of the
Department of Transportation and Communication (DOTC),8 the petitioner "may stand in
[sic] the same footing as an agency or instrumentality of the national government." Hence,
its tax exemption privilege under Section 14 of its Charter "cannot be considered withdrawn
with the passage of the Local Government Code of 1991 (hereinafter LGC) because Section
133 thereof specifically states that the taxing powers of local government units shall not
extend to the levy of taxes of fees or charges of any kind on the national government its
agencies and instrumentalities."
As to the second assigned error, the petitioner contends that being an instrumentality of the
National Government, respondent City of Cebu has no power nor authority to impose realty
taxes upon it in accordance with the aforesaid Section 133 of the LGC, as explained in Basco
vs. Philippine Amusement and Gaming Corporation;9
Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation with an
original character, PD 1869. All its shares of stock are owned by the National
Government. . . .
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter joke
is governmental, which places it in the category of an agency or instrumentality of
the Government. Being an instrumentality of the Government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede, burden or in
any manner control the operation of constitutional laws enacted by Congress to
carry into execution the powers vested in the federal government. (McCulloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579).
This doctrine emanates from the "supremacy" of the National Government over
local government.
Justice Holmes, speaking for the Supreme Court, make references to the entire
absence of power on the part of the States to touch, in that way (taxation) at least,
the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them.
(Antieau Modern Constitutional Law, Vol. 2, p. 140)
Otherwise mere creature of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable activities or
enterprise using the power to tax as "a toll for regulation" (U.S. v. Sanchez, 340 US
42). The power to tax which was called by Justice Marshall as the "power to
destroy" (McCulloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power to
wield it. (Emphasis supplied)
It then concludes that the respondent Judge "cannot therefore correctly say that the
questioned provisions of the Code do not contain any distinction between a governmental
function as against one performing merely proprietary ones such that the exemption
privilege withdrawn under the said Code would apply to allgovernment corporations." For it
is clear from Section 133, in relation to Section 234, of the LGC that the legislature meant to
exclude instrumentalities of the national government from the taxing power of the local
government units.
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 Constitution10 and enhanced further by the LGC. While it
may be true that under its Charter the petitioner was exempt from the payment of realty
taxes,11 this exemption was withdrawn by Section 234 of the LGC. In response to the
petitioner's claim that such exemption was not repealed because being an instrumentality of
the National Government, Section 133 of the LGC prohibits local government units from
imposing taxes, fees, or charges of any kind on it, respondent City of Cebu points out that the
petitioner is likewise a government-owned corporation, and Section 234 thereof does not
distinguish between government-owned corporation, and Section 234 thereof does not
distinguish between government-owned corporation, and Section 234 thereof does not
distinguish between government-owned or controlled corporations performing
governmental and purely proprietary functions. Respondent city of Cebu urges this the
Manila International Airport Authority is a governmental-owned corporation, 12 and to reject
the application of Basco because it was "promulgated . . . before the enactment and the
singing into law of R.A. No. 7160," and was not, therefore, decided "in the light of the spirit
and intention of the framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found
only in the responsibility of the legislature which imposes the tax on the constituency who
are to pay it. Nevertheless, effective limitations thereon may be imposed by the people
through their Constitutions.13 Our Constitution, for instance, provides that the rule of
taxation shall be uniform and equitable and Congress shall evolve a progressive system of
taxation.14 So potent indeed is the power that it was once opined that "the power to tax
involves the power to destroy."15 Verily, taxation is a destructive power which interferes with
the personal and property for the support of the government. Accordingly, tax statutes must
be construed strictly against the government and liberally in 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 exemptions from taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayers and liberally in favor of the taxing
authority.18 A claim of exemption from tax payment must be clearly shown and based on
language in the law too plain to be mistaken.19 Elsewise stated, taxation is the rule,
exemption therefrom is the exception.20 However, if the grantee of the exemption is a
political subdivision or instrumentality, the rigid rule of construction does not apply because
the practical effect of the exemption is merely to reduce the amount of money that has to be
handled by the government in the course of its operations.21
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section 5, Article X of the
Constitution.22 Under the latter, the exercise of the power may be subject to such guidelines
and limitations as the Congress may provide which, however, must be consistent with the
basic policy of local autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt
from the payment of realty taxes imposed by the National Government or any of its political
subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and
exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure
of the taxing authority. The only exception to this rule is where the exemption was granted
to private parties based on material consideration of a mutual nature, which then becomes
contractual and is thus covered by the non-impairment clause of the Constitution.23
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, the scope thereof or its limitations, and the
exemption from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of local
government units as follows:
Sec. 133. Common Limitations on the Taxing Power of Local Government Units. —
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial
institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, "inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided herein
(d) Customs duties, registration fees of vessels and wharfage on
wharves, tonnage dues, and all other kinds of customs fees
charges and dues except wharfage on wharves constructed and
maintained by the local government unit concerned:
(e) Taxes, fees and charges and other imposition upon goods
carried into or out of, or passing through, the territorial
jurisdictions of local government units in the guise or charges
for wharfages, tolls for bridges or otherwise, or other taxes,
fees or charges in any form whatsoever upon such goods or
merchandise;
(f) Taxes fees or charges on agricultural and aquatic products
when sold by marginal farmers or fishermen;
(g) Taxes on business enterprise certified to be the Board of
Investment as pioneer or non-pioneer for a period of six (6) and
four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National
Internal Revenue Code, as amended, and taxes, fees or charges
on petroleum products;
(i) Percentage or value added tax (VAT) on sales, barters or
exchanges or similar transactions on goods or services except
as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractor and
person engage in the transportation of passengers of freight by
hire and common carriers by air, land, or water, except as
provided in this code;
(k) Taxes on premiums paid by ways reinsurance or
retrocession;
(l) Taxes, fees, or charges for the registration of motor vehicles
and for the issuance of all kinds of licenses or permits for the
driving of thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine product actually
exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay
Business Enterprise and Cooperatives duly registered under
R.A. No. 6810 and Republic Act Numbered Sixty nine hundred
thirty-eight (R.A. No. 6938) otherwise known as the
"Cooperative Code of the Philippines; and
(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE NATIONAL
GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND
LOCAL GOVERNMENT UNITS. (emphasis supplied)
Needless to say the last item (item o) is pertinent in this case. The "taxes, fees or charges"
referred to are "of any kind", hence they include all of these, unless otherwise provided by
the LGC. The term "taxes" is well 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
Ordinance for the regulation or inspection of business activity,24 while "charges" are
pecuniary liabilities such as rents or fees against person or property.25
Among the "taxes" enumerated in the LGC is real property tax, which is governed by Section
232. It reads as follows:
Sec. 232. Power to Levy Real Property Tax. — A province or city or a municipality
within the Metropolitan Manila Area may levy on an annual ad valorem tax on real
property such as land, building, machinery and other improvements not hereafter
specifically exempted.
Section 234 of LGC provides for the exemptions from payment of real property taxes and
withdraws previous exemptions therefrom granted to natural and juridical persons, including
government owned and controlled corporations, except as provided therein. It provides:
Sec. 234. Exemptions from Real Property Tax. — The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial use
thereof had been granted, for reconsideration or otherwise, to
a taxable person;
(b) Charitable institutions, churches, parsonages or convents
appurtenants thereto, mosques nonprofits or religious
cemeteries and all lands, building and improvements actually,
directly, and exclusively used for religious charitable or
educational purposes;
(c) All machineries and equipment that are actually, directly
and exclusively used by local water districts and government-
owned or controlled corporations engaged in the supply and
 distribution of water and/or generation and transmission of
electric power;
(d) All real property owned by duly registered cooperatives as
provided for under R.A. No. 6938; and;
(e) Machinery and equipment used for pollution control and
environmental protection.
Except as provided herein, any exemptions from payment of
real property tax previously granted to or presently enjoyed by,
all persons whether natural or juridical, including all
government owned or controlled corporations are hereby
withdrawn upon the effectivity of his Code.
These exemptions are based on the ownership, character, and use of the property. Thus;
(a) Ownership Exemptions. Exemptions from real property taxes
on the basis of ownership are real properties owned by: (i) the
Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a
barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes
on the basis of their character are: (i) charitable institutions, (ii)
houses and temples of prayer like churches, parsonages or
convents appurtenant thereto, mosques, and (iii) non profit or
religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on
the basis of the actual, direct and exclusive use to which they
are devoted are: (i) all lands buildings and improvements which
are actually, directed and exclusively used for religious,
charitable or educational purpose; (ii) all machineries and
equipment actually, directly and exclusively used or by local
water districts or by government-owned or controlled
corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; and (iii)
all machinery and equipment used for pollution control and
environmental protection.
To help provide a healthy environment in the midst of the modernization of the
country, all machinery and equipment for pollution control and environmental
protection may not be taxed by local governments.
2. Other Exemptions Withdrawn. All other exemptions
previously granted to natural or juridical persons including
government-owned or controlled corporations are withdrawn
upon the effectivity of the Code.26
Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. It
provides:
Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in
this code, tax exemptions or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including government-owned, or controlled
corporations, except local water districts, cooperatives duly registered under R.A.
6938, non stock and non profit hospitals and educational constitutions, are hereby
withdrawn upon the effectivity of this Code.
On the other hand, the LGC authorizes local government units to grant tax exemption
privileges. Thus, Section 192 thereof provides:
Sec. 192. Authority to Grant Tax Exemption Privileges. — Local government units
may, through ordinances duly approved, grant tax exemptions, incentives or reliefs
under such terms and conditions as they may deem necessary.
The foregoing sections of the LGC speaks of: (a) the limitations on the taxing powers of local
government units and the exceptions to such limitations; and (b) the rule on tax exemptions
and the exceptions thereto. The use of exceptions of provisos in these section, as shown by
the following clauses:
(1) "unless otherwise provided herein" in the opening
paragraph of Section 133;
(2) "Unless otherwise provided in this Code" in section 193;
(3) "not hereafter specifically exempted" in Section 232; and
 (4) "Except as provided herein" in the last paragraph of Section
234
initially hampers a ready understanding of the sections. Note, too, that the aforementioned
clause in section 133 seems to be inaccurately worded. Instead of the clause "unless
otherwise provided herein," with the "herein" to mean, of course, the section, it should have
used the clause "unless otherwise provided in this Code." The former results in absurdity
since the section itself enumerates what are beyond the taxing powers of local government
units and, where exceptions were intended, the exceptions were explicitly indicated in the
text. For instance, in item (a) which excepts the income taxes "when livied on banks and
other financial institutions", item (d) which excepts "wharfage on wharves constructed and
maintained by the local government until concerned"; and item (1) which excepts taxes, fees,
and charges for the registration and issuance of license or permits for the driving of
"tricycles". It may also be observed that within the body itself of the section, there are
exceptions which can be found only in other parts of the LGC, but the section
interchangeably uses therein the clause "except as otherwise provided herein" as in items (c)
and (i), or the clause "except as 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" "Unless
otherwise provided in this Code" instead of "Unless otherwise 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 those exempted therefrom under Section 234, then
Section 232 must be deemed to qualify Section 133.
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 government units cannot extend
to the levy of inter alia, "taxes, fees, and charges of any kind of the National Government, its
agencies and instrumentalties, and local government units"; however, pursuant to Section
232, provinces, cities, municipalities in the Metropolitan Manila Area may 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 when the beneficial used thereof has been granted, for
consideration or otherwise, to a taxable person", as provided in item (a) of the first
paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical
persons, including government-owned and controlled corporations, Section 193 of the LGC
prescribes the general rule, viz., they 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 educational
institutions, and unless otherwise provided in the LGC. The latter proviso could refer to
Section 234, which enumerates the properties exempt from real property tax. But the last
paragraph of Section 234 further qualifies the retention of the exemption in so far as the real
property taxes are concerned by limiting the retention only to those enumerated there-in; all
others not included in the enumeration lost the privilege upon the effectivity of the LGC.
Moreover, even as the real property is owned by the Republic of the Philippines, or any of its
political subdivisions covered by 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
consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the
LGC, exemptions from real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the said section, and
the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that
its exemption from such tax granted it in Section 14 of its charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge
under any of the exceptions provided in 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.
In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing
powers of the local government units cannot extend to the levy of:
(o) taxes, fees, or charges of any kind on the National
Government, its agencies, or instrumentalities, and local
government units.
I must show that the parcels of land in question, which are real property, are any one of
those enumerated in Section 234, either by virtue of ownership, character, or use of the
property. Most likely, it could only be the first, but not under any explicit provision of the
said section, for one exists. In light of the petitioner's theory that it is an "instrumentality of
the Government", it 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 . . . . .
. "instrumentalities" and "agencies" or expediency we quote:
(a) real property owned by the Republic of the Philippines, or
any of the Philippines, or any of its political subdivisions except
when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
This view does not persuade us. In the first place, the petitioner's claim that it is an
instrumentality of the Government is based on Section 133(o), which expressly mentions the
word "instrumentalities"; and in the second place it fails to consider the fact that the
legislature used the phrase "National Government, its agencies and instrumentalities" "in
Section 133(o),but only the phrase "Republic of the Philippines or any of its political
subdivision "in Section 234(a).
The terms "Republic of the Philippines" and "National Government" are not interchangeable.
The former is boarder and synonymous with "Government of the Republic of the Philippines"
which the Administrative Code of the 1987 defines as the "corporate governmental entity
though which the functions of the government are exercised through at the Philippines,
including, saves as the contrary appears from the context, the various arms through which
political authority is made effective in the Philippines, whether pertaining to the autonomous
reason, the provincial, city, municipal or barangay subdivision or other forms of local
government."27 These autonomous regions, provincial, city, municipal or barangay
subdivisions" are the political subdivision.28
On the other hand, "National Government" refers "to the entire machinery of the central
government, as distinguished from the different forms of local Governments."29 The National
Government then is composed of the three great departments the executive, the legislative
and the judicial.30
An "agency" of the Government refers to "any of the various units of the Government,
including a department, bureau, office instrumentality, or government-owned or controlled
corporation, or a local government or a distinct unit therein;"31 while an "instrumentality"
refers to "any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy; usually
through a charter. This term includes regulatory agencies, chartered institutions and
government-owned and controlled corporations".32
If Section 234(a) intended to extend the exception therein to the withdrawal of the
exemption from payment of real property taxes under the last sentence of the said section to
the agencies and instrumentalities of the National Government mentioned in Section 133(o),
then it should have restated the wording of the latter. Yet, it did not Moreover, that Congress
did not wish to expand the scope of the exemption in Section 234(a) to include real property
owned by other instrumentalities or agencies of the government including government-
owned and controlled corporations is further borne out by the fact that the source of this
exemption is Section 40(a) of P.D. No. 646, otherwise known as the Real Property Tax Code,
which reads:
Sec 40. Exemption from Real Property Tax. — The exemption shall be as follows:
(a) Real property owned by the Republic of
the Philippines or any of its political
subdivisions and any government-owned or
controlled corporations so exempt by is
charter: Provided, however, that this
exemption shall not apply to real property
of the above mentioned entities the
beneficial use of which has been granted,
for consideration or otherwise, to a taxable
person.
Note that as a reproduced in Section 234(a), the phrase "and any government-owned or
controlled corporation so exempt by its charter" was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to limit further tax exemption
privileges, specially in light of the general provision on withdrawal of exemption from
payment of real 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 to ensure
autonomy to local governments33 and the objective of the LGC that they enjoy genuine and
meaningful local autonomy to enable them to attain their fullest development as self-reliant
communities and make them effective partners in the attainment of national goals.34 The
power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of local government units for the delivery of basic services essential
to the promotion of the general welfare and the enhancement of peace, progress, and
prosperity of the people. It may also be relevant to recall that the original reasons for the
withdrawal of tax exemption privileges granted to government-owned and controlled
corporations and all other units of government were that such privilege resulted in serious
tax base erosion and distortions in the tax treatment of similarly situated enterprises, and
there was a need for this entities to share in the requirements of the development, fiscal or
otherwise, by paying the taxes and other charges due from them. 35
The crucial issues then to be addressed are: (a) whether the parcels of land 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".
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All existing public
airport facilities, runways, lands, buildings and other properties, movable or
immovable, belonging to or presently administered by the airports, and all assets,
powers, rights, interests and privileges relating on airport works, or air operations,
including all equipment which are necessary for the operations of air navigation,
 acrodrome control towers, crash, fire, and rescue facilities are hereby transferred subject to tax. Where it is done precisely to fulfill a constitutional mandate and national
to the Authority: Provided however, that the operations control of all equipment policy, no one can doubt its wisdom.
necessary for the operation of radio aids to air navigation, airways communication,
the approach control office, and the area control center shall be retained by the Air WHEREFORE, the instant petition is DENIED. The challenged decision and order of the
Transportation Office. No equipment, however, shall be removed by the Air Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED.
Transportation Office from Mactan without the concurrence of the authority. The
authority may assist in the maintenance of the Air Transportation Office
No pronouncement as to costs.
equipment.

SO ORDERED.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan International
AirPort in the Province of Cebu",36 which belonged to the Republic of the Philippines, then
under the Air Transportation Office (ATO).37

It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then
administered by the Lahug Air Port and includes the parcels of land the respondent City of
Cebu seeks to levy on for real property taxes. This section involves a "transfer" of the "lands"
among other things, to the petitioner and not just the transfer of the beneficial use thereof,
with the ownership being retained by the Republic of the Philippines.

This "transfer" is actually an absolute conveyance of the ownership thereof because the
petitioner's authorized capital stock consists of, inter alia "the value of such real estate
owned and/or administered by the airports."38 Hence, the petitioner is now the owner of the
land in question and the exception in Section 234(c) of the LGC is inapplicable.

Moreover, the petitioner cannot claim that it was never a "taxable person" 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, except real property tax.

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 "instrumentality" of the Government, a taxable person for such purpose in
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, applies to the petitioner.

Accordingly, the position taken by the petitioner is untenable. Reliance on Basco

vs. Philippine Amusement and Gaming Corporation39 is unavailing since it was decided before
the effectivity of the LGC. Besides, nothing can prevent Congress from decreeing that even
instrumentalities or agencies of the government performing governmental functions may be