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G.R. No.

L-4376 May 22, 1953

ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-appellants,


vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY MAYOR, all of
the City of Manila, respondents-appellees.

Teotimo A. Roja for appellants.


City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for appellees.

BAUTISTA ANGELO, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Paras, C.J., Bengzon and Tuason, JJ., concur.


Montemayor, Reyes, Jugo and Labrador, JJ., concur in the result.

Separate Opinions

FERIA, J., concurring:


Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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,

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-
vis those 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 police 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.

Footnotes

1 Petitioner must have realized that a suit for declaratory relief must be filed with Regional Trial
Courts.

2 Batas Pambansa Blg. 135, Section 21 (1981).

3 The respondents are 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.

4 Petition, Parties, par. 1. The challenge is thus aimed at paragraphs (a) and (b) of Section 1 further
Amending Section 21 of the National Internal Revenue Code of 1977. Par. (a) reads: "(a) On taxable
compensation income. A tax is hereby imposed upon the taxable compensation income as
determined in Section 28 (a) received during each taxable year from all sources by every individual,
whether a citizen of the Philippines, determined in accordance with the following schedule:

Not over P2,500 0%


Over P 2,500 but not over P 1%
5,000

Over P 5,000 but not over P 25 + 3% of excess over P 5,000


10,000

Over P 10,000 but not over P P 175 + 7 % of excess over P 10,000


20,000

Over P 20,000 but not over P P 875 + 11%, of excess over P 20,000
40,000

Over P 40.000 but not over P P 3,075 + I 15% of excess over P


60,000 40,000

Over P 60,000 but not over P 6,075 + 19% of excess over P 60,000
P100,000

Over P100,000 but not over P 13,675 + 24% excess over P100,000
P250,000

Over P250,000 but not over P 49,675 + 29% of excess over


P500,000 P250,000

Over P500,000 P 122,175 + 35% of excess over


P500,000

Par. (b) reads: "(b) On taxable net income. A tax is hereby imposed upon the taxable net income
as determined in Section 29 (a) received during each taxable year from all sources by every
individual, whether a citizen of the Philippines, or an alien residing in the Philippines determined in
accordance with the following schedule:

Not over P10,000 5%

Over P 10,000 but not over P P 500 + 15% of excess over P 10,000
30,000

Over P 30,000 but not over P 3,500 + 30% of excess over P


P150,000 30,000

Over P150,000 but not over P 39,500 + 45% of excess over


P500,000 P150,000

Over P500,000 P197,000 + 601% of excess over


P500,000

5 Ibid Statement, par. 4.

6 Article IV, Section 1 of the Constitution reads: "No person shall be deprived of life, liberty or
property without due process of law, nor shall any person be denied the equal protection of the
laws."

7 Article VII, Section 7. par. (1) of the Constitution reads: "The rule of taxation shall be uniform and
equitable. The Batasang Pambansa shall evolve a progressive system of taxation."

8 It was filed by Solicitor General Estelito P. Mendoza. He was assisted by Assistant Solicitor
General Eduardo D. Montenegro and Solicitor Erlinda B, Masakayan.
9 Answer, pars. 1-6.

10 Ibid, par. 6.

11 Agricultural Credit and Cooperative Financing Administration v. Consideration of Unions in


Government Corporation and Offices, L-21484, November 29, 1969, 30 SCRA 649, 662.

12 Cf, Vera v. Fernandez, L-31364, March 30, 1979, 89 SCRA 199, per Castro, J.

13 Sarasola v. Trinidad, 40 Phil. 252, 262 (1919).

14 McColloch v. Maryland 4 Wheaton 316,

15 306 US 466 ( 938).

16 Ibid, 489

17 Ibid. 490.

18 Cf. Ermita-Malate Hotel and Motel Operator S Association v. Hon. City Mayor, 127 Phil. 306, 315
( 1967); U.S. v. Salaveria, 39 Phil. 102,111 (1918) and Ebona v. Daet, 85 Phil, 369 (1950). Likewise
referred to is O'Gorman and Young v. Hartford Fire Insurance Co 282 US 251, 328 (1931).

19 Cf. Manila Gas Co. v. Collector of Internal Revenue, 62 Phil. 895 (1936); Wells Fargo Bank and
Union Trust Co. v. Collector, 70 Phil. 325 (1940); Republic v. Oasan Vda. de Fernandez, 99 Phil.
934 (1956).

20 The excerpt is from the opinion in J.M. Tuason and Co. v. The Land Tenure Administration, L-
21064, February 18, 1970, 31 SCRA 413, 435 and reiterated in Bautista v. Juinio, G.R. No. 50908,
January 31, 1984, 127 SCRA 329, 339. The former deals with an eminent domain proceeding and
the latter with a suit contesting the validity of a police power measure.

21 Tigner v. Texas, 310 US 141, 147 (1940).

22 98 Phil. 148 (1955).

23 Ibid, 153.

24 Article VIII, Section 17, par. 1, first sentence of the Constitution

25 69 Phil. 420 (1940).

26 Ibid, 426.

27 Ibid, 424.

28 Eastern Theatrical Co. v. Alfonso, 83 Phil. 852, 862 (1949).

29 Manila Race Horse Trainers Asso. v. De la Fuente, 88 Phil. 60,65 (1951).

30 Uy Matias v. City of Cebu, 93 Phil. 300 (1953).

31 While petitioner cited figures to sustain in his assertion, public respondents refuted with other
figures that argue against his submission. One reason for requiring declaratory relief proceedings to
start in regional trial courts is precisely to enable petitioner to prove his allegation, absent an
admission in the answer.
235 SCRA 630 (1994) 249 SCRA 635 (1995) Political Law Origination of Revenue Bills EVAT
Amendment by Substitution
Arturo Tolentino et al are questioning the constitutionality of RA 7716 otherwise known as the Expanded
Value Added Tax (EVAT) Law. Tolentino averred that this revenue bill did not exclusively originate from
the House of Representatives as required by Section 24, Article 6 of the Constitution. Even though RA
7716 originated as HB 11197 and that it passed the 3 readings in the HoR, the same did not complete the
3 readings in Senate for after the 1st reading it was referred to the Senate Ways & Means Committee
thereafter Senate passed its own version known as Senate Bill 1630. Tolentino averred that what Senate
could have done is amend HB 11197 by striking out its text and substituting it with the text of SB 1630 in
that way the bill remains a House Bill and the Senate version just becomes the text (only the text) of the
HB. (Its ironic however to note that Tolentino and co-petitioner Raul Roco even signed the said Senate
Bill.)
ISSUE: Whether or not the EVAT law is procedurally infirm.
HELD: No. By a 9-6 vote, the Supreme Court rejected the challenge, holding that such consolidation was
consistent with the power of the Senate to propose or concur with amendments to the version originated
in the HoR. What the Constitution simply means, according to the 9 justices, is that the initiative must
come from the HoR. Note also that there were several instances before where Senate passed its own
version rather than having the HoR version as far as revenue and other such bills are concerned. This
practice of amendment by substitution has always been accepted. The proposition of Tolentino concerns
a mere matter of form. There is no showing that it would make a significant difference if Senate were to
adopt his over what has been done.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. 115455 October 30, 1995

ARTURO M. TOLENTINO, petitioner,


vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents.

MENDOZA, J.:

These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the
declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The
motions, of which there are 10 in all, have been filed by the several petitioners in these cases, with the exception of
the Philippine Educational Publishers Association, Inc. and the Association of Philippine Booksellers, petitioners in
G.R. No. 115931.

The Solicitor General, representing the respondents, filed a consolidated comment, to which the Philippine Airlines,
Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc., petitioner in G.R. No. 115544, and Juan
T. David, petitioner in G.R. No. 115525, each filed a reply. In turn the Solicitor General filed on June 1, 1995 a
rejoinder to the PPI's reply.

On June 27, 1995 the matter was submitted for resolution.

I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino, Kilosbayan, Inc.,
Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders Association (CREBA)) reiterate previous
claims made by them that R.A. No. 7716 did not "originate exclusively" in the House of Representatives as required
by Art. VI, 24 of the Constitution. Although they admit that H. No. 11197 was filed in the House of Representatives
where it passed three readings and that afterward it was sent to the Senate where after first reading it was referred
to the Senate Ways and Means Committee, they complain that the Senate did not pass it on second and third
readings. Instead what the Senate did was to pass its own version (S. No. 1630) which it approved on May 24,
1994. Petitioner Tolentino adds that what the Senate committee should have done was to amend H. No. 11197 by
striking out the text of the bill and substituting it with the text of S. No. 1630. That way, it is said, "the bill remains a
House bill and the Senate version just becomes the text (only the text) of the House bill."

The contention has no merit.

The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a House
revenue bill by enacting its own version of a revenue bill. On at least two occasions during the Eighth Congress, the
Senate passed its own version of revenue bills, which, in consolidation with House bills earlier passed, became the
enrolled bills. These were:

R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM
FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON
CAPITAL EQUIPMENT) which was approved by the President on April 10, 1992. This Act is actually a consolidation
of H. No. 34254, which was approved by the House on January 29, 1992, and S. No. 1920, which was approved by
the Senate on February 3, 1992.

R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY
FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President on May 22,
1992. This Act is a consolidation of H. No. 22232, which was approved by the House of Representatives on August
2, 1989, and S. No. 807, which was approved by the Senate on October 21, 1991.

On the other hand, the Ninth Congress passed revenue laws which were also the result of the consolidation of
House and Senate bills. These are the following, with indications of the dates on which the laws were approved by
the President and dates the separate bills of the two chambers of Congress were respectively passed:

1. R.A. NO. 7642

AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE
THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28,
1992).

House Bill No. 2165, October 5, 1992

Senate Bill No. 32, December 7, 1992

2. R.A. NO. 7643

AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE


PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL
GOVERNMENT UNITS TO SHARE IN VAT REVENUE, AMENDING FOR THIS PURPOSE
CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992)

House Bill No. 1503, September 3, 1992


Senate Bill No. 968, December 7, 1992

3. R.A. NO. 7646

AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE


PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING
FOR THIS PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED (February 24, 1993)

House Bill No. 1470, October 20, 1992

Senate Bill No. 35, November 19, 1992

4. R.A. NO. 7649

AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS,


INSTRUMENTALITIES OR AGENCIES INCLUDING GOVERNMENT-OWNED OR CONTROLLED
CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT
THE RATE OF THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF
GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES RENDERED BY
CONTRACTORS (April 6, 1993)

House Bill No. 5260, January 26, 1993

Senate Bill No. 1141, March 30, 1993

5. R.A. NO. 7656

AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO


DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT,
AND FOR OTHER PURPOSES (November 9, 1993)

House Bill No. 11024, November 3, 1993

Senate Bill No. 1168, November 3, 1993

6. R.A. NO. 7660

AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE


DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, ALLOCATING FUNDS FOR
SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES (December 23, 1993)

House Bill No. 7789, May 31, 1993

Senate Bill No. 1330, November 18, 1993

7. R.A. NO. 7717

AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK


LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL
PUBLIC OFFERING, AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, BY INSERTING A NEW SECTION AND REPEALING CERTAIN
SUBSECTIONS THEREOF (May 5, 1994)

House Bill No. 9187, November 3, 1993


Senate Bill No. 1127, March 23, 1994

Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to
propose amendments to bills required to originate in the House, passed its own version of a House revenue
measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners Tolentino and Roco, as members of
the Senate, voted to approve it on second and third readings.

On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a mere matter
of form. Petitioner has not shown what substantial difference it would make if, as the Senate actually did in this
case, a separate bill like S. No. 1630 is instead enacted as a substitute measure, "taking into Consideration . .
. H.B. 11197."

Indeed, so far as pertinent, the Rules of the Senate only provide:

RULE XXIX

AMENDMENTS

xxx xxx xxx

68. Not more than one amendment to the original amendment shall be considered.

No amendment by substitution shall be entertained unless the text thereof is submitted in writing.

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

69. No amendment which seeks the inclusion of a legislative provision foreign to the subject matter
of a bill (rider) shall be entertained.

xxx xxx xxx

70-A. A bill or resolution shall not be amended by substituting it with another which covers a subject
distinct from that proposed in the original bill or resolution. (emphasis added).

Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate possesses less
power than the U.S. Senate because of textual differences between constitutional provisions giving them the power
to propose or concur with amendments.

Art. I, 7, cl. 1 of the U.S. Constitution reads:

All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may
propose or concur with amendments as on other Bills.

Art. VI, 24 of our Constitution reads:

All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.

The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the phrase "as on other
Bills" in the American version, according to petitioners, shows the intention of the framers of our Constitution to
restrict the Senate's power to propose amendments to revenue bills. Petitioner Tolentino contends that the word
"exclusively" was inserted to modify "originate" and "the words 'as in any other bills' (sic) were eliminated so as to
show that these bills were not to be like other bills but must be treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of constitutional intent are
nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be recalled that the 1935
Constitution originally provided for a unicameral National Assembly. When it was decided in 1939 to change to a
bicameral legislature, it became necessary to provide for the procedure for lawmaking by the Senate and the House
of Representatives. The work of proposing amendments to the Constitution was done by the National Assembly,
acting as a constituent assembly, some of whose members, jealous of preserving the Assembly's lawmaking
powers, sought to curtail the powers of the proposed Senate. Accordingly they proposed the following provision:

All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills
shall originate exclusively in the Assembly, but the Senate may propose or concur with
amendments. In case of disapproval by the Senate of any such bills, the Assembly may repass the
same by a two-thirds vote of all its members, and thereupon, the bill so repassed shall be deemed
enacted and may be submitted to the President for corresponding action. In the event that the
Senate should fail to finally act on any such bills, the Assembly may, after thirty days from the
opening of the next regular session of the same legislative term, reapprove the same with a vote of
two-thirds of all the members of the Assembly. And upon such reapproval, the bill shall be deemed
enacted and may be submitted to the President for corresponding action.

The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It deleted
everything after the first sentence. As rewritten, the proposal was approved by the National Assembly and embodied
in Resolution No. 38, as amended by Resolution No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66
(1950)). The proposed amendment was submitted to the people and ratified by them in the elections held on June
18, 1940.

This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present Constitution was
derived. It explains why the word "exclusively" was added to the American text from which the framers of the
Philippine Constitution borrowed and why the phrase "as on other Bills" was not copied. Considering the defeat of
the proposal, the power of the Senate to propose amendments must be understood to be full, plenary and complete
"as on other Bills." Thus, because revenue bills are required to originate exclusively in the House of
Representatives, the Senate cannot enact revenue measures of its own without such bills. After a revenue bill is
passed and sent over to it by the House, however, the Senate certainly can pass its own version on the same
subject matter. This follows from the coequality of the two chambers of Congress.

That this is also the understanding of book authors of the scope of the Senate's power to concur is clear from the
following commentaries:

The power of the Senate to propose or concur with amendments is apparently without restriction. It
would seem that by virtue of this power, the Senate can practically re-write a bill required to come
from the House and leave only a trace of the original bill. For example, a general revenue bill passed
by the lower house of the United States Congress contained provisions for the imposition of an
inheritance tax . This was changed by the Senate into a corporation tax. The amending authority of
the Senate was declared by the United States Supreme Court to be sufficiently broad to enable it to
make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55 L. ed. 389].

(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))

The above-mentioned bills are supposed to be initiated by the House of Representatives because it
is more numerous in membership and therefore also more representative of the people. Moreover,
its members are presumed to be more familiar with the needs of the country in regard to the
enactment of the legislation involved.

The Senate is, however, allowed much leeway in the exercise of its power to propose or concur with
amendments to the bills initiated by the House of Representatives. Thus, in one case, a bill
introduced in the U.S. House of Representatives was changed by the Senate to make a proposed
inheritance tax a corporation tax. It is also accepted practice for the Senate to introduce what is
known as an amendment by substitution, which may entirely replace the bill initiated in the House of
Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).

In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills must "originate exclusively in the House of Representatives," it also
adds, "but the Senate may propose or concur with amendments." In the exercise of this power, the Senate may
propose an entirely new bill as a substitute measure. As petitioner Tolentino states in a high school text, a
committee to which a bill is referred may do any of the following:

(1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding sections or
altering its language; (3) to make and endorse an entirely new bill as a substitute, in which case it
will be known as a committee bill; or (4) to make no report at all.

(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))

To except from this procedure the amendment of bills which are required to originate in the House by prescribing
that the number of the House bill and its other parts up to the enacting clause must be preserved although the text
of the Senate amendment may be incorporated in place of the original body of the bill is to insist on a mere
technicality. At any rate there is no rule prescribing this form. S. No. 1630, as a substitute measure, is therefore as
much an amendment of H. No. 11197 as any which the Senate could have made.

II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S. No. 1630 is
an independent and distinct bill. Hence their repeated references to its certification that it was passed by the Senate
"in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197," implying that
there is something substantially different between the reference to S. No. 1129 and the reference to H. No. 11197.
From this premise, they conclude that R.A. No. 7716 originated both in the House and in the Senate and that it is
the product of two "half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of
Congress."

In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere amendments of the
corresponding provisions of H. No. 11197. The very tabular comparison of the provisions of H. No. 11197 and S.
No. 1630 attached as Supplement A to the basic petition of petitioner Tolentino, while showing differences between
the two bills, at the same time indicates that the provisions of the Senate bill were precisely intended to be
amendments to the House bill.

Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a mere
amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate on second and three
readings. It was enough that after it was passed on first reading it was referred to the Senate Committee on Ways
and Means. Neither was it required that S. No. 1630 be passed by the House of Representatives before the two bills
could be referred to the Conference Committee.

There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the House bill
and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits), were referred to a
conference committee, the question was raised whether the two bills could be the subject of such conference,
considering that the bill from one house had not been passed by the other and vice versa. As Congressman Duran
put the question:

MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is passed by
the House but not passed by the Senate, and a Senate bill of a similar nature is passed in the
Senate but never passed in the House, can the two bills be the subject of a conference, and can a
law be enacted from these two bills? I understand that the Senate bill in this particular instance does
not refer to investments in government securities, whereas the bill in the House, which was
introduced by the Speaker, covers two subject matters: not only investigation of deposits in banks
but also investigation of investments in government securities. Now, since the two bills differ in their
subject matter, I believe that no law can be enacted.

Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely in cases like this
where a conference should be had. If the House bill had been approved by the Senate, there would
have been no need of a conference; but precisely because the Senate passed another bill on the
same subject matter, the conference committee had to be created, and we are now considering the
report of that committee.

(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))

III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct and unrelated
measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that because the President
separately certified to the need for the immediate enactment of these measures, his certification was ineffectual and
void. The certification had to be made of the version of the same revenue bill which at the momentwas being
considered. Otherwise, to follow petitioners' theory, it would be necessary for the President to certify as many bills
as are presented in a house of Congress even though the bills are merely versions of the bill he has already
certified. It is enough that he certifies the bill which, at the time he makes the certification, is under consideration.
Since on March 22, 1994 the Senate was considering S. No. 1630, it was that bill which had to be certified. For that
matter on June 1, 1993 the President had earlier certified H. No. 9210 for immediate enactment because it was the
one which at that time was being considered by the House. This bill was later substituted, together with other bills,
by H. No. 11197.

As to what Presidential certification can accomplish, we have already explained in the main decision that the phrase
"except when the President certifies to the necessity of its immediate enactment, etc." in Art. VI, 26 (2) qualifies not
only the requirement that "printed copies [of a bill] in its final form [must be] distributed to the members three days
before its passage" but also the requirement that before a bill can become a law it must have passed "three
readings on separate days." There is not only textual support for such construction but historical basis as well.

Art. VI, 21 (2) of the 1935 Constitution originally provided:

(2) No bill shall be passed by either House unless it shall have been printed and copies thereof in its
final form furnished its Members at least three calendar days prior to its passage, except when the
President shall have certified to the necessity of its immediate enactment. Upon the last reading of a
bill, no amendment thereof shall be allowed and the question upon its passage shall be taken
immediately thereafter, and the yeas and nays entered on the Journal.

When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):

(2) No bill shall become a law unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to the Members three days before its passage,
except when the Prime Minister certifies to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and
the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the
Journal.

This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of the present
Constitution, thus:

(2) No bill passed by either House shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been distributed to its Members three
days before its passage, except when the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment
thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeasand nays entered in the Journal.

The exception is based on the prudential consideration that if in all cases three readings on separate days are
required and a bill has to be printed in final form before it can be passed, the need for a law may be rendered
academic by the occurrence of the very emergency or public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country like the
Philippines where budget deficit is a chronic condition. Even if this were the case, an enormous budget deficit does
not make the need for R.A. No. 7716 any less urgent or the situation calling for its enactment any less an
emergency.

Apparently, the members of the Senate (including some of the petitioners in these cases) believed that there was an
urgent need for consideration of S. No. 1630, because they responded to the call of the President by voting on the
bill on second and third readings on the same day. While the judicial department is not bound by the Senate's
acceptance of the President's certification, the respect due coequal departments of the government in matters
committed to them by the Constitution and the absence of a clear showing of grave abuse of discretion caution a
stay of the judicial hand.

At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it was discussed
for six days. Only its distribution in advance in its final printed form was actually dispensed with by holding the voting
on second and third readings on the same day (March 24, 1994). Otherwise, sufficient time between the submission
of the bill on February 8, 1994 on second reading and its approval on March 24, 1994 elapsed before it was finally
voted on by the Senate on third reading.

The purpose for which three readings on separate days is required is said to be 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.

It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least staff members
were present. These were staff members of the Senators and Congressmen, however, who may be presumed to be
their confidential men, not stenographers as in this case who on the last two days of the conference were excluded.
There is no showing that the conferees themselves did not take notes of their proceedings so as to give petitioner
Kilosbayan basis for claiming that even in secret diplomatic negotiations involving state interests, conferees keep
notes of their meetings. Above all, the public's right to know was fully served because the Conference Committee in
this case submitted a report showing the changes made on the differing versions of the House and the Senate.

Petitioners cite the rules of both houses which provide that conference committee reports must contain "a detailed,
sufficiently explicit statement of the changes in or other amendments." These changes are shown in the bill attached
to the Conference Committee Report. The members of both houses could thus ascertain what changes had been
made in the original bills without the need of a statement detailing the changes.

The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform Act of
1955) was reported by the Conference Committee. Congressman Bengzon raised a point of order. He said:

MR. BENGZON. My point of order is that it is out of order to consider the report of the conference
committee regarding House Bill No. 2557 by reason of the provision of Section 11, Article XII, of the
Rules of this House which provides specifically that the conference report must be accompanied by
a detailed statement of the effects of the amendment on the bill of the House. This conference
committee report is not accompanied by that detailed statement, Mr. Speaker. Therefore it is out of
order to consider it.

Petitioner Tolentino, then the Majority Floor Leader, answered:


MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with the point of
order raised by the gentleman from Pangasinan.

There is no question about the provision of the Rule cited by the gentleman from Pangasinan,
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:

MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the provisions
of the Rules, and the reason for the requirement in the provision cited by the gentleman from
Pangasinan is when there are only certain words or phrases inserted in or deleted from the
provisions of the bill included in the conference report, and we cannot understand what those words
and phrases mean and their relation to the bill. In that case, it is necessary to make a detailed
statement on how those words and phrases will affect the bill as a whole; but when the entire bill
itself is copied verbatim in the conference report, that is not necessary. So when the reason for the
Rule does not exist, the Rule does not exist.

(2 CONG. REC. NO. 2, p. 4056. (emphasis added))

Congressman Tolentino was sustained by the chair. The record shows that when the ruling was appealed, it was
upheld by viva voce and when a division of the House was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)

Nor is there any doubt about the power of a conference committee to insert new provisions as long as these are
germane to the subject of the conference. As this Court held in Philippine Judges Association v. Prado, 227 SCRA
703 (1993), in an opinion written by then Justice Cruz, the jurisdiction of the conference committee is not limited to
resolving differences between the Senate and the House. It may propose an entirely new provision. What is
important is that its report is subsequently approved by the respective houses of Congress. This Court ruled that it
would not entertain allegations that, because new provisions had been added by the conference committee, there
was thereby a violation of the constitutional injunction that "upon the last reading of a bill, no amendment thereto
shall be allowed."

Applying these principles, we shall decline to look into the petitioners' charges that an amendment
was made upon the last reading of the bill that eventually became R.A. No. 7354 and
that copiesthereof in its final form were not distributed among the members of each House. Both the
enrolled bill and the legislative journals certify that the measure was duly enacted i.e., in accordance
with Article VI, Sec. 26 (2) of the Constitution. We are bound by such official assurances from a
coordinate department of the government, to which we owe, at the very least, a becoming courtesy.

(Id. at 710. (emphasis added))

It is interesting to note the following description of conference committees in the Philippines in a 1979 study:

Conference committees may be of two types: free or instructed. These committees may be given
instructions by their parent bodies or they may be left without instructions. Normally the conference
committees are without instructions, and this is why they are often critically referred to as "the little
legislatures." Once bills have been sent to them, the conferees have almost unlimited authority to
change the clauses of the bills and in fact sometimes introduce new measures that were not in the
original legislation. No minutes are kept, and members' activities on conference committees are
difficult to determine. One congressman known for his idealism put it this way: "I killed a bill on
export incentives for my interest group [copra] in the conference committee but I could not have
done so anywhere else." The conference committee submits a report to both houses, and usually it
is accepted. If the report is not accepted, then the committee is discharged and new members are
appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A
COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).

In citing this study, we pass no judgment on the methods of conference committees. We cite it only to say that
conference committees here are no different from their counterparts in the United States whose vast powers we
noted in Philippine Judges Association v. Prado, supra. At all events, under Art. VI, 16(3) each house has the
power "to determine the rules of its proceedings," including those of its committees. Any meaningful change in the
method and procedures of Congress or its committees must therefore be sought in that body itself.

V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, 26 (1) of the
Constitution which provides that "Every bill passed by Congress shall embrace only one subject which shall be
expressed in the title thereof." PAL contends that the amendment of its franchise by the withdrawal of its exemption
from the VAT is not expressed in the title of the law.

Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all other taxes,
duties, royalties, registration, license and other fees and charges of any kind, nature, or description, imposed, levied,
established, assessed or collected by any municipal, city, provincial or national authority or government agency,
now or in the future."

PAL was exempted from the payment of the VAT along with other entities by 103 of the National Internal Revenue
Code, which provides as follows:

103. Exempt transactions. The following shall be exempt from the value-added tax:

xxx xxx xxx

(q) Transactions which are exempt under special laws or international agreements to which the
Philippines is a signatory.

R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending 103, as follows:

103. Exempt transactions. The following shall be exempt from the value-added tax:

xxx xxx xxx

(q) Transactions which are exempt under special laws, except those granted under Presidential
Decree Nos. 66, 529, 972, 1491, 1590. . . .

The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:

AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE
AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND
REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED, AND FOR OTHER PURPOSES.

By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY]
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED AND FOR OTHER PURPOSES," Congress thereby clearly expresses its intention to amend any
provision of the NIRC which stands in the way of accomplishing the purpose of the law.

PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to P.D.
No. 1590. It is unnecessary to do this in order to comply with the constitutional requirement, since it is already stated
in the title that the law seeks to amend the pertinent provisions of the NIRC, among which is 103(q), in order to
widen the base of the VAT. Actually, it is the bill which becomes a law that is required to express in its title the
subject of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically referred to 103 of the NIRC as
among the provisions sought to be amended. We are satisfied that sufficient notice had been given of the pendency
of these bills in Congress before they were enacted into what is now R.A.
No. 7716.

In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was rejected. R.A.
No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS POWERS,
FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR OTHER
PURPOSES CONNECTED THEREWITH. It contained a provision repealing all franking privileges. It was contended
that the withdrawal of franking privileges was not expressed in the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including the repeal of franking privileges, this Court held:

To require every end and means necessary for the accomplishment of the general objectives of the
statute to be expressed in its title would not only be unreasonable but would actually render
legislation impossible. [Cooley, Constitutional Limitations, 8th Ed., p. 297] As has been correctly
explained:

The details of a legislative act need not be specifically stated in its title, but matter
germane to the subject as expressed in the title, and adopted to the accomplishment
of the object in view, may properly be included in the act. Thus, it is proper to create
in the same act the machinery by which the act is to be enforced, to prescribe the
penalties for its infraction, and to remove obstacles in the way of its execution. If
such matters are properly connected with the subject as expressed in the title, it is
unnecessary that they should also have special mention in the title. (Southern Pac.
Co. v. Bartine, 170 Fed. 725)

(227 SCRA at 707-708)

VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is not
exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits are laws
which single out the press or target a group belonging to the press for special treatment or which in any way
discriminate against the press on the basis of the content of the publication, and R.A. No. 7716 is none of these.

Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those
granted to others, the law discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation
of constitutionally guaranteed freedom is unconstitutional."

With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the law
could take back the privilege anytime without offense to the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the exercise of its sovereign prerogative.

Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other
businesses have long ago been subject. It is thus different from the tax involved in the cases invoked by the PPI.
The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be
discriminatory because it was laid on the gross advertising receipts only of newspapers whose weekly circulation
was over 20,000, with the result that the tax applied only to 13 out of 124 publishers in Louisiana. These large
papers were critical of Senator Huey Long who controlled the state legislature which enacted the license tax. The
censorial motivation for the law was thus evident.

On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L. Ed. 2d
295 (1983), the tax was found to be discriminatory because although it could have been made liable for the sales
tax or, in lieu thereof, for the use tax on the privilege of using, storing or consuming tangible goods, the press was
not. Instead, the press was exempted from both taxes. It was, however, later made to pay a 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.

Narvasa, C.J., Feliciano, Melo, Kapunan, Francisco and Hermosisima, Jr., JJ., concur.

Padilla and Vitug, JJ., maintained their separate opinion.

Regalado, Davide, Jr., Romero, Bellosillo and Puno, JJ, maintained their dissenting opinion.

Panganiban, J., took no part.


Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 109289 October 3, 1994

RUFINO R. TAN, petitioner,


vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER OF
INTERNAL REVENUE, respondents.

VITUG, J.:

These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of
Republic Act No. 7496, also commonly known as the Simplified Net Income Taxation Scheme ("SNIT"), amending
certain provisions of the National Internal Revenue Code and, in
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public respondents
pursuant to said law.

Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory legislation.

In G.R. No. 109289, it is asserted that the enactment of Republic Act


No. 7496 violates the following provisions of the Constitution:

Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one subject which
shall be expressed in the title thereof.

Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.

Article III, Section 1 No person shall be deprived of . . . property without due process of law, nor
shall any person be denied the equal protection of the laws.

In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that public
respondents have exceeded their rule-making authority in applying SNIT to general professional partnerships.

The Solicitor General espouses the position taken by public respondents.

The Court has given due course to both petitions. The parties, in compliance with the Court's directive, have filed
their respective memoranda.

G.R. No. 109289

Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a misnomer or, at
least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).

The full text of the title actually reads:

An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and
Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the
National Internal Revenue Code, as Amended.
The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code, as now
amended, provide:

Sec. 21. Tax on citizens or residents.

xxx xxx xxx

(f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the Practice of
Profession. A tax is hereby imposed upon the taxable net income as determined in Section 27
received during each taxable year from all sources, other than income covered by paragraphs (b),
(c), (d) and (e) of this section by every individual whether
a citizen of the Philippines or an alien residing in the Philippines who is self-employed or practices
his profession herein, determined in accordance with the following schedule:

Not over P10,000 3%

Over P10,000 P300 + 9%


but not over P30,000 of excess over P10,000

Over P30,000 P2,100 + 15%


but not over P120,00 of excess over P30,000

Over P120,000 P15,600 + 20%


but not over P350,000 of excess over P120,000

Over P350,000 P61,600 + 30%


of excess over P350,000

Sec. 29. Deductions from gross income. In computing taxable income subject to tax under
Sections 21(a), 24(a), (b) and (c); and 25 (a)(1), there shall be allowed as deductions the items
specified in paragraphs (a) to (i) of this section: Provided, however, That in computing taxable
income subject to tax under Section 21 (f) in the case of individuals engaged in business or practice
of profession, only the following direct costs shall be allowed as deductions:

(a) Raw materials, supplies and direct labor;

(b) Salaries of employees directly engaged in activities in the course of or pursuant to the business
or practice of their profession;

(c) Telecommunications, electricity, fuel, light and water;

(d) Business rentals;

(e) Depreciation;

(f) Contributions made to the Government and accredited relief organizations for the rehabilitation of
calamity stricken areas declared by the President; and

(g) Interest paid or accrued within a taxable year on loans contracted from accredited financial
institutions which must be proven to have been incurred in connection with the conduct of a
taxpayer's profession, trade or business.

For individuals whose cost of goods sold and direct costs are difficult to determine, a maximum of
forty per cent (40%) of their gross receipts shall be allowed as deductions to answer for business or
professional expenses as the case may be.
On the basis of the above language of the law, it would be difficult to accept petitioner's view that the amendatory
law should be considered as having now adopted a gross income, instead of as having still retained the netincome,
taxation scheme. The allowance for deductible items, it is true, may have significantly been reduced by the
questioned law in comparison with that which has prevailed prior to the amendment; limiting, however, allowable
deductions from gross income is neither discordant with, nor opposed to, the net income tax concept. The fact of the
matter is still that various deductions, which are by no means inconsequential, continue to be well provided under
the new law.

Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling legislation intended
to unite the members of the legislature who favor any one of unrelated subjects in support of the whole act, (b) to
avoid surprises or even fraud upon the legislature, and (c) to fairly apprise the people, through such publications of
its proceedings as are usually made, of the subjects of legislation.1 The above objectives of the fundamental law
appear to us to have been sufficiently met. Anything else would be to require a virtual compendium of the law which
could not have been the intendment of the constitutional mandate.

Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be
uniform and equitable" in that the law would now attempt to tax single proprietorships and professionals differently
from the manner it imposes the tax on corporations and partnerships. The contention clearly forgets, however, that
such a system of income taxation has long been the prevailing rule even prior to Republic Act No. 7496.

Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in privileges and liabilities (Juan Luna Subdivision vs.
Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long as: (1) the standards that are used
therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3)
the law applies, all things being equal, to both present and future conditions, and (4) the classification applies
equally well to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs.
PAGCOR, 197 SCRA 52).

What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift
the income tax system towards the schedular approach2 in the income taxation of individual taxpayers and to
maintain, by and large, the present global treatment3 on taxable corporations. We certainly do not view this
classification to be arbitrary and inappropriate.

Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he believes to
be an imbalance between the tax liabilities of those covered by the amendatory law and those who are not. With the
legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage
(subjects) and situs (place) of taxation. This court cannot freely delve into those matters which, by constitutional fiat,
rightly rest on legislative judgment. Of course, where a tax measure becomes so unconscionable and unjust as to
amount to confiscation of property, courts will not hesitate to strike it down, for, despite all its plenitude, the power to
tax cannot override constitutional proscriptions. This stage, however, has not been demonstrated to have been
reached within any appreciable distance in this controversy before us.

Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative
of due process must perforce fail. The due process clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the exercise of the tax power. No such transgression is so
evident to us.

G.R. No. 109446

The several propositions advanced by petitioners revolve around the question of whether or not public respondents
have exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act
No. 7496.

The questioned regulation reads:

Sec. 6. General Professional Partnership The general professional partnership (GPP) and the
partners comprising the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of
the partnership, only the direct costs mentioned in said law are to be deducted from partnership
income. Also, the expenses paid or incurred by partners in their individual capacities in the practice
of their profession which are not reimbursed or paid by the partnership but are not considered as
direct cost, are not deductible from his gross income.

The real objection of petitioners is focused on the administrative interpretation of public respondents that would
apply SNIT to partners in general professional partnerships. Petitioners cite the pertinent deliberations in Congress
during its enactment of Republic Act No. 7496, also quoted by the Honorable Hernando B. Perez, minority floor
leader of the House of Representatives, in the latter's privilege speech by way of commenting on the questioned
implementing regulation of public respondents following the effectivity of the law, thusly:

MR. ALBANO, Now Mr. Speaker, I would like to get the correct impression of this bill.
Do we speak here of individuals who are earning, I mean, who earn through
business enterprises and therefore, should file an income tax return?

MR. PEREZ. That is correct, Mr. Speaker. This does not apply to corporations. It
applies only to individuals.

(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours).

Other deliberations support this position, to wit:

MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from Batangas say that
this bill is intended to increase collections as far as individuals are concerned and to
make collection of taxes equitable?

MR. PEREZ. That is correct, Mr. Speaker.

(Id. at 6:40 P.M.; Emphasis ours).

In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version of the SNITS,
it is categorically stated, thus:

This bill, Mr. President, is not applicable to business corporations or to partnerships;


it is only with respect to individuals and professionals. (Emphasis ours)

The Court, first of all, should like to correct the apparent misconception that general professional partnerships are
subject to the payment of income tax or that there is a difference in the tax treatment between individuals engaged
in business or in the practice of their respective professions and partners in general professional partnerships. The
fact of the matter is that a general professional partnership, unlike an ordinary business partnership (which is treated
as a corporation for income tax purposes and so subject to the corporate income tax), is not itself an income
taxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but on the partners
themselves in their individual capacity computed on their distributive shares of partnership profits. Section 23 of the
Tax Code, which has not been amended at all by Republic Act 7496, is explicit:

Sec. 23. Tax liability of members of general professional partnerships. (a) Persons exercising a
common profession in general partnership shall be liable for income tax only in their individual
capacity, and the share in the net profits of the general professional partnership to which any taxable
partner would be entitled whether distributed or otherwise, shall be returned for taxation and the tax
paid in accordance with the provisions of this Title.

(b) In determining his distributive share in the net income of the partnership, each partner

(1) Shall take into account separately his distributive share of the partnership's
income, gain, loss, deduction, or credit to the extent provided by the pertinent
provisions of this Code, and
(2) Shall be deemed to have elected the itemized deductions, unless he declares his
distributive share of the gross income undiminished by his share of the deductions.

There is, then and now, no distinction in income tax liability between a person who practices his profession alone or
individually and one who does it through partnership (whether registered or not) with others in the exercise of a
common profession. Indeed, outside of the gross compensation income tax and the final tax on passive investment
income, under the present income tax system all individuals deriving income from any source whatsoever are
treated in almost invariably the same manner and under a common set of rules.

We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No. 7496 as
an entirely independent, not merely as an amendatory, piece of legislation. The view can easily become myopic,
however, when the law is understood, as it should be, as only forming part of, and subject to, the whole income tax
concept and precepts long obtaining under the National Internal Revenue Code. To elaborate a little, the phrase
"income taxpayers" is an all embracing term used in the Tax Code, and it practically covers all persons who derive
taxable income. The law, in levying the tax, adopts the most comprehensive tax situs of nationality and residence of
the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to income tax liability on
their income from all sources) and of the generally accepted and internationally recognized income taxable base
(that can subject non-resident aliens and foreign corporations to income tax on their income from Philippine
sources). In the process, the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2)
Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as
to income).

Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily, partnerships,
no matter how created or organized, are subject to income tax (and thus alluded to as "taxable partnerships") which,
for purposes of the above categorization, are by law assimilated to be within the context of, and so legally
contemplated as, corporations. Except for few variances, such as in the application of the "constructive receipt rule"
in the derivation of income, the income tax approach is alike to both juridical persons. Obviously, SNIT is not
intended or envisioned, as so correctly pointed out in the discussions in Congress during its deliberations on
Republic Act 7496, aforequoted, to cover corporations and partnerships which are independently subject to the
payment of income tax.

"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered as
independent taxable entities for income tax purposes. A general professional partnership is such an example.4Here,
the partners themselves, not the partnership (although it is still obligated to file an income tax return [mainly for
administration and data]), are liable for the payment of income tax in their individual capacity computed on their
respective and distributive shares of profits. In the determination of the tax liability, a partner does so as
anindividual, and there is no choice on the matter. In fine, under the Tax Code on income taxation, the general
professional partnership is deemed to be no more than a mere mechanism or a flow-through entity in the generation
of income by, and the ultimate distribution of such income to, respectively, each of the individual partners.

Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so
modified by Republic Act
No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on their non-
compensation income. There is no evident intention of the law, either before or after the amendatory legislation, to
place in an unequal footing or in significant variance the income tax treatment of professionals who practice their
respective professions individually and of those who do it through a general professional partnership.

WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.

SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 119761 August 29, 1996

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO
CORPORATION,respondents.

VITUG, J.:p

The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of respondent Court of Appeals 1 affirming the 10th August 1994
decision and the 11th October 1994 resolution of the Court of Tax Appeals 2 ("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco Corporation vs. Liwayway
Vinzons-Chato in her capacity as Commissioner of Internal Revenue."

The facts, by and large, are not in dispute.

Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of cigarettes.

On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark
registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January 1987, of then
Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the Presidential
Commission on Good Government, "the initial position of the Commission was to classify 'Champion,' 'Hope,' and
'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies.
However, Fortune Tobacco changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby
removing the said brands from the foreign brand category. Proof was also submitted to the Bureau (of Internal
Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local
brand." 3 Ad Valorem taxes were imposed on these brands, 4 at the following rates:

BRAND AD VALOREM TAX RATE


E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90

Hope Luxury M. 100's


Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20% 5

A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on 10 June 1993, by the legislature
and signed into law, on 14 June 1993, by the President of the Philippines. The new law became effective on
03 July 1993. It amended Section 142(c)(1) of the National Internal Revenue Code ("NIRC") to read; as
follows:

Sec. 142. Cigars and Cigarettes.

xxx xxx xxx

(c) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed below based on the constructive manufacturer's
wholesale price or the actual manufacturer's wholesale price, whichever is higher:

(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent
(55%) or the exportation of which is not authorized by contract or otherwise, fifty-five (55%) provided
that the minimum tax shall not be less than Five Pesos (P5.00) per pack.

(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum tax
shall not be less than Three Pesos (P3.00) per pack.

xxx xxx xxx

When the registered manufacturer's wholesale price or the actual manufacturer's wholesale price
whichever is higher of existing brands of cigarettes, including the amounts intended to cover the
taxes, of cigarettes packed in twenties does not exceed Four Pesos and eighty centavos (P4.80) per
pack, the rate shall be twenty percent (20%). 7 (Emphasis supplied)

About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue
Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text of which expressed:

REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS

July 1,
1993

REVENUE MEMORANDUM CIRCULAR NO. 37-93

SUBJECT: Reclassification of Cigarettes Subject to Excise Tax

TO: All Internal Revenue Officers and Others Concerned.

In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION" cigarettes which are
locally manufactured are appropriately considered as locally manufactured cigarettes bearing a
foreign brand, this Office is compelled to review the previous rulings on the matter.

Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides:

On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%)


Provided, That this rate shall apply regardless of whether or not the right to use or
title to the foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.

Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the locally
manufactured cigarettes bear a foreign brand regardless of whether or not the right to use or title to
the foreign brand was sold or transferred by its owner to the local manufacturer. The brand must be
originally owned by a foreign manufacturer or producer. If ownership of the cigarette brand is,
however, not definitely determinable, ". . . the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern. . . ."

"HOPE" is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco,
Japan and (b) Fortune Tobacco, Philippines. "MORE" is listed in the said directory as being
manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald
Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g)
Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J.
Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA.
"Champion" is registered in the said directory as being manufactured by (a) Commonwealth
Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e)
Haggar, Sudan; and (f) Tabac Reunies, Switzerland.

Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the
said brands are the real owner/s thereof, then it follows that the same shall be considered foreign
brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National
Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it
cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to
the World Tobacco Directory should be made."

In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION"
being manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes.

Any ruling inconsistent herewith is revoked or modified accordingly.

(SGD) LIWAYWAY VINZONS-


CHATO
Commissioner

On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., sent via telefax a
copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On 15 July 1993,
Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93.

In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco requested
for a review, reconsideration and recall of RMC 37-93. The request was denied on 29 July 1993. The
following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax deficiency
amounting to P9,598,334.00.

On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. 8

On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:

WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of cigarettes, viz:
"HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco Corporation as locally
manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes is
found to be defective, invalid and unenforceable, such that when R.A. No. 7654 took effect on July 3,
1993, the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to
Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore still classified
as other locally manufactured cigarettes and taxed at 45% or 20% as the case may be.

Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco
Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby canceled
for lack of legal basis.
Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency tax
assessment made and issued on petitioner in relation to the implementation of RMC No. 37-93.

SO ORDERED. 9

In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for reconsideration.

The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's 10th August
1994 decision and 11th October 1994 resolution. On 31 March 1993, the appellate court's Special Thirteenth
Division affirmed in all respects the assailed decision and resolution.

In the instant petition, the Solicitor General argues: That

I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF INTERNAL


REVENUE INTERPRETING THE PROVISIONS OF THE TAX CODE.

II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF


RMC 37-93, FILING OF COPIES THEREOF WITH THE UP LAW CENTER AND
PRIOR HEARING ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND
ENFORCEABILITY.

III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 37-


93 ON JULY 2, 1993.

IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY


MANUFACTURED CIGARETTES SIMILARLY SITUATED AS "HOPE," "MORE"
AND "CHAMPION" CIGARETTES.

V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING


"HOPE," "MORE" AND "CHAMPION" CIGARETTES BEFORE THE EFFECTIVITY
OF R.A. NO. 7654.

VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT


INTO ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS
CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT. 10

In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can thus become
effective without any prior need for notice and hearing, nor publication, and that its issuance is not
discriminatory since it would apply under similar circumstances to all locally manufactured cigarettes.

The Court must sustain both the appellate court and the tax court.

Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective
implementation of the provisions of the National Internal Revenue Code. Let it be made clear that such
authority of the Commissioner is not here doubted. Like any other government agency, however, the CIR
may not disregard legal requirements or applicable principles in the exercise of its quasi-legislative powers.

Let us first distinguish between two kinds of administrative issuances a legislative rule and
aninterpretative rule.

In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, 11 the Court
expressed:

. . . a legislative rule is in the nature of subordinate legislation, designed to implement a primary


legislation by providing the details thereof . In the same way that laws must have the benefit of public
hearing, it is generally required that before a legislative rule is adopted there must be hearing. In this
connection, the Administrative Code of 1987 provides:
Public Participation. If not otherwise required by law, an agency shall, as far as practicable,
publish or circulate notices of proposed rules and afford interested parties the opportunity to submit
their views prior to the adoption of any rule.

(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have
been published in a newspaper of general circulation at least two (2) weeks before the first hearing
thereon.

(3) In case of opposition, the rules on contested cases shall be observed.

In addition such rule must be published. On the other hand, interpretative rules are designed to
provide guidelines to the law which the administrative agency is in charge of enforcing. 12

It should be understandable that when an administrative rule is merely interpretative in nature, its
applicability needs nothing further than its bare issuance for it gives no real consequence more than what
the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond
merely providing for the means that can facilitate or render least cumbersome the implementation of the law
but substantially adds to or increases the burden of those governed, it behooves the agency to accord at
least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new
issuance is given the force and effect of law.

A reading of RMC 37-93, particularly considering the circumstances under which it has been issued,
convinces us that the circular cannot be viewed simply as a corrective measure (revoking in the process the
previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as
amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium
More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and
to thereby have them covered by RA 7654. Specifically, the new law would have its amendatory provisions
applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing
foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and
"Champion" cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand
subject to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would have had no
new tax rate consequence on private respondent's products. Evidently, in order to place "Hope Luxury,"
"Premium More," and "Champion" cigarettes within the scope of the amendatory law and subject them to an
increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR not simply
intrepreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the
requirements of notice, of hearing, and of publication should not have been then ignored.

Indeed, the BIR itself, in its RMC 10-86, has observed and provided:

RMC NO. 10-86


Effectivity of Internal Revenue Rules and Regulations

It has been observed that one of the problem areas bearing on compliance with Internal Revenue
Tax rules and regulations is lack or insufficiency of due notice to the tax paying public. Unless there
is due notice, due compliance therewith may not be reasonably expected. And most importantly,
their strict enforcement could possibly suffer from legal infirmity in the light of the constitutional
provision on "due process of law" and the essence of the Civil Code provision concerning effectivity
of laws, whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil
Code).

In order that there shall be a just enforcement of rules and regulations, in conformity with the basic
element of due process, the following procedures are hereby prescribed for the drafting, issuance
and implementation of the said Revenue Tax Issuances:

(1) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit
Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue
Memorandum Orders bearing on internal revenue tax rules and regulations.
(2) Except when the law otherwise expressly provides, the aforesaid internal revenue
tax issuances shall not begin to be operative until after due notice thereof may be
fairly presumed.

Due notice of the said issuances may be fairly presumed only after the following
procedures have been taken;

xxx xxx xxx

(5) Strict compliance with the foregoing procedures is


enjoined. 13

Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and
comply with the above requirements before giving effect to its questioned circular.

Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.

Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and equitable.
Uniformity requires that all subjects or objects of taxation, similarly situated, are to be treated alike or put on
equal footing both in privileges and liabilities. 14 Thus, all taxable articles or kinds of property of the same
class must be taxed at the same rate 15 and the tax must operate with the same force and effect in every
place where the subject may be found.

Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes
and, unless petitioner would be willing to concede to the submission of private respondent that the circular
should, as in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his separate opinion, be
considered adjudicatory in nature and thus violative of due process following the Ang Tibay 16 doctrine, the
measure suffers from lack of uniformity of taxation. In its decision, the CTA has keenly noted that other
cigarettes bearing foreign brands have not been similarly included within the scope of the circular, such as

1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.

(a) "PALM TREE" is listed as manufactured by office of Monopoly, Korea (Exhibit


"R")

2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY

(a) "GOLDEN KEY" is listed being manufactured by United Tobacco, Pakistan


(Exhibit "S")

(b) "CANNON" is listed as being manufactured by Alpha Tobacco, Bangladesh


(Exhibit "T")

3. Locally manufactured by LA PERLA INDUSTRIES, INC.

(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia


(Exhibit "U")

(b) "RIGHT" is listed as being manufactured by SVENSKA, Tobaks, Sweden (Exhibit


"V-1")

4. Locally manufactured by MIGHTY CORPORATION

(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia


(Exhibit "U-1")
5. Locally manufactured by STERLING TOBACCO CORPORATION

(a) "UNION" is listed as being manufactured by Sumatra Tobacco, Indonesia and


Brown and Williamson, USA (Exhibit "U-3")

(b) "WINNER" is listed as being manufactured by Alpha Tobacco, Bangladesh;


Nangyang, Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan; Premier
Tobacco, Pakistan and Haggar, Sudan (Exhibit "U-4"). 17

The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by the
Committee on Ways and Means of the House of Representatives; viz:

THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You don't have
specific information on other tobacco manufacturers. Now, there are other brands which are similarly
situated. They are locally manufactured bearing foreign brands. And may I enumerate to you all
these brands, which are also listed in the World Tobacco Directory . . . Why were these brand not
reclassified at 55 if your want to give a level playing filed to foreign manufacturers?

MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue Memorandum Circular
that was supposed to come after RMC No. 37-93 which have really named specifically the list of
locally manufactured cigarettes bearing a foreign brand for excise tax purposes and includes all
these brands that you mentioned at 55 percent except that at that time, when we had to come up
with this, we were forced to study the brands of Hope, More and Champion because we were given
documents that would indicate the that these brands were actually being claimed or patented in
other countries because we went by Revenue Memorandum Circular 1488 and we wanted to give
some rationality to how it came about but we couldn't find the rationale there. And we really found
based on our own interpretation that the only test that is given by that existing law would be
registration in the World Tobacco Directory. So we came out with this proposed revenue
memorandum circular which we forwarded to the Secretary of Finance except that at that point in
time, we went by the Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that
on locally manufactured cigarettes which are currently classified and taxed at 55 percent. So we
were saying that when this law took effect in July 3 and if we are going to come up with this revenue
circular thereafter, then I think our action would really be subject to question but we feel that . . .
Memorandum Circular Number 37-93 would really cover even similarly situated brands. And in fact,
it was really because of the study, the short time that we were given to study the matter that we
could not include all the rest of the other brands that would have been really classified as foreign
brand if we went by the law itself. I am sure that by the reading of the law, you would without that
ruling by Commissioner Tan they would really have been included in the definition or in the
classification of foregoing brands. These brands that you referred to or just read to us and in fact just
for your information, we really came out with a proposed revenue memorandum circular for those
brands. (Emphasis supplied)

(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).

xxx xxx xxx

MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is why I felt that we . . . I
wanted to come up with a more extensive coverage and precisely why I asked that revenue
memorandum circular that would cover all those similarly situated would be prepared but because of
the lack of time and I came out with a study of RA 7654, it would not have been possible to really
come up with the reclassification or the proper classification of all brands that are listed there. .
.(emphasis supplied) (Exhibit "FF-2d," page IX-1)

xxx xxx xxx

HON. DIAZ. But did you not consider that there are similarly situated?
MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue Memorandum
Circular No. 37-93, the other brands came about the would have also clarified RMC 37-93 by I was
saying really because of the fact that I was just recently appointed and the lack of time, the period
that was allotted to us to come up with the right actions on the matter, we were really caught by the
July 3 deadline. But in fact, We have already prepared a revenue memorandum circular clarifying
with the other . . . does not yet, would have been a list of locally manufactured cigarettes bearing a
foreign brand for excise tax purposes which would include all the other brands that were mentioned
by the Honorable Chairman. (Emphasis supplied) (Exhibit "FF-2-d," par. IX-4). 18

All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective
administrative issuance.

WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is AFFIRMED. No
costs.

SO ORDERED.

Kapunan, J., concurs.

Separate Opinions

BELLOSILLO, J.: separate opinion:

RA 7654 was enacted by Congress on 10 June 1993, signed into law by the President on 14 June 1993, and took
effect 3 July 1993. It amended partly Sec. 142, par. (c), of the National Internal Revenue Code (NIRC) to read

Sec. 142. Cigars and cigarettes. . . . . (c) Cigarettes packed by machine. There shall be levied,
assessed and collected on cigarettes packed by machine a tax at the rates prescribed below based
on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price,
whichever is higher.

(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent
(55%) or the exportation of which is not authorized by contract or otherwise, fifty-five percent (55%)
provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack (emphasis
supplied).

(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum tax
shall not be less than Three Pesos (P3.00) per pack.

Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium More and Champion were considered
local brands subjected to an ad valorem tax at the rate of 20-45%. However, on 1 July 1993 or two (2) days before
RA 7654 took effect, petitioner Commissioner of Internal Revenue issued RMC 37-93 reclassifying
"Hope, Moreand Champion being manufactured by Fortune Tobacco Corporation . . . . (as) locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes." 1 RMC 37-93 in effect
subjected Hope Luxury, Premium More and Champion cigarettes to the provisions of Sec. 142, par. (c), subpar. (1),
NIRC, as amended by RA 7654, imposing upon these cigarette brands an ad valorem tax of "fifty-five percent (55%)
provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack."
On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before the effectivity of RA 7654, a copy of
RMC 37-93 with a cover letter signed by Deputy Commissioner Victor A. Deoferio of the Bureau of Internal Revenue
was sent by facsimile to the factory of respondent corporation in Parang, Marikina, Metro Manila. It appears that the
letter together with a copy of RMC 37-93 did not immediately come to the knowledge of private respondent as it was
addressed to no one in particular. It was only when the reclassification of respondent corporation's cigarette brands
was reported in the column of Fil C. Sionil in Business Bulletin on 4 July 1993 that the president of respondent
corporation learned of the matter, prompting him to inquire into its veracity and to request from petitioner a copy of
RMC 37-93. On 15 July 1993 respondent corporation received by ordinary mail a certified machine copy of RMC 37-
93.

Respondent corporation sought a review, reconsideration and recall of RMC 37-93 but was forthwith denied by the
Appellate Division of the Bureau of Internal Revenue. As a consequence, on 30 July 1993 private respondent was
assessed an ad valorem tax deficiency amounting to P9,598,334.00. Respondent corporation went to the Court of
Tax Appeals (CTA) on a petition for review.

On 10 August 1994, after due hearing, the CTA found the petition meritorious and ruled

Revenue Memorandum Circular No. 37-93 reclassifying the brands of


cigarettes, viz: Hope, More andChampion being manufactured by Fortune Tobacco Corporation as
locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on
cigarettes is found to be defective, invalid and unenforceable . . . . Accordingly, the deficiency ad
valorem tax assessment issued on petitioner Fortune Tobacco Corporation in the amount of
P9,598,334.00, exclusive of surcharge and interest, is hereby cancelled for lack of legal basis. 2

The CTA held that petitioner Commissioner of Internal Revenue failed to observe due process of law in
issuing RMC 37-93 as there was no prior notice and hearing, and that RMC 37-93 was in itself
discriminatory. The motion to reconsider its decision was denied by the CTA for lack of merit. On 31 March
1995 respondent Court of Appeals affirmed in toto the decision of the CTA. 3 Hence, the instant petition for
review.

Petitioner now submits through the Solicitor General that RMC 37-93 reclassifying Hope Luxury, Premium
Moreand Champion as locally manufactured cigarettes bearing brands is merely an interpretative ruling which needs
no prior notice and hearing as held in Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance
Secretary. 4 It maintains that neither is the assailed revenue memorandum circular discriminatory as it merely "lays
down the test in determining whether or not a locally manufactured cigarette bears a foreign brand using (only) the
cigarette brands Hope, More and Champion as specific examples." 5

Respondent corporation on the other hand contends that RMC 37-93 is not a mere interpretative ruling but is
adjudicatory in nature where prior notice and hearing are mandatory, and that Misamis Oriental Association of Coco
Traders, Inc. v. Department of Finance Secretary on which the Solicitor General relies heavily is not applicable.
Respondent Fortune Tobacco Corporation also argues that RMC 37-93 discriminates against its cigarette brands
since those of its competitors which are similarly situated have not been reclassified.

The main issues before us are (a) whether RMC 37-93 is merely an interpretative rule the issuance of which needs
no prior notice and hearing, or an adjudicatory ruling which calls for the twin requirements of prior notice and
hearing, and, (b) whether RMC 37-93 is discriminatory in nature.

A brief discourse on the powers and functions of administrative bodies may be instructive.

Administrative agencies posses quasi-legislative or rule making powers and quasi-judicial or administrative
adjudicatory powers. Quasi-legislative or rule making power is the power to make rules and regulations which
results in delegated legislation that is within the confines of the granting statute and the doctrine of nondelegability
and separability of powers.

Interpretative rule, one of the three (3) types of quasi-legislative or rule making powers of an administrative agency
(the other two being supplementary or detailed legislation, and contingent legislation), is promulgated by the
administrative agency to interpret, clarify or explain statutory regulations under which the administrative body
operates. The purpose or objective of an interpretative rule is merely to construe the statute being administered. It
purports to do no more than interpret the statute. Simply, the rule tries to say what the statute means. Generally, it
refers to no single person or party in particular but concerns all those belonging to the same class which may be
covered by the said interpretative rule. It need not be published and neither is a hearing required since it is issued
by the administrative body as an incident of its power to enforce the law and is intended merely to clarify statutory
provisions for proper observance by the people. In Taada v. Tuvera, 6 this Court expressly said that
"[i]interpretative regulations . . . . need not be published."

Quasi-judicial or administrative adjudicatory power on the other hand is the power of the administrative agency to
adjudicate the rights of persons before it. It is the power to hear and determine questions of fact to which the
legislative policy is to apply and to decide in accordance with the standards laid down by the law itself in enforcing
and administering the same law. 7 The administrative body exercises its quasi-judicial power when it performs in a
judicial manner an act which is essentially of an executive or administrative nature, where the power to act in such
manner is incidental to or reasonably necessary for the performance of the executive or administrative duty
entrusted to it. 8 In carrying out their quasi-judicial functions the administrative officers or bodies are required to
investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them
as basis for their official action and exercise of discretion in a judicial nature. Since rights of specific persons are
affected it is elementary that in the proper exercise of quasi-judicial power due process must be observed in the
conduct of the proceedings.

The importance of due process cannot be underestimated. Too basic is the rule that no person shall be deprived of
life, liberty or property without due process of law. Thus when an administrative proceeding is quasi-judicial in
character, notice and fair open hearing are essential to the validity of the proceeding. The right to reasonable prior
notice and hearing embraces not only the right to present evidence but also the opportunity to know the claims of
the opposing party and to meet them. The right to submit arguments implies that opportunity otherwise the right may
as well be considered impotent. And those who are brought into contest with government in a quasi-judicial
proceeding aimed at the control of their activities are entitled to be fairy advised of what the government proposes
and to be heard upon its proposal before it issues its final command.

There are cardinal primary rights which must be respected in administrative proceedings. The landmark case ofAng
Tibay v. The Court of Industrial Relations 9 enumerated these rights: (1) the right to a hearing, which includes the
right of the party interested or affected to present his own case and submit evidence in support thereof; (2) the
tribunal must consider the evidence presented; (3) the decision must have something to support itself; (4) the
evidence must be substantial; (5) the decision must be rendered on the evidence presented at the hearing, or at
least contained in the record and disclosed to the parties affected; (6) the tribunal or any of its judges must act on its
or his own independent consideration of the law and facts of the controversy, and not simply accept the views of a
subordinate in arriving at a decision; and, (7) the tribunal should in all controversial questions render its decision in
such manner that the parties to the proceeding may know the various issues involved and the reasons for the
decision rendered.

In determining whether RMC No. 37-93 is merely an interpretative rule which requires no prior notice and hearing, or
an adjudicatory rule which demands the observance of due process, a close examination of RMC 37-93 is in order.
Noticeably, petitioner Commissioner of Internal Revenue at first interprets Sec. 142, par. (c), subpar. (1), of the
NIRC, as amended, by citing the law and clarifying or explaining what it means

Section 142 (c) (1), National Internal Revenue Code, as amended by R.A. No. 6956, provides: On
locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided, That this
rate shall apply regardless of whether or not the right to use or title to the foreign brand was sold or
transferred by its owner to the local manufacturer. Whenever it has to be determined whether or not
a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing
in the current World Tobacco Directory shall govern.

Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the locally
manufactured cigarettes bear a foreign brand regardless of whether or not the right to use or title to
the foreign brand was sold or transferred by its owner to the local manufacturer. The brand must be
originally owned by a foreign manufacturer or producer. If ownership of the cigarette brand is,
however, not definitely determinable,
". . . the listing of brands manufactured in foreign countries appearing in the current World Tobacco
Directory shall govern . . ."
Then petitioner makes a factual finding by declaring that Hope (Luxury), (Premium) More and Champion are
manufactured by other foreign manufacturers

Hope is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco, Japan
and (b) Fortune Tobacco, Philippines. More is listed in the said directory as being manufactured by:
(a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-MacDonald, Canada; (d) Rettig-
Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand;
(h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k)
Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. "Champion" is
registered in the said directory as being manufactured by: (a) Commonwealth Bangladesh; (b)
Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and
(f) Tabac Reunies, Switzerland.

From this finding, petitioner thereafter formulates an inference that since it cannot be determined who among the
manufacturers are the real owners of the brands in question, then these cigarette brands should be considered
foreign brands

Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the
said brands are the real owner/s thereof, then it follows that the same shall be considered foreign
brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National
Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it
cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to
the World Tobacco Directory should be made."

Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation reclassifying its
cigarette brands as locally manufactured bearing foreign brands

In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More and Champion being
manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes.

Any ruling inconsistent herewith is revoked or modified accordingly.

It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal Revenue was
exercising her quasi-judicial or administrative adjudicatory power. She cited and interpreted the law, made a factual
finding, applied the law to her given set of facts, arrived at a conclusion, and issued a ruling aimed at a specific
individual. Consequently prior notice and hearing are required. It must be emphasized that even the text alone of
RMC 37-93 implies that reception of evidence during a hearing is appropriate if not necessary since it invokes BIR
Ruling No. 410-88, dated August 24, 1988, which provides that "in cases where it cannot be established or there is
dearth of evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult to determine whether a brand is
foreign or not if it is not established by, or there is dearth of, evidence because no hearing has been called and
conducted for the reception of such evidence. In fine, by no stretch of the imagination can RMC 37-93 be
considered purely as an interpretative rule requiring no previous notice and hearing and simply interpreting,
construing, clarifying or explaining statutory regulations being administered by or under which the Bureau of Internal
Revenue operates.

It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders v. Department of Finance Secretary,
and RMC 37-93 in the instant case reclassify certain products for purposes of taxation. But the similarity between
the two revenue memorandum circulars ends there. For in properly determining whether a revenue memorandum
circular is merely an interpretative rule or an adjudicatory rule, its very tenor and text, and the circumstances
surrounding its issuance will have no to be considered.

We quote RMC 47-91 promulgated 11 June 1991

Revenue Memorandum Circular No. 47-91


SUBJECT : Taxability of Copra
TO : All Revenue Officials and Employees and Others Concerned.

For the information and guidance of all officials and employees and others concerned, quoted
hereunder in its entirety is VAT Ruling No. 190-90 dated August 17, 1990:

COCOFED MARKETING RESEARCH CORPORATION


6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila

Attention: Ms. Esmyrna E. Reyes


Vice President Finance

Sirs:

This has reference to your letter dated January 16, 1990 wherein you represented
that inspite of your VAT registration of your copra trading company, you are
supposed to be exempt from VAT on the basis of BIR Ruling dated January 8, 1988
which considered copra as an agricultural food product in its original state. In this
connection, you request for a confirmation of your opinion as aforestated.

In reply, please be informed that copra, being an agricultural non-food product, is


exempt from VAT only if sale is made by the primary producer pursuant to Section
103 (a) of the Tax Code, as amended. Thus as a trading company and a subsequent
seller, your sale of copra is already subject to VAT pursuant to Section 9(b) (1) of
Revenue Regulations 5-27.

This revokes VAT Ruling Nos. 009-88 and 279-88.

Very truly yours,

(Sgd.) JOSE U. ONG


Commissioner of
Internal Revenue

As a clarification, this is the present and official stand of this Office unless sooner revoked or
amended. All revenue officials and employees are enjoined to give this Circular as wide a publicity
as possible.

(Sgd.) JOSE U. ONG


Commissioner of
Internal Revenue

Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it simply quotes a
VAT Ruling and reminds those concerned that the ruling is the present and official stand of the Bureau of Internal
Revenue. Unlike in RMC 37-93 where petitioner Commissioner manifestly exercised her quasi-judicial or
administrative adjudicatory power, in RMC 47-91 there were no factual findings, no application of laws to a given set
of facts, no conclusions of law, and no dispositive portion directed at any particular party.

Another difference is that in the instant case, the issuance of the assailed revenue memorandum circular operated
to subject the taxpayer to the new law which was yet to take effect, while in Misamis, the disputed revenue
memorandum circular was issued simply to restate and then clarify the prevailing position and ruling of the
administrative agency, and no new law yet to take effect was involved. It merely interpreted an existing law which
had already been in effect for some time and which was not set to be amended. RMC 37-93 is thus prejudicial to
private respondent alone.
A third difference, and this likewise resolves the issue of discrimination, is that RMC 37-93 was ostensibly issued to
subject the cigarette brands of respondent corporation to a new law as it was promulgated two days before the
expiration of the old law and a few hours before the effectivity of the new law. That RMC 37-93 is particularly aimed
only at respondent corporation and its three (3) cigarette brands can be seen from the dispositive portion of the
assailed revenue memorandum circular

In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More, and Champion being
manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes.

Any ruling inconsistent herewith is revoked or modified accordingly.

Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays down the test in
determining whether or not a locally manufactured cigarette bears a foreign brand using the cigarette
brandsHope, More and Champion as specific examples," cannot be accepted, much less sustained. Without doubt,
RMC 37-93 has a tremendous effect on respondent corporation and solely on respondent corporation as its
deficiency ad valorem tax assessment on its removals of Hope, Luxury, Premium More, and Champion cigarettes
for six (6) hours alone, i.e., from six o'clock in the evening of 2 July 1993 which is presumably the time respondent
corporation was supposed to have received the facsimile message sent by Deputy Commissioner Victor A.
Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was already P9,598,334.00. On the other
hand, RMC 47-91 was issued with no purpose except to state and declare what has been the official stand of the
administrative agency on the specific subject matter, and was indiscriminately directed to all copra traders with no
particular individual in mind.

That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be disputed; hence,
we do not question the wisdom of her act in reclassifying the cigarettes. Neither do we deny her the exercise of her
quasi-legislative or quasi-judicial powers. But most certainly, by constitutional mandate, the Court must check the
exercise of these powers and ascertain whether petitioner has gone beyond the legitimate bounds of her authority.

In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the wisdom of
petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private respondents. It is simply the
faithful observance by government by government of the basic constitutional right of a taxpayer to due process of
law and equal protection of the laws. This is what distresses me no end the manner and the circumstances under
which the cigarettes of private respondent were reclassified and correspondingly taxed under RMC 37-93, and
adjudicatory rule which therefore requires reasonable notice and hearing before its issuance. It should not be
confused with RMC 47-91, which is a mere interpretative rule.

In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also voted to
uphold the constitutional right of the taxpayer concerned to due process and equal protection of the laws. By a vote
of 3-2, that view prevailed. In sequela, we in the First Division who constituted the majority found ourselves unjustly
drawn into the vortex of a nightmarish episode. The strong ripples whipped up by my opinion expressed therein
and of the majority have yet to varnish when we are again in the imbroglio of a similar dilemma. The unpleasant
experience should be reason enough to simply steer clear of this controversy and surf on a pretendedloss of judicial
objectivity. Such would have been an easy way out, a gracious exit, so to speak, albeit lame. But to camouflage my
leave with a sham excuse would be to turn away from a professional vow I keep at all times; I would not be true to
myself, and to the people I am committed to serve. Thus, as I have earlier expressed, if placed under similar
circumstances in some future time, I shall have to brave again the prospect of another vilification and a tarnished
image if only to show proudly to the whole world that under the present dispensation judicial independence in our
country is a true component of our democracy.

In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of such issuance. For
it cannot be denied that the circumstances clearly demonstrate that it was hastily issued without prior notice and
hearing, and singling out private respondent alone when two days before a new tax law was to take effect
petitioner reclassified and taxed the cigarette brands of private respondent at a higher rate. Obviously, this was to
make it appear that even before the anticipated date of effectivity of the statute which was undeniably priorly
known to petitioner these brands were already currently classified and taxed at fifty-five percent (55%), thus
shoving them into the purview of the law that was to take effect two days after!
For sure, private respondent was not properly informed before the issuance of the questioned memorandum circular
that its cigarette brands Hope Luxury, Premium More and Champion were being reclassified and subjected to a
higher tax rate. Naturally, the result would be to lose financially because private respondent was still selling its
cigarettes at a price based on the old, lower tax rate. Had there been previous notice and hearing, as claimed by
private respondent, it could have very well presented its side, either by opposing the reclassification, or by
acquiescing thereto but increasing the price of its cigarettes to adjust to the higher tax rate. The reclassification and
the ensuing imposition of a tax rate increase therefore could not be anything but confiscatory if we are also to
consider the claim of private respondent that the new tax is even higher than the cost of its cigarettes.

Accordingly, I vote to deny the petition.

HERMOSISIMA, JR., J.: dissenting

Private respondent Fortune Tobacco Corporation in the instant case disputes its liability for deficiency ad
valoremexcise taxes on its removals of "Hope," "More," and "Champion" cigarettes from 6:00 p.m. to 12:00 midnight
of July 2, 1993, in the total amount of P9,598,334.00. It claims that the circular, upon which the assessment was
based and made, is defective, invalid and unenforceable for having been issued without notice and hearing and in
violation of the equal protection clause guaranteed by the Constitution.

The majority upholds these claims of private respondent, convinced that the Circular in question, in the first place,
did not give prior notice and hearing, and so, it could not have been valid and effective. It proceeds to affirm the
factual findings of the Court of Tax Appeals, which findings were considered correct by respondent Court of
Appeals, to the effect that the petitioner Commissioner of Internal Revenue had indeed blatantly failed to comply
with the said twin requirements of notice and hearing, thereby rendering the issuance of the questioned Circular to
be in violation of the due process clause of the Constitution. It is also its dominant opinion that the questioned
Circular discriminates against private respondent Fortune Tobacco Corporation insofar as it seems to affect only its
"Hope," "More," and "Champion" cigarettes, to the exclusion of other cigarettes apparently of the same kind or
classification as these cigarettes manufactured by private respondent.

With all due respect, I disagree with the majority in its disquisition of the issues and its resulting conclusions.

Section 245 of the National Internal Revenue Code,


as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular

Section 245 of the National Internal Revenue Code, as amended, provides:

Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations. The Secretary of
Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and
regulations for the effective enforcement of the provisions of this Code . . . without prejudice to the
power of the Commissioner of Internal Revenue to make rulings or opinions in connection with the
implementation of the provisions of internal revenue laws, including rulings on the classification of
articles for sales tax and similar purposes.

The subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It was issued in
connection with Section 142 (c) (1) of the National Internal Revenue Code, as amended, which imposes ad
valorem excise taxes on locally manufactured cigarettes bearing a foreign brand. The same provision prescribes the
ultimate criterion that determines which cigarettes are to be considered "locally manufactured cigarettes bearing a
foreign brand." It provides:

. . . Whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of
brands manufactured in foreign countries appearing in the current World Tobacco Directory shall
govern.
There is only one World Tobacco Directory for a given current year, and the same is mandated by law to be
the BIR Commissioner's controlling basis for determining whether or not a particular locally manufactured
cigarette is one bearing a foreign brand. In so making a determination, petitioner should inquire into the
entries in the World Tobacco Directory for the given current year and shall be held bound by such entries
therein. She is not required to subject the results of her inquiries to feedback from the concerned cigarette
manufacturers, and it is doubtlessly not desirable nor managerially sound to court dispute thereon when the
law does not, in the first place, require debate or hearing thereon. Petitioner may make such a determination
because she is the Chief Executive Officer of the administrative agency that is the Bureau of Internal
Revenue in which are vested quasi-legislative powers entrusted to it by the legislature in recognition of its
more encompassing and unequalled expertise in the field of taxation.

The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is not


unconstitutional, unreasonable and oppressive. It has been necessitated by "the growing complexity
of the modern society" (Solid Homes, Inc. vs. Payawal, 177 SCRA 72, 79). More and more
administrative bodies are necessary to help in the regulation of society's ramified activities.
"Specialized in the particular field assigned to them, they can deal with the problems thereof with
more expertise and dispatch than can be expected from the legislature or the courts of justice" . . . 1

Statutorily empowered to issue rulings or opinions embodying the proper determination in respect to classifying
articles, including cigarettes, for purposes of tax assessment and collection, petitioner was acting well within her
prerogatives when she issued the questioned Circular. And in the exercise of such prerogatives under the law, she
has in her favor the presumption of regular performance of official duty which must be overcome by clearly
persuasive evidence of stark error and grave abuse of discretion in order to be overturned and disregarded.

It is irrelevant that the Court of Tax Appeals makes much of the effect of the passing of Republic Act No. 7654 2 on
petitioner's power to classify cigarettes. Although the decisions assailed and sought to be reviewed, as well as the
pleadings of private respondent, are replete with alleged admissions of our legislators to the effect that the said Act
was intended to freeze the current classification of cigarettes and make the same an integral part of the said Act,
certainly the repeal, if any, of petitioner's power to classify cigarettes must be reckoned from the effectivity of the
said Act and not before. Suffice it to say that indisputable is the plain fact that the questioned Circular was issued on
July 1, 1993, while the said Act took effect on July 3, 1993.

The contents of the questioned circular have not


been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner

Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National Internal Revenue Code, as amended,
levies the following ad valorem taxes on cigarettes in accordance with their predetermined classifications as
established by the Commissioner of Internal Revenue:

. . . based on the manufacturer's registered wholesale price:

(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided,
That this rate shall apply regardless of whether or not the right to use or title to the foreign brand was
sold or transferred by its owner to the local manufacturer. Whenever it has to be determined whether
or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern.

(2) Other locally manufactured cigarettes, forty five percent (45%).

xxx xxx xxx

Prior to the issuance of the questioned Circular, assessed against and paid by private respondent as ad
valoremexcise taxes on their removals of "Hope," "More," and "Champion" cigarettes were amounts based on
paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was 45% at the most. The reason for
this is that apparently, petitioner's predecessors have all made determinations to the effect that the said cigarettes
were to be considered "other locally manufactured cigarettes" and not "locally manufactured cigarettes bearing a
foreign brand." Even petitioner, until her issuance of the questioned Circular, adhered to her predecessors'
determination as to the proper classification of the above-mentioned cigarettes for purposes of ad valorem excise
taxes. Apparently, the past determination that the said cigarettes were to be classified as "other locally
manufactured cigarettes" was based on private respodnent's convenient move of changing the names of "Hope" to
"Hope Luxury" and "More" to "Premium More." It also submitted proof that "Champion" was an original Fortune
Tobacco Corporation register and, therefore, a local brand. Having registered these brands with the Philippine
Patent Office and with corresponding evidence to the effect, private respondent paid ad valorem excise taxes
computed at the rate of not more than 45% which is the rate applicable to cigarettes considered as locally
manufactured brands.

How these past determinations pervaded notwithstanding their erroneous basis is only tempered by their innate
quality of being merely errors in interpretative ruling, the formulation of which does not bind the government.
Advantage over such errors may precipitously be withdrawn from those who have been benefiting from them once
the same have been discovered and rectified.

Petitioner correctly emphasizes that:

. . . the registration of said brands in the name of private respondent is proof only that it is the
exclusive owner thereof in the Philippines; it does not necessarily follow, however, that it is the
exclusive owner thereof in the whole world. Assuming arguendo that private respondent is the
exclusive owner of said brands in the Philippines, it does not mean that they are local. Otherwise,
they would not have been listed in the WTD as international brands manufactured by different
entities in different countries. Moreover, it cannot be said that the brands registered in the names of
private respondent are not the same brands listed in the WTD because private respondent is one of
the manufacturers of said brands listed in the WTD. 3

Private respondent attempts to cast doubt on the determination made by petitioner in the questioned Circular that
Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the World Tobacco Directory
reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing this out, private respondent concludes that
the entire Circular is erroneous and makes such error the principal proof of its claim that the nature of the
determination embodied in the questioned Circular requires a hearing on the facts and a debate on the applicable
law. Such a determination is adjudicatory in nature and, therefore, requires notice and hearing. Private respondent
is, however, apparently only eager to show error on the part of petitioner for acting with grave abuse of discretion.
Private respondent conveniently forgets that petitioner, equipped with the expertise in taxation, recognized in that
expertise by the legislature that vested in her the power to make rules respecting classification of articles for taxation
purposes, and presumed to have regularly exercised her prerogatives within the scope of her statutory power to
issue determinations specifically under Section 142 (c) (1) in relation to Section 245 of the National Internal
Revenue Code, as amended, simply followed the law as she understood it. Her task was to determine which
cigarette brands were foreign, and she was directed by the law to look into the World Tobacco Directory. Foreign
cigarette brands were legislated to be taxed at higher rates because of their more extensive public exposure and
international reputation; their competitive edge against local brands may easily be checked by imposition of higher
tax rates. Private respondent makes a mountain of the mole hill circumstance that "Hope" is listed, not as being
"manufactured" by Japan but as being "used" by Japan. Whether manufactured or used by Japan, however, "Hope"
remains a cigarette brand that can not be said to be limited to local manufacture in the Philippines. The undeniable
fact is that it is a foreign brand the sales in the Philippines of which are greatly boosted by its international exposure
and reputation. The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify
articles for taxation purposes, to interpret the laws which she is mandated to administer. In interpreting the same,
petitioner must, in general, be guided by the principles underlying taxation, i.e., taxes are the lifeblood of
Government, and revenue laws ought to be interpreted in favor of the Government, for Government can not survive
without the funds to underwrite its varied operational expenses in pursuit of the welfare of the society which it serves
and protects.

Private respondent claims that its business will be destroyed by the imposition of additional ad valorem taxes as a
result of the effectivity of the questioned Circular. It claims that under the vested rights theory, it cannot now be
made to pay higher taxes after having been assessed for less in the past. Of course private respondent will trumpet
its losses, its interests, after all, being its sole concern. What private respondent fails to see is the loss of revenue by
the Government which, because of erroneous determinations made by its past revenue commissioners, collected
lesser taxes than what it was entitled to in the first place. It is every citizen's duty to pay the correct amount of taxes.
Private respondent will not be shielded by any vested rights, for there are not vested rights to speak of respecting a
wrong construction of the law by administrative officials, and such wrong interpretation does not place the
Government in estoppel to correct or overrule the same. 4

The Questioned Circular embodies an interpretative


ruling of petitioner Commissioner which as such does
not require notice and hearing

As one of the public offices of the Government, the Bureau of Internal Revenue, through its Commissioner, has
grown to be a typical administrative agency vested with a fusion of different governmental powers: the power to
investigate, initiate action and control the range of investigation, the power to promulgate rules and regulations to
better carry out statutory policies, and the power to adjudicate controversies within the scope of their activities. 5 In
the realm of administrative law, we understand that such an empowerment of administrative agencies was evolved
in response to the needs of a changing society. This development arose as the need for broad social control over
complex conditions and activities became more and more pressing, and such complexity could no longer be dealt
with effectivity and directly by the legislature or the judiciary. The theory which underlies the empowerment of
administrative agencies like the Bureau of Internal Revenue, is that the issues with which such agencies deal ought
to be decided by experts, and not be a judge, at least not in the first instance or until the facts have been sifted and
arranged. 6

One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to make rules. The
necessity for vesting administrative agencies with this power stems from the impracticability of the lawmakers
providing general regulations for various and varying details pertinent to a particular legislation. 7

The rules that administrative agencies may promulgate may either be legislative or interpretative. The former is a
form of subordinate legislation whereby the administrative agency is acting in a legislative capacity, supplementing
the statute, filling in the details, pursuant to a specific delegation of legislative power. 8

Interpretative rules, on the other hand, are "those which purport to do no more than interpret the statute being
administered, to say what it means." 9

There can be no doubt that there is a distinction between an administrative rule or regulation and an
administrative interpretation of a law whose enforcement is entrusted to an administrative body.
When an administrative agency promulgates rules and regulations, it "makes" a new law with the
force and effect of a valid law, while when it renders an opinion or gives a statement of policy, it
merely interprets a pre-existing law (Parker, Administrative Law, p. 197; Davis Administrative Law, p.
194). Rules and regulations when promulgated in pursuance of the procedure or authority conferred
upon the administrative agency by law, partake of the nature of a statute, and compliance therewith
may be enforced by a penal sanction provided in the law. This is so because statutes are usually
couched in general terms, after expressing the policy, purposes, objectives, remedies and sanctions
intended by the legislature. The details and the manner of carrying out the law are often times left to
the administrative agency entrusted with its enforcement. In this sense, it has been said that rules
and regulations are the product of a delegated power to create new or additional legal provisions
that have the effect of law. (Davis, op. cit. p. 194.)

A rule is binding on the courts as long as the procedure fixed for its promulgation is followed and its
scope is within the statutory authority granted by the legislature, even if the courts are not in
agreement with the policy stated therein or its innate wisdom (Davis, op. cit. pp. 195-197). On the
other hand, administrative interpretation of the law is at best merely advisory, for it is the courts that
finally determine what the law means. 10

"Whether a given statutory delegation authorizes legislative or interpretative regulations depends upon whether the
statute places specific 'sanctions' behind the regulations authorized, as for example, by making it a criminal offense
to disobey them, or by making conformity with their provisions a condition of the exercise of legal privileges." 11 This
is because interpretative regulations are by nature simply statutory interpretations, which have behind them no
statutory sanction. Such regulations, whether so expressly authorized by statute or issued only as an incident of
statutory administration, merely embody administrative findings of law which are always subject to judicial
determination as to whether they are erroneous or not, even when their issuance is authorized by statute.
The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making powers under
Section 245 of the National Internal Revenue Code, as amended. Exercising such powers, petitioner re-classified
"Hope," "More" and "Champion" cigarettes as locally manufactured cigarettes bearing foreign brands. The re-
classification, as previously explained, is the correct interpretation of Section 142 (c) (1) of the said Code. The said
legal provision is not accompanied by any penal sanction, and no detail had to be filled in by petitioner. The basis for
the classification of cigarettes has been provided for by the legislature, and all petitioner has to do, on behalf of the
government agency she heads, is to proceed to make the proper determination using the criterion stipulated by the
lawmaking body. In making the proper determination, petitioner gave it a liberal construction consistent with the rule
that revenue laws are to be construed in favor of the Government whose survival depends on the contributions that
taxpayers give to the public coffers that finance public services and other governmental operations.

The Bureau of Internal Revenue which petitioner heads, is the government agency charged with the enforcement of
the laws pertinent to this case and so, the opinion of the Commissioner of Internal Revenue, in the absence of a
clear showing that it is plainly wrong, is entitled to great weight. Private respondent claims that its rights under
previous interpretations of Section 142 (c) (1) may not abruptly be cut by a new interpretation of the said section, but
precisely the said section is subject to various and changing construction, and hence, any ruling issued by petitioner
thereon is necessarily interpretative and not legislative. Private respondent insists that the questioned circular is
adjudicatory in nature because it determined the rights of private respondent in a controversy involving his tax
liability. It also asseverates that the questioned circular involved administrative action that is particular and
immediate, thereby rendering it subject to the requirements of notice and hearing in compliance with the due
process clause of the Constitution.

We find private respondent's arguments to be rather strained.

Petitioner made a determination as to the classification of cigarettes as mandated by the aforecited provisions in the
National Internal Revenue Code, as amended. Such determination was an interpretation by petitioner of the said
legal provisions. If in the course of making the interpretation and embodying the same in the questioned circular
which the petitioner subsequently issued after making such a determination, private respondent's cigarettes
products, by their very nature of being foreign brands as evidenced by their enlistment in the World Tobacco
Directory, which is the controlling basis for the proper classification of cigarettes as stipulated by the law itself, have
come to be classified as locally manufactured cigarettes bearing foreign brands and as such subject to a tax rate
higher than what was previously imposed thereupon based on past rulings of other revenue commissioners, such a
situation is simply a consequence of the performance by petitioner of here duties under the law. No adjudication
took place, much less was there any controversy ripe for adjudication. The natural consequences of making a
classification in accordance with law may not be used by private respondent in arguing that the questioned circular
is in fact adjudicatory in nature. Such an exercise in driving home a point is illogical as it is fallacious and misplaced.

Private respondent concedes that under general rules of administrative law, "a ruling which is merely 'interpretative'
in character may not require prior notice to affected parties before its issuance as well as a hearing" and "for this
reason, in most instances, interpretative regulations are not given the force of law." 12Indeed, "interpretative
regulations and those merely internal in nature
. . . need not be published." 13 And it is now settled that only legislative regulations and not interpretative rulings must
have the benefit of public
hearing. 14

Because (1) the questioned circular merely embodied an interpretation or a way of reading and giving meaning to
Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2) petitioner did not fill in any details in the
aforecited section but only classified cigarettes on the basis of the World Tobacco Directory in the light of the
paramount principle of construing revenue laws in favor of the Government to the end that Government collects as
much tax money as it is entitled to in order to fulfill its public purposes for the general good of its citizens; (3) no
penal sanction is provided in the aforecited section that was construed by petitioner in the questioned circular; and
(4) a similar circular declassifying copra from being an agricultural food to non-food product for purposes of the
value added tax laws, resulting in the revocation of an exemption previously enjoyed by copra traders, has been
ruled by us to be merely an interpretative ruling and not a legislative, much less, an adjudicatory, action on the part
of the revenue commissioner, 15 this Court must not be blind to the fact that the questioned Circular is indeed an
interpretative ruling not subject to notice and hearing.
Neither is the questioned Circular tainted by a
violation of the equal protection clause under the
Constitution

Private respondent anchors its claim of violation of its equal protection rights upon the too obvious fact that only its
cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the questioned circular. Because only the
cigarettes that they manufacture are enumerated in the questioned circular, private respondent proceeded to attack
the same as being discriminatory against it. On the surface, private respondent seems to have a point there. A
scrutiny of the questioned Circular, however, will show that it is undisputedly one of general application for all
cigarettes that are similarly situated as private respondent's brands. The new interpretation of Section 142 (1) (c)
has been well illustrated in its application upon private respondent's brands, which illustration is properly a subject of
the questioned Circular. Significantly, indicated as the subject of the questioned circular is the "reclassification of
cigarettes subject to excise taxes." The reclassification resulted in the foregrounding of private respondent's
cigarette brands, which incidentally is largely due to the controversy spawned no less by private respondent's own
action of conveniently changing its brand names to avoid falling under a classification that would subject it to
higher ad valorem tax rates. This caused then Commissioner Bienvenido Tan to depart from his initial determination
that private respondent's cigarette brands are foreign brands. The consequent specific mention of such brands in
the questioned Circular, does not change the fact that the questioned Circular has always been intended for and did
cover, all cigarettes similarly situated as "Hope," "More" and "Champion." Petitioner is thus correct in stating that:

. . . RMC 37-93 is not discriminatory. It lays down the test in determining whether or not a locally
manufactured cigarette bears a foreign brand using the cigarette brands "Hope," More and
"Champion" as specific examples. Such test applies to all locally manufactured cigarette brands
similarly situated as the cigarette brands aforementioned. While it is true that only "Hope," "More"
and "Champion" cigarettes are actually determined as locally manufactured cigarettes bearing a
foreign brand, RMC 37-93 does not state that ONLY cigarettes fall under such classification to the
exclusion of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude the
coverage of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude the
coverage of other cigarettes similarly situated as locally manufactured cigarettes bearing a foreign
brand. Hence, in itself, RMC 37-93 is not discriminatory. 16

Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned Circular reclassifying
"Hope," "More" and "Champion" cigarettes, is defective, invalid and unenforceable and has rendered the
assessment against private respondent of deficiency ad valorem excise taxes to be without legal basis. The majority
agrees with private respondent and respondent Courts. As the foregoing opinion chronicles the fatal flaws in private
respondent's arguments, it becomes more apparent that the questioned Circular is in fact a valid and subsisting
interpretative ruling that the petitioner had power to promulgate and enforce.

WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals and the Court of
Appeals, respectively, and to reinstate the decision of petitioner Commissioner of Internal Revenue denying private
respondent's request for a review, reconsideration and recall of Revenue Memorandum Circular No. 37-93 dated
July 1, 1993.

Padilla, J., concurs.

Separate Opinions

BELLOSILLO, J.: separate opinion:

RA 7654 was enacted by Congress on 10 June 1993, signed into law by the President on 14 June 1993, and took
effect 3 July 1993. It amended partly Sec. 142, par. (c), of the National Internal Revenue Code (NIRC) to read
Sec. 142. Cigars and cigarettes. . . . . (c) Cigarettes packed by machine. There shall be levied,
assessed and collected on cigarettes packed by machine a tax at the rates prescribed below based
on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price,
whichever is higher.

(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent
(55%) or the exportation of which is not authorized by contract or otherwise, fifty-five percent (55%)
provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack (emphasis
supplied).

(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum tax
shall not be less than Three Pesos (P3.00) per pack.

Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium More and Champion were considered
local brands subjected to an ad valorem tax at the rate of 20-45%. However, on 1 July 1993 or two (2) days before
RA 7654 took effect, petitioner Commissioner of Internal Revenue issued RMC 37-93 reclassifying
"Hope, Moreand Champion being manufactured by Fortune Tobacco Corporation . . . . (as) locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes." 1 RMC 37-93 in effect
subjected Hope Luxury, Premium More and Champion cigarettes to the provisions of Sec. 142, par. (c), subpar. (1),
NIRC, as amended by RA 7654, imposing upon these cigarette brands an ad valorem tax of "fifty-five percent (55%)
provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack."

On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before the effectivity of RA 7654, a copy of
RMC 37-93 with a cover letter signed by Deputy Commissioner Victor A. Deoferio of the Bureau of Internal Revenue
was sent by facsimile to the factory of respondent corporation in Parang, Marikina, Metro Manila. It appears that the
letter together with a copy of RMC 37-93 did not immediately come to the knowledge of private respondent as it was
addressed to no one in particular. It was only when the reclassification of respondent corporation's cigarette brands
was reported in the column of Fil C. Sionil in Business Bulletin on 4 July 1993 that the president of respondent
corporation learned of the matter, prompting him to inquire into its veracity and to request from petitioner a copy of
RMC 37-93. On 15 July 1993 respondent corporation received by ordinary mail a certified machine copy of RMC 37-
93.

Respondent corporation sought a review, reconsideration and recall of RMC 37-93 but was forthwith denied by the
Appellate Division of the Bureau of Internal Revenue. As a consequence, on 30 July 1993 private respondent was
assessed an ad valorem tax deficiency amounting to P9,598,334.00. Respondent corporation went to the Court of
Tax Appeals (CTA) on a petition for review.

On 10 August 1994, after due hearing, the CTA found the petition meritorious and ruled

Revenue Memorandum Circular No. 37-93 reclassifying the brands of


cigarettes, viz: Hope, More andChampion being manufactured by Fortune Tobacco Corporation as
locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on
cigarettes is found to be defective, invalid and unenforceable . . . . Accordingly, the deficiency ad
valorem tax assessment issued on petitioner Fortune Tobacco Corporation in the amount of
P9,598,334.00, exclusive of surcharge and interest, is hereby cancelled for lack of legal basis. 2

The CTA held that petitioner Commissioner of Internal Revenue failed to observe due process of law in
issuing RMC 37-93 as there was no prior notice and hearing, and that RMC 37-93 was in itself
discriminatory. The motion to reconsider its decision was denied by the CTA for lack of merit. On 31 March
1995 respondent Court of Appeals affirmed in toto the decision of the CTA. 3 Hence, the instant petition for
review.

Petitioner now submits through the Solicitor General that RMC 37-93 reclassifying Hope Luxury, Premium
Moreand Champion as locally manufactured cigarettes bearing brands is merely an interpretative ruling which needs
no prior notice and hearing as held in Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance
Secretary. 4 It maintains that neither is the assailed revenue memorandum circular discriminatory as it merely "lays
down the test in determining whether or not a locally manufactured cigarette bears a foreign brand using (only) the
cigarette brands Hope, More and Champion as specific examples." 5
Respondent corporation on the other hand contends that RMC 37-93 is not a mere interpretative ruling but is
adjudicatory in nature where prior notice and hearing are mandatory, and that Misamis Oriental Association of Coco
Traders, Inc. v. Department of Finance Secretary on which the Solicitor General relies heavily is not applicable.
Respondent Fortune Tobacco Corporation also argues that RMC 37-93 discriminates against its cigarette brands
since those of its competitors which are similarly situated have not been reclassified.

The main issues before us are (a) whether RMC 37-93 is merely an interpretative rule the issuance of which needs
no prior notice and hearing, or an adjudicatory ruling which calls for the twin requirements of prior notice and
hearing, and, (b) whether RMC 37-93 is discriminatory in nature.

A brief discourse on the powers and functions of administrative bodies may be instructive.

Administrative agencies posses quasi-legislative or rule making powers and quasi-judicial or administrative
adjudicatory powers. Quasi-legislative or rule making power is the power to make rules and regulations which
results in delegated legislation that is within the confines of the granting statute and the doctrine of nondelegability
and separability of powers.

Interpretative rule, one of the three (3) types of quasi-legislative or rule making powers of an administrative agency
(the other two being supplementary or detailed legislation, and contingent legislation), is promulgated by the
administrative agency to interpret, clarify or explain statutory regulations under which the administrative body
operates. The purpose or objective of an interpretative rule is merely to construe the statute being administered. It
purports to do no more than interpret the statute. Simply, the rule tries to say what the statute means. Generally, it
refers to no single person or party in particular but concerns all those belonging to the same class which may be
covered by the said interpretative rule. It need not be published and neither is a hearing required since it is issued
by the administrative body as an incident of its power to enforce the law and is intended merely to clarify statutory
provisions for proper observance by the people. In Taada v. Tuvera, 6 this Court expressly said that
"[i]interpretative regulations . . . . need not be published."

Quasi-judicial or administrative adjudicatory power on the other hand is the power of the administrative agency to
adjudicate the rights of persons before it. It is the power to hear and determine questions of fact to which the
legislative policy is to apply and to decide in accordance with the standards laid down by the law itself in enforcing
and administering the same law. 7 The administrative body exercises its quasi-judicial power when it performs in a
judicial manner an act which is essentially of an executive or administrative nature, where the power to act in such
manner is incidental to or reasonably necessary for the performance of the executive or administrative duty
entrusted to it. 8 In carrying out their quasi-judicial functions the administrative officers or bodies are required to
investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them
as basis for their official action and exercise of discretion in a judicial nature. Since rights of specific persons are
affected it is elementary that in the proper exercise of quasi-judicial power due process must be observed in the
conduct of the proceedings.

The importance of due process cannot be underestimated. Too basic is the rule that no person shall be deprived of
life, liberty or property without due process of law. Thus when an administrative proceeding is quasi-judicial in
character, notice and fair open hearing are essential to the validity of the proceeding. The right to reasonable prior
notice and hearing embraces not only the right to present evidence but also the opportunity to know the claims of
the opposing party and to meet them. The right to submit arguments implies that opportunity otherwise the right may
as well be considered impotent. And those who are brought into contest with government in a quasi-judicial
proceeding aimed at the control of their activities are entitled to be fairy advised of what the government proposes
and to be heard upon its proposal before it issues its final command.

There are cardinal primary rights which must be respected in administrative proceedings. The landmark case ofAng
Tibay v. The Court of Industrial Relations 9 enumerated these rights: (1) the right to a hearing, which includes the
right of the party interested or affected to present his own case and submit evidence in support thereof; (2) the
tribunal must consider the evidence presented; (3) the decision must have something to support itself; (4) the
evidence must be substantial; (5) the decision must be rendered on the evidence presented at the hearing, or at
least contained in the record and disclosed to the parties affected; (6) the tribunal or any of its judges must act on its
or his own independent consideration of the law and facts of the controversy, and not simply accept the views of a
subordinate in arriving at a decision; and, (7) the tribunal should in all controversial questions render its decision in
such manner that the parties to the proceeding may know the various issues involved and the reasons for the
decision rendered.

In determining whether RMC No. 37-93 is merely an interpretative rule which requires no prior notice and hearing, or
an adjudicatory rule which demands the observance of due process, a close examination of RMC 37-93 is in order.
Noticeably, petitioner Commissioner of Internal Revenue at first interprets Sec. 142, par. (c), subpar. (1), of the
NIRC, as amended, by citing the law and clarifying or explaining what it means

Section 142 (c) (1), National Internal Revenue Code, as amended by R.A. No. 6956, provides: On
locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided, That this
rate shall apply regardless of whether or not the right to use or title to the foreign brand was sold or
transferred by its owner to the local manufacturer. Whenever it has to be determined whether or not
a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing
in the current World Tobacco Directory shall govern.

Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the locally
manufactured cigarettes bear a foreign brand regardless of whether or not the right to use or title to
the foreign brand was sold or transferred by its owner to the local manufacturer. The brand must be
originally owned by a foreign manufacturer or producer. If ownership of the cigarette brand is,
however, not definitely determinable,
". . . the listing of brands manufactured in foreign countries appearing in the current World Tobacco
Directory shall govern . . ."

Then petitioner makes a factual finding by declaring that Hope (Luxury), (Premium) More and Champion are
manufactured by other foreign manufacturers

Hope is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco, Japan
and (b) Fortune Tobacco, Philippines. More is listed in the said directory as being manufactured by:
(a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-MacDonald, Canada; (d) Rettig-
Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand;
(h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k)
Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. "Champion" is
registered in the said directory as being manufactured by: (a) Commonwealth Bangladesh; (b)
Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and
(f) Tabac Reunies, Switzerland.

From this finding, petitioner thereafter formulates an inference that since it cannot be determined who among the
manufacturers are the real owners of the brands in question, then these cigarette brands should be considered
foreign brands

Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the
said brands are the real owner/s thereof, then it follows that the same shall be considered foreign
brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National
Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it
cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to
the World Tobacco Directory should be made."

Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation reclassifying its
cigarette brands as locally manufactured bearing foreign brands

In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More and Champion being
manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes.

Any ruling inconsistent herewith is revoked or modified accordingly.


It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal Revenue was
exercising her quasi-judicial or administrative adjudicatory power. She cited and interpreted the law, made a factual
finding, applied the law to her given set of facts, arrived at a conclusion, and issued a ruling aimed at a specific
individual. Consequently prior notice and hearing are required. It must be emphasized that even the text alone of
RMC 37-93 implies that reception of evidence during a hearing is appropriate if not necessary since it invokes BIR
Ruling No. 410-88, dated August 24, 1988, which provides that "in cases where it cannot be established or there is
dearth of evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult to determine whether a brand is
foreign or not if it is not established by, or there is dearth of, evidence because no hearing has been called and
conducted for the reception of such evidence. In fine, by no stretch of the imagination can RMC 37-93 be
considered purely as an interpretative rule requiring no previous notice and hearing and simply interpreting,
construing, clarifying or explaining statutory regulations being administered by or under which the Bureau of Internal
Revenue operates.

It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders v. Department of Finance Secretary,
and RMC 37-93 in the instant case reclassify certain products for purposes of taxation. But the similarity between
the two revenue memorandum circulars ends there. For in properly determining whether a revenue memorandum
circular is merely an interpretative rule or an adjudicatory rule, its very tenor and text, and the circumstances
surrounding its issuance will have no to be considered.

We quote RMC 47-91 promulgated 11 June 1991

Revenue Memorandum Circular No. 47-91

SUBJECT : Taxability of Copra


TO : All Revenue Officials and Employees and Others Concerned.

For the information and guidance of all officials and employees and others concerned, quoted
hereunder in its entirety is VAT Ruling No. 190-90 dated August 17, 1990:

COCOFED MARKETING RESEARCH CORPORATION


6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila

Attention: Ms. Esmyrna E. Reyes


Vice President Finance

Sirs:

This has reference to your letter dated January 16, 1990 wherein you represented
that inspite of your VAT registration of your copra trading company, you are
supposed to be exempt from VAT on the basis of BIR Ruling dated January 8, 1988
which considered copra as an agricultural food product in its original state. In this
connection, you request for a confirmation of your opinion as aforestated.

In reply, please be informed that copra, being an agricultural non-food product, is


exempt from VAT only if sale is made by the primary producer pursuant to Section
103 (a) of the Tax Code, as amended. Thus as a trading company and a subsequent
seller, your sale of copra is already subject to VAT pursuant to Section 9(b) (1) of
Revenue Regulations 5-27.

This revokes VAT Ruling Nos. 009-88 and 279-88.

Very truly yours,


(Sgd.) JOSE U. ONG
Commissioner of
Internal Revenue

As a clarification, this is the present and official stand of this Office unless sooner revoked or
amended. All revenue officials and employees are enjoined to give this Circular as wide a publicity
as possible.

(Sgd.) JOSE U. ONG


Commissioner of
Internal Revenue

Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it simply quotes a
VAT Ruling and reminds those concerned that the ruling is the present and official stand of the Bureau of Internal
Revenue. Unlike in RMC 37-93 where petitioner Commissioner manifestly exercised her quasi-judicial or
administrative adjudicatory power, in RMC 47-91 there were no factual findings, no application of laws to a given set
of facts, no conclusions of law, and no dispositive portion directed at any particular party.

Another difference is that in the instant case, the issuance of the assailed revenue memorandum circular operated
to subject the taxpayer to the new law which was yet to take effect, while in Misamis, the disputed revenue
memorandum circular was issued simply to restate and then clarify the prevailing position and ruling of the
administrative agency, and no new law yet to take effect was involved. It merely interpreted an existing law which
had already been in effect for some time and which was not set to be amended. RMC 37-93 is thus prejudicial to
private respondent alone.

A third difference, and this likewise resolves the issue of discrimination, is that RMC 37-93 was ostensibly issued to
subject the cigarette brands of respondent corporation to a new law as it was promulgated two days before the
expiration of the old law and a few hours before the effectivity of the new law. That RMC 37-93 is particularly aimed
only at respondent corporation and its three (3) cigarette brands can be seen from the dispositive portion of the
assailed revenue memorandum circular

In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More, and Champion being
manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes.

Any ruling inconsistent herewith is revoked or modified accordingly.

Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays down the test in
determining whether or not a locally manufactured cigarette bears a foreign brand using the cigarette
brandsHope, More and Champion as specific examples," cannot be accepted, much less sustained. Without doubt,
RMC 37-93 has a tremendous effect on respondent corporation and solely on respondent corporation as its
deficiency ad valorem tax assessment on its removals of Hope, Luxury, Premium More, and Champion cigarettes
for six (6) hours alone, i.e., from six o'clock in the evening of 2 July 1993 which is presumably the time respondent
corporation was supposed to have received the facsimile message sent by Deputy Commissioner Victor A.
Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was already P9,598,334.00. On the other
hand, RMC 47-91 was issued with no purpose except to state and declare what has been the official stand of the
administrative agency on the specific subject matter, and was indiscriminately directed to all copra traders with no
particular individual in mind.

That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be disputed; hence,
we do not question the wisdom of her act in reclassifying the cigarettes. Neither do we deny her the exercise of her
quasi-legislative or quasi-judicial powers. But most certainly, by constitutional mandate, the Court must check the
exercise of these powers and ascertain whether petitioner has gone beyond the legitimate bounds of her authority.

In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the wisdom of
petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private respondents. It is simply the
faithful observance by government by government of the basic constitutional right of a taxpayer to due process of
law and equal protection of the laws. This is what distresses me no end the manner and the circumstances under
which the cigarettes of private respondent were reclassified and correspondingly taxed under RMC 37-93, and
adjudicatory rule which therefore requires reasonable notice and hearing before its issuance. It should not be
confused with RMC 47-91, which is a mere interpretative rule.

In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also voted to
uphold the constitutional right of the taxpayer concerned to due process and equal protection of the laws. By a vote
of 3-2, that view prevailed. In sequela, we in the First Division who constituted the majority found ourselves unjustly
drawn into the vortex of a nightmarish episode. The strong ripples whipped up by my opinion expressed therein
and of the majority have yet to varnish when we are again in the imbroglio of a similar dilemma. The unpleasant
experience should be reason enough to simply steer clear of this controversy and surf on a pretendedloss of judicial
objectivity. Such would have been an easy way out, a gracious exit, so to speak, albeit lame. But to camouflage my
leave with a sham excuse would be to turn away from a professional vow I keep at all times; I would not be true to
myself, and to the people I am committed to serve. Thus, as I have earlier expressed, if placed under similar
circumstances in some future time, I shall have to brave again the prospect of another vilification and a tarnished
image if only to show proudly to the whole world that under the present dispensation judicial independence in our
country is a true component of our democracy.

In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of such issuance. For
it cannot be denied that the circumstances clearly demonstrate that it was hastily issued without prior notice and
hearing, and singling out private respondent alone when two days before a new tax law was to take effect
petitioner reclassified and taxed the cigarette brands of private respondent at a higher rate. Obviously, this was to
make it appear that even before the anticipated date of effectivity of the statute which was undeniably priorly
known to petitioner these brands were already currently classified and taxed at fifty-five percent (55%), thus
shoving them into the purview of the law that was to take effect two days after!

For sure, private respondent was not properly informed before the issuance of the questioned memorandum circular
that its cigarette brands Hope Luxury, Premium More and Champion were being reclassified and subjected to a
higher tax rate. Naturally, the result would be to lose financially because private respondent was still selling its
cigarettes at a price based on the old, lower tax rate. Had there been previous notice and hearing, as claimed by
private respondent, it could have very well presented its side, either by opposing the reclassification, or by
acquiescing thereto but increasing the price of its cigarettes to adjust to the higher tax rate. The reclassification and
the ensuing imposition of a tax rate increase therefore could not be anything but confiscatory if we are also to
consider the claim of private respondent that the new tax is even higher than the cost of its cigarettes.

Accordingly, I vote to deny the petition.

HERMOSISIMA, JR., J.: dissenting

Private respondent Fortune Tobacco Corporation in the instant case disputes its liability for deficiency ad
valoremexcise taxes on its removals of "Hope," "More," and "Champion" cigarettes from 6:00 p.m. to 12:00 midnight
of July 2, 1993, in the total amount of P9,598,334.00. It claims that the circular, upon which the assessment was
based and made, is defective, invalid and unenforceable for having been issued without notice and hearing and in
violation of the equal protection clause guaranteed by the Constitution.

The majority upholds these claims of private respondent, convinced that the Circular in question, in the first place,
did not give prior notice and hearing, and so, it could not have been valid and effective. It proceeds to affirm the
factual findings of the Court of Tax Appeals, which findings were considered correct by respondent Court of
Appeals, to the effect that the petitioner Commissioner of Internal Revenue had indeed blatantly failed to comply
with the said twin requirements of notice and hearing, thereby rendering the issuance of the questioned Circular to
be in violation of the due process clause of the Constitution. It is also its dominant opinion that the questioned
Circular discriminates against private respondent Fortune Tobacco Corporation insofar as it seems to affect only its
"Hope," "More," and "Champion" cigarettes, to the exclusion of other cigarettes apparently of the same kind or
classification as these cigarettes manufactured by private respondent.

With all due respect, I disagree with the majority in its disquisition of the issues and its resulting conclusions.
Section 245 of the National Internal Revenue Code,
as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular

Section 245 of the National Internal Revenue Code, as amended, provides:

Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations. The Secretary of
Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and
regulations for the effective enforcement of the provisions of this Code . . . without prejudice to the
power of the Commissioner of Internal Revenue to make rulings or opinions in connection with the
implementation of the provisions of internal revenue laws, including rulings on the classification of
articles for sales tax and similar purposes.

The subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It was issued in
connection with Section 142 (c) (1) of the National Internal Revenue Code, as amended, which imposes ad
valorem excise taxes on locally manufactured cigarettes bearing a foreign brand. The same provision prescribes the
ultimate criterion that determines which cigarettes are to be considered "locally manufactured cigarettes bearing a
foreign brand." It provides:

. . . Whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of
brands manufactured in foreign countries appearing in the current World Tobacco Directory shall
govern.

There is only one World Tobacco Directory for a given current year, and the same is mandated by law to be
the BIR Commissioner's controlling basis for determining whether or not a particular locally manufactured
cigarette is one bearing a foreign brand. In so making a determination, petitioner should inquire into the
entries in the World Tobacco Directory for the given current year and shall be held bound by such entries
therein. She is not required to subject the results of her inquiries to feedback from the concerned cigarette
manufacturers, and it is doubtlessly not desirable nor managerially sound to court dispute thereon when the
law does not, in the first place, require debate or hearing thereon. Petitioner may make such a determination
because she is the Chief Executive Officer of the administrative agency that is the Bureau of Internal
Revenue in which are vested quasi-legislative powers entrusted to it by the legislature in recognition of its
more encompassing and unequalled expertise in the field of taxation.

The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is not


unconstitutional, unreasonable and oppressive. It has been necessitated by "the growing complexity
of the modern society" (Solid Homes, Inc. vs. Payawal, 177 SCRA 72, 79). More and more
administrative bodies are necessary to help in the regulation of society's ramified activities.
"Specialized in the particular field assigned to them, they can deal with the problems thereof with
more expertise and dispatch than can be expected from the legislature or the courts of justice" . . . 1

Statutorily empowered to issue rulings or opinions embodying the proper determination in respect to classifying
articles, including cigarettes, for purposes of tax assessment and collection, petitioner was acting well within her
prerogatives when she issued the questioned Circular. And in the exercise of such prerogatives under the law, she
has in her favor the presumption of regular performance of official duty which must be overcome by clearly
persuasive evidence of stark error and grave abuse of discretion in order to be overturned and disregarded.

It is irrelevant that the Court of Tax Appeals makes much of the effect of the passing of Republic Act No. 7654 2 on
petitioner's power to classify cigarettes. Although the decisions assailed and sought to be reviewed, as well as the
pleadings of private respondent, are replete with alleged admissions of our legislators to the effect that the said Act
was intended to freeze the current classification of cigarettes and make the same an integral part of the said Act,
certainly the repeal, if any, of petitioner's power to classify cigarettes must be reckoned from the effectivity of the
said Act and not before. Suffice it to say that indisputable is the plain fact that the questioned Circular was issued on
July 1, 1993, while the said Act took effect on July 3, 1993.

The contents of the questioned circular have not


been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner

Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National Internal Revenue Code, as amended,
levies the following ad valorem taxes on cigarettes in accordance with their predetermined classifications as
established by the Commissioner of Internal Revenue:

. . . based on the manufacturer's registered wholesale price:

(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided,
That this rate shall apply regardless of whether or not the right to use or title to the foreign brand was
sold or transferred by its owner to the local manufacturer. Whenever it has to be determined whether
or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern.

(2) Other locally manufactured cigarettes, forty five percent (45%).

xxx xxx xxx

Prior to the issuance of the questioned Circular, assessed against and paid by private respondent as ad
valoremexcise taxes on their removals of "Hope," "More," and "Champion" cigarettes were amounts based on
paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was 45% at the most. The reason for
this is that apparently, petitioner's predecessors have all made determinations to the effect that the said cigarettes
were to be considered "other locally manufactured cigarettes" and not "locally manufactured cigarettes bearing a
foreign brand." Even petitioner, until her issuance of the questioned Circular, adhered to her predecessors'
determination as to the proper classification of the above-mentioned cigarettes for purposes of ad valorem excise
taxes. Apparently, the past determination that the said cigarettes were to be classified as "other locally
manufactured cigarettes" was based on private respodnent's convenient move of changing the names of "Hope" to
"Hope Luxury" and "More" to "Premium More." It also submitted proof that "Champion" was an original Fortune
Tobacco Corporation register and, therefore, a local brand. Having registered these brands with the Philippine
Patent Office and with corresponding evidence to the effect, private respondent paid ad valorem excise taxes
computed at the rate of not more than 45% which is the rate applicable to cigarettes considered as locally
manufactured brands.

How these past determinations pervaded notwithstanding their erroneous basis is only tempered by their innate
quality of being merely errors in interpretative ruling, the formulation of which does not bind the government.
Advantage over such errors may precipitously be withdrawn from those who have been benefiting from them once
the same have been discovered and rectified.

Petitioner correctly emphasizes that:

. . . the registration of said brands in the name of private respondent is proof only that it is the
exclusive owner thereof in the Philippines; it does not necessarily follow, however, that it is the
exclusive owner thereof in the whole world. Assuming arguendo that private respondent is the
exclusive owner of said brands in the Philippines, it does not mean that they are local. Otherwise,
they would not have been listed in the WTD as international brands manufactured by different
entities in different countries. Moreover, it cannot be said that the brands registered in the names of
private respondent are not the same brands listed in the WTD because private respondent is one of
the manufacturers of said brands listed in the WTD. 3

Private respondent attempts to cast doubt on the determination made by petitioner in the questioned Circular that
Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the World Tobacco Directory
reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing this out, private respondent concludes that
the entire Circular is erroneous and makes such error the principal proof of its claim that the nature of the
determination embodied in the questioned Circular requires a hearing on the facts and a debate on the applicable
law. Such a determination is adjudicatory in nature and, therefore, requires notice and hearing. Private respondent
is, however, apparently only eager to show error on the part of petitioner for acting with grave abuse of discretion.
Private respondent conveniently forgets that petitioner, equipped with the expertise in taxation, recognized in that
expertise by the legislature that vested in her the power to make rules respecting classification of articles for taxation
purposes, and presumed to have regularly exercised her prerogatives within the scope of her statutory power to
issue determinations specifically under Section 142 (c) (1) in relation to Section 245 of the National Internal
Revenue Code, as amended, simply followed the law as she understood it. Her task was to determine which
cigarette brands were foreign, and she was directed by the law to look into the World Tobacco Directory. Foreign
cigarette brands were legislated to be taxed at higher rates because of their more extensive public exposure and
international reputation; their competitive edge against local brands may easily be checked by imposition of higher
tax rates. Private respondent makes a mountain of the mole hill circumstance that "Hope" is listed, not as being
"manufactured" by Japan but as being "used" by Japan. Whether manufactured or used by Japan, however, "Hope"
remains a cigarette brand that can not be said to be limited to local manufacture in the Philippines. The undeniable
fact is that it is a foreign brand the sales in the Philippines of which are greatly boosted by its international exposure
and reputation. The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify
articles for taxation purposes, to interpret the laws which she is mandated to administer. In interpreting the same,
petitioner must, in general, be guided by the principles underlying taxation, i.e., taxes are the lifeblood of
Government, and revenue laws ought to be interpreted in favor of the Government, for Government can not survive
without the funds to underwrite its varied operational expenses in pursuit of the welfare of the society which it serves
and protects.

Private respondent claims that its business will be destroyed by the imposition of additional ad valorem taxes as a
result of the effectivity of the questioned Circular. It claims that under the vested rights theory, it cannot now be
made to pay higher taxes after having been assessed for less in the past. Of course private respondent will trumpet
its losses, its interests, after all, being its sole concern. What private respondent fails to see is the loss of revenue by
the Government which, because of erroneous determinations made by its past revenue commissioners, collected
lesser taxes than what it was entitled to in the first place. It is every citizen's duty to pay the correct amount of taxes.
Private respondent will not be shielded by any vested rights, for there are not vested rights to speak of respecting a
wrong construction of the law by administrative officials, and such wrong interpretation does not place the
Government in estoppel to correct or overrule the same. 4

The Questioned Circular embodies an interpretative


ruling of petitioner Commissioner which as such does
not require notice and hearing

As one of the public offices of the Government, the Bureau of Internal Revenue, through its Commissioner, has
grown to be a typical administrative agency vested with a fusion of different governmental powers: the power to
investigate, initiate action and control the range of investigation, the power to promulgate rules and regulations to
better carry out statutory policies, and the power to adjudicate controversies within the scope of their activities. 5 In
the realm of administrative law, we understand that such an empowerment of administrative agencies was evolved
in response to the needs of a changing society. This development arose as the need for broad social control over
complex conditions and activities became more and more pressing, and such complexity could no longer be dealt
with effectivity and directly by the legislature or the judiciary. The theory which underlies the empowerment of
administrative agencies like the Bureau of Internal Revenue, is that the issues with which such agencies deal ought
to be decided by experts, and not be a judge, at least not in the first instance or until the facts have been sifted and
arranged. 6

One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to make rules. The
necessity for vesting administrative agencies with this power stems from the impracticability of the lawmakers
providing general regulations for various and varying details pertinent to a particular legislation. 7

The rules that administrative agencies may promulgate may either be legislative or interpretative. The former is a
form of subordinate legislation whereby the administrative agency is acting in a legislative capacity, supplementing
the statute, filling in the details, pursuant to a specific delegation of legislative power. 8

Interpretative rules, on the other hand, are "those which purport to do no more than interpret the statute being
administered, to say what it means." 9

There can be no doubt that there is a distinction between an administrative rule or regulation and an
administrative interpretation of a law whose enforcement is entrusted to an administrative body.
When an administrative agency promulgates rules and regulations, it "makes" a new law with the
force and effect of a valid law, while when it renders an opinion or gives a statement of policy, it
merely interprets a pre-existing law (Parker, Administrative Law, p. 197; Davis Administrative Law, p.
194). Rules and regulations when promulgated in pursuance of the procedure or authority conferred
upon the administrative agency by law, partake of the nature of a statute, and compliance therewith
may be enforced by a penal sanction provided in the law. This is so because statutes are usually
couched in general terms, after expressing the policy, purposes, objectives, remedies and sanctions
intended by the legislature. The details and the manner of carrying out the law are often times left to
the administrative agency entrusted with its enforcement. In this sense, it has been said that rules
and regulations are the product of a delegated power to create new or additional legal provisions
that have the effect of law. (Davis, op. cit. p. 194.)

A rule is binding on the courts as long as the procedure fixed for its promulgation is followed and its
scope is within the statutory authority granted by the legislature, even if the courts are not in
agreement with the policy stated therein or its innate wisdom (Davis, op. cit. pp. 195-197). On the
other hand, administrative interpretation of the law is at best merely advisory, for it is the courts that
finally determine what the law means. 10

"Whether a given statutory delegation authorizes legislative or interpretative regulations depends upon whether the
statute places specific 'sanctions' behind the regulations authorized, as for example, by making it a criminal offense
to disobey them, or by making conformity with their provisions a condition of the exercise of legal privileges." 11 This
is because interpretative regulations are by nature simply statutory interpretations, which have behind them no
statutory sanction. Such regulations, whether so expressly authorized by statute or issued only as an incident of
statutory administration, merely embody administrative findings of law which are always subject to judicial
determination as to whether they are erroneous or not, even when their issuance is authorized by statute.

The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making powers under
Section 245 of the National Internal Revenue Code, as amended. Exercising such powers, petitioner re-classified
"Hope," "More" and "Champion" cigarettes as locally manufactured cigarettes bearing foreign brands. The re-
classification, as previously explained, is the correct interpretation of Section 142 (c) (1) of the said Code. The said
legal provision is not accompanied by any penal sanction, and no detail had to be filled in by petitioner. The basis for
the classification of cigarettes has been provided for by the legislature, and all petitioner has to do, on behalf of the
government agency she heads, is to proceed to make the proper determination using the criterion stipulated by the
lawmaking body. In making the proper determination, petitioner gave it a liberal construction consistent with the rule
that revenue laws are to be construed in favor of the Government whose survival depends on the contributions that
taxpayers give to the public coffers that finance public services and other governmental operations.

The Bureau of Internal Revenue which petitioner heads, is the government agency charged with the enforcement of
the laws pertinent to this case and so, the opinion of the Commissioner of Internal Revenue, in the absence of a
clear showing that it is plainly wrong, is entitled to great weight. Private respondent claims that its rights under
previous interpretations of Section 142 (c) (1) may not abruptly be cut by a new interpretation of the said section, but
precisely the said section is subject to various and changing construction, and hence, any ruling issued by petitioner
thereon is necessarily interpretative and not legislative. Private respondent insists that the questioned circular is
adjudicatory in nature because it determined the rights of private respondent in a controversy involving his tax
liability. It also asseverates that the questioned circular involved administrative action that is particular and
immediate, thereby rendering it subject to the requirements of notice and hearing in compliance with the due
process clause of the Constitution.

We find private respondent's arguments to be rather strained.

Petitioner made a determination as to the classification of cigarettes as mandated by the aforecited provisions in the
National Internal Revenue Code, as amended. Such determination was an interpretation by petitioner of the said
legal provisions. If in the course of making the interpretation and embodying the same in the questioned circular
which the petitioner subsequently issued after making such a determination, private respondent's cigarettes
products, by their very nature of being foreign brands as evidenced by their enlistment in the World Tobacco
Directory, which is the controlling basis for the proper classification of cigarettes as stipulated by the law itself, have
come to be classified as locally manufactured cigarettes bearing foreign brands and as such subject to a tax rate
higher than what was previously imposed thereupon based on past rulings of other revenue commissioners, such a
situation is simply a consequence of the performance by petitioner of here duties under the law. No adjudication
took place, much less was there any controversy ripe for adjudication. The natural consequences of making a
classification in accordance with law may not be used by private respondent in arguing that the questioned circular
is in fact adjudicatory in nature. Such an exercise in driving home a point is illogical as it is fallacious and misplaced.

Private respondent concedes that under general rules of administrative law, "a ruling which is merely 'interpretative'
in character may not require prior notice to affected parties before its issuance as well as a hearing" and "for this
reason, in most instances, interpretative regulations are not given the force of law." 12Indeed, "interpretative
regulations and those merely internal in nature
. . . need not be published." 13 And it is now settled that only legislative regulations and not interpretative rulings must
have the benefit of public
hearing. 14

Because (1) the questioned circular merely embodied an interpretation or a way of reading and giving meaning to
Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2) petitioner did not fill in any details in the
aforecited section but only classified cigarettes on the basis of the World Tobacco Directory in the light of the
paramount principle of construing revenue laws in favor of the Government to the end that Government collects as
much tax money as it is entitled to in order to fulfill its public purposes for the general good of its citizens; (3) no
penal sanction is provided in the aforecited section that was construed by petitioner in the questioned circular; and
(4) a similar circular declassifying copra from being an agricultural food to non-food product for purposes of the
value added tax laws, resulting in the revocation of an exemption previously enjoyed by copra traders, has been
ruled by us to be merely an interpretative ruling and not a legislative, much less, an adjudicatory, action on the part
of the revenue commissioner, 15 this Court must not be blind to the fact that the questioned Circular is indeed an
interpretative ruling not subject to notice and hearing.

Neither is the questioned Circular tainted by a


violation of the equal protection clause under the
Constitution

Private respondent anchors its claim of violation of its equal protection rights upon the too obvious fact that only its
cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the questioned circular. Because only the
cigarettes that they manufacture are enumerated in the questioned circular, private respondent proceeded to attack
the same as being discriminatory against it. On the surface, private respondent seems to have a point there. A
scrutiny of the questioned Circular, however, will show that it is undisputedly one of general application for all
cigarettes that are similarly situated as private respondent's brands. The new interpretation of Section 142 (1) (c)
has been well illustrated in its application upon private respondent's brands, which illustration is properly a subject of
the questioned Circular. Significantly, indicated as the subject of the questioned circular is the "reclassification of
cigarettes subject to excise taxes." The reclassification resulted in the foregrounding of private respondent's
cigarette brands, which incidentally is largely due to the controversy spawned no less by private respondent's own
action of conveniently changing its brand names to avoid falling under a classification that would subject it to
higher ad valorem tax rates. This caused then Commissioner Bienvenido Tan to depart from his initial determination
that private respondent's cigarette brands are foreign brands. The consequent specific mention of such brands in
the questioned Circular, does not change the fact that the questioned Circular has always been intended for and did
cover, all cigarettes similarly situated as "Hope," "More" and "Champion." Petitioner is thus correct in stating that:

. . . RMC 37-93 is not discriminatory. It lays down the test in determining whether or not a locally
manufactured cigarette bears a foreign brand using the cigarette brands "Hope," More and
"Champion" as specific examples. Such test applies to all locally manufactured cigarette brands
similarly situated as the cigarette brands aforementioned. While it is true that only "Hope," "More"
and "Champion" cigarettes are actually determined as locally manufactured cigarettes bearing a
foreign brand, RMC 37-93 does not state that ONLY cigarettes fall under such classification to the
exclusion of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude the
coverage of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude the
coverage of other cigarettes similarly situated as locally manufactured cigarettes bearing a foreign
brand. Hence, in itself, RMC 37-93 is not discriminatory. 16
Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned Circular reclassifying
"Hope," "More" and "Champion" cigarettes, is defective, invalid and unenforceable and has rendered the
assessment against private respondent of deficiency ad valorem excise taxes to be without legal basis. The majority
agrees with private respondent and respondent Courts. As the foregoing opinion chronicles the fatal flaws in private
respondent's arguments, it becomes more apparent that the questioned Circular is in fact a valid and subsisting
interpretative ruling that the petitioner had power to promulgate and enforce.

WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals and the Court of
Appeals, respectively, and to reinstate the decision of petitioner Commissioner of Internal Revenue denying private
respondent's request for a review, reconsideration and recall of Revenue Memorandum Circular No. 37-93 dated
July 1, 1993.

Padilla, J., concurs.


ESTATE OF THE LATE MERCEDES JACOB represented by MERCEDITA JACOB,
DONATO JACOB JR., ERENEO JACOB and LILIAN JACOB
QUINTO, petitioners, vs. COURT OF APPEALS, SPOUSES RAMON R.
TUGBANG and VIRGINIA S. TUGBANG, REGISTER OF DEEDS OF QUEZON
CITY and CITY TREASURER OF QUEZON CITY, respondents.

[G.R. No. 120974. December 22, 1997]

CITY TREASURER OF QUEZON CITY, petitioner vs. COURT OF APPEALS and


BERNARDITA C. TOLENTINO., respondents.

DECISION
BELLOSILLO, J.:

These two (2) petitions are heard jointly by the Court for the reason that they involve a
common issue of jurisdiction over the nature of the action.
G.R. No. 120435
Petitioners allege that in 1981 Mercedes Jacob, registered owner of the land subject
matter hereof and covered by Transfer Certificate of Title No. 39178, left for the United
States. Before she did, she asked her son-in-law Luciano Quinto Jr. to pay the real estate
taxes on her property. However, Luciano Jr. was not allowed to pay by the City
Treasurer's Office as he had no written authorization from her. Luciano Jr. and his wife
Lilian Jacob Quinto attempted several times to pay but they were as many times refused.
In 1984 respondent City Treasurer of Quezon City sent a notice to Mercedes Jacob
through her daughter Lilian Jacob Quinto that her real estate taxes on the property were
delinquent. Lilian was also informed that the land was already sold at public auction on 24
August 1983 to private respondent Virginia Tugbang for P6,800.00 to satisfy the tax
delinquency of the land.
Mercedes Jacob came to know of the sale on 6 September 1983 when she received
from respondent City Treasurer a Notice of Sale of Real Property addressed to her
husband. Members of Mercedes' family tried to redeem the property from Virginia
Tugbang but she evaded them until the Final Bill of Sale was issued to her.
On 30 September 1985 Virginia filed a petition for the cancellation of TCT No. 39178
and the issuance of a new certificate of title in her name alleging in par. 4 of her petition
that -

x x x (On) August 27, 1985, the period of redemption on the sold property having already expired
and the registered owner-delinquent taxpayer, Mercedes Jacob, and any other interested party, did
not, within the said period, take any step to redeem the property and pursue any lawful remedy to
impeach the proceedings or to enforce any lien or claim thereon, thereby allowing the sale to
become final and absolute, [1]
thereby disregarding and frustrating the efforts of the Jacobs to redeem the property after
depositing P2,000.00 with the City Treasurer as redemption price. On 3 March 1989 TCT
No. 39178 was canceled and TCT No. 81860 was issued in the name of Virginia Tugbang.
On 17 May 1993 petitioners Mercedita Jacob, Donato Jacob, Jr., Ereneo Jacob and
Lilian Jacob-Quinto, heirs of the late Mercedes Jacob, filed a complaint with the Regional
Trial Court of Quezon City against respondent spouses Ramon R. Tugbang and Virginia
S. Tugbang, docketed as Civil Case No. Q-93-15976, for annulment or cancellation of the
auction sale, the final bill of sale, TCT No. 81860, and for redemption of the property plus
damages. However, the trial court dismissed the petition purportedly for lack of jurisdiction
as the petition was deemed to be -

x x x in reality a petition to annul and set aside the Decision rendered on March 13, 1994 by the
Regional Trial Court, Quezon City, Branch 106, canceling petitioner Mercedes Jacob's TCT No.
39178 x x x x consolidating title to the property covered thereby in herein private respondent
Virginia S. Tugbang, and ordering the issuance of a new title in her favor.
[2]

On 12 October 1994 petitioners filed with us a petition for review on certiorari under
Rule 45 of the Rules of Court which we certified on 9 November 1994 to the Court of
Appeals. The appellate court however dismissed the petition for lack of merit. Thus this
petition for reversal of the decision of the Court of Appeals and for judgment directing the
RTC - Br. 82, Quezon City, to proceed with the trial of Civil Case No. Q-93-15976.
The petition must be granted. It is axiomatic that the averments of the complaint
determine the nature of the action, hence, the jurisdiction of the
courts. This is because the complaint must contain a concise statement of the ultimate
facts constituting the plaintiff's cause of action and specify the relief sought. [3]

A cursory examination of the petition readily shows that it is an action for


reconveyance. The petition states that "petitioners are not after the annulment of the
judgment of the Regional Trial Court, Quezon City, Branch 106. The remedy of petitioners
under the law is an action for reconveyance the jurisdiction of which is vested in the
Regional Trial Court." In Sevilla v. De los Angeles reconveyance was allowed where
[4] [5]

the procurement of a transfer certificate of title was made under circumstances of


constructive trust based on fraudulent representations. In the instant case the complaint
alleges that respondent Virginia Tugbang procured a transfer certificate of title upon her
fraudulent representation in her petition for cancellation of title. This way of acquiring title
creates what is called "constructive trust" in favor of the defrauded party and grants to the
latter a right to the reconveyance of the property. Thus it has been held that if a person
obtains legal title to property by fraud or concealment courts will impress upon the title a
so-called "constructive trust" in favor of the defrauded party. The use of the word "trust" in
this sense is not technically accurate but as courts are agreed in administering the same
remedy in a certain class of frauds as are administered in fraudulent breaches of trusts,
and as courts and the profession have concurred in calling such frauds constructive trusts,
there can be no misapprehension in continuing the same phraseology, while a change
might lead to confusion and misunderstanding. [6]
In Alzua v. Johnson we declared that under our system of pleading it is the duty of
[7]

the courts to grant the relief to which the parties are shown to be entitled by the
allegations in their pleadings and the facts proved at the trial, and the mere fact that they
themselves misconstrued the legal effect of the facts thus alleged and proved will not
prevent the court from placing the just construction thereon and adjudicating the issue
accordingly.
As the petition makes out a case for reconveyance and not a mere annulment of an
RTC judgment as viewed under par. (2), Sec. 9, BP Blg. 129, jurisdiction over the case is
clearly vested in the Regional Trial Court of Quezon City as provided in par. (2), Sec. 19,
BP Blg. 129 -

Sec. 19. Jurisdiction in civil cases. - Regional Trial Courts shall exercise exclusive original
jurisdiction: x x x x (2) In all civil actions which involve the title to, or possession of, real property,
or any interest therein, except actions for forcible entry into and unlawful
detainer of lands or buildings, original jurisdiction over which is conferred upon Metropolitan Trial
Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts x x x x

Moreover, the Regional Trial Court has jurisdiction over the petition as it may be
considered only as a continuation of the original proceeding for cancellation of title which
in view of its non-litigious character is summary in nature. Furthermore, under Sec. 2 of
PD 1529 otherwise known as the Property Registration Decree, the jurisdiction of the
Regional Trial Court sitting as a landregistration court is no longer as circumscribed as it
was under the former Land Registration Act (Act 496), so that now a Regional Trial Court,
like the RTC of Quezon City which issued a new title to respondent Virginia Tugbang in
lieu of the old one, has the authority to act not only on applications for original registration
but also over all petitions filed after original registration of title, with power to hear and
determine all questions arising from such applications or petitions. [8]

As to whether such an action should be granted requires further evidence culled from
a full-blown trial; hence, Civil Case No. Q-93-15976 previously dismissed by the trial court
should be reinstated so that the parties may be able to present their evidence.
G.R. No. 120974
Alberto Sta. Maria owned a parcel of land covered by TCT No. 68818 which he sold in
1964 to Teresa L. Valencia who, as a consequence, had the title canceled and TCT No.
79818 issued in her name. She however failed to have the tax declaration transferred in
her name. Thus she paid the real estate taxes from 1964 to 1978 in the name of its
previous owner Alberto Sta. Maria.
On 20 December 1973 Valencia entered into a contract of sale of the property on
installment with a mortgage in favor of respondent Bernardita C. Tolentino. However, from
1979 to 1983 Valencia failed to pay the real estate taxes due on the land. As a result,
notices of tax delinquency and intent to sell the property were sent to Alberto Sta.
[9]

Maria's address which was simply stated as "Olongapo, Zambales." The notices were
then returned to petitioner City Treasurer of Quezon City for a "better complete
address." [10]
In the auction sale on 29 February 1984 the spouses Romeo and Verna Chua bought
the land in question, which was already covered by TCT No. 79818 in the name of Teresa
L. Valencia.On 5 March 1984 a certificate of sale was issued to the Chua spouses but it
showed on its face that the land was still covered by TCT No. 68818 and not TCT No.
79818. Apparently, the Office of the City Treasurer was unaware that TCT No. 68818 had
already been canceled by TCT No. 79818. However, in the Final Bill of Sale issued to the
Chua spouses on 15 May 1985 TCT No. 79818 still appeared in the name of Alberto Sta.
Maria, the former owner, so that the vendee spouses lost no time in filing a petition with
[11]

the Regional Trial Court of Quezon City for the cancellation of TCT No. 79818 and the
issuance of a new title in their name. On 4 February 1987 the court granted their petition
and TCT No. 357727 was issued in the name of the spouses Romeo and Verna Chua.
In the meantime, on 2 February 1987, respondent Bernardita C. Tolentino paid in full
the purchase price of the property so that Teresa L. Valencia executed a deed of absolute
sale in her favor. On 2 August 1988, in view of the fire that gutted the Office of the
Register of Deeds of Quezon City, Tolentino filed a petition for reconstitution of TCT No.
79818.
Sometime in April 1989, as purchasers of the property in the auction sale, the Chuas
demanded delivery of possession from Bernardita C. Tolentino and Teresa L. Valencia. As
a consequence, Tolentino sued for annulment of the auction sale in the Regional
Trial Court of Quezon City. Finding the action to be well taken, the trial court granted the
petition. The Court of Appeals affirmed the court a quo. Hence this petition for review on
certiorari by the City Treasurer of Quezon City under Rule 45 of the Rules of Court.
Petitioner City Treasurer cites Galutira v. Ramones, a decision of the Court of
[12]

Appeals, in support of his position that the trial court has no jurisdiction over the case as it
is one for annulment and cancellation of TCT No. 357727 which is vested in the Court
of Appeals pursuant to par. (2), Sec. 9, BP Blg. 129. In Galutira it was held that "in the
[13]

law of pleading, courts are called upon to pierce the form and go into the substance, not to
be misled by a false or wrong name given to a pleading because the title thereof is not
controlling and the court should be guidedby its averments x x x x" Apparently the ruling is
contrary to petitioner's very own position. While the complaint of Bernardita C. Tolentino is
captioned as one for annulment of auction sale with damages, it is not an action for
annulment of judgment which should be filed with the Court of Appeals. In fact, from the
allegations in the complaint it can be gathered that a reconveyance was intended by
Tolentino, in which case, jurisdiction is vested in the trial court.
Under Sec. 55 of the Land Regitration Act, as amended by Sec. 53 of PD No.
1529, an original owner of registered land may seek the annulment of the transfer
[14]

thereof on the ground of fraud and the proper remedy is reconveyance. However, such
remedy is without prejudice to the rights of an innocent purchaser for value holding a
certificate of title.
As regards the propriety of the nullification of the auction sale in the instant case,
which still remains unresolved, petitioner submits that he had done everything incumbent
upon him to do in proceeding with the auction sale. Besides, not only was original vendee
Valencia remiss in her obligation to secure a new tax declaration in her name but she
likewise failed to pay the real property taxes for 1979 to 1983. Therefore, petitioner City
Treasurer of Quezon City reiterates, the validity of the auction sale should instead be
sustained conformably with Estella v. Court of Appeals. [15]

Section 73 of PD No. 464 provides -

Sec. 73. Advertisement of sale of real property at public auction. - After the expiration of the year
for which the tax is due, the provincial or city treasurer shall advertise the sale at public auction of
the entire delinquent real property, except real property mentioned in subsection (a) of Section forty
hereof, to satisfy all the taxes and penalties due and the costs of sale. Such advertisement shall be
made by posting a notice for three consecutive weeks at the main entrance of the provincial
building and of all municipal buildings in the province, or at the main entrance of the city or
municipal hall in the case of cities, and in a public and conspicuous place in (the) barrio or district
wherein the property is situated, in English, Spanish and the local dialect commonly used, and by
announcement for at least three market days at the market by the crier, and, in the discretion of the
provincial or city treasurer, by publication once a week for three consecutive weeks in a newspaper
of general circulation published in the province or city.

The notice, publication, and announcement by crier shall state the amount of the taxes, penalties
and costs of sale; the date, hour, and place of sale, the name of the taxpayer against whom the tax
was assessed; and the kind or nature of property and, if land, its approximate area, lot number, and
location stating the street and block number, district or barrio, municipality and the province or
city where the property to be sold is situated(italics supplied).

Copy of the notice shall forthwith be sent either by registered mail or by messenger, or through the
barrio captain, to the delinquent taxpayer, at his address as shown in the tax rolls or property
tax record cards of the municipality or city where the property is located, or at his residence, if
known to said treasurer or barrio captain; Provided, however, that a return of the proof of service
under oath shall be filed by the person making the service with the provincial or city treasurer
concerned (italics supplied).

There is no dispute that the requirements of law as regards posting of the notice,
publication and announcement by crier have been complied with. The controversy lies in
[16]

the failure of petitioner City Treasurer to notify effectively the delinquent taxpayer who at
the time of the auction sale was Teresa L. Valencia. Apparently, petitioner proceeded on
the wrong premise that the property was still owned by the former registered owner,
Alberto Sta. Maria, who sold the property to Valencia in 1964. In fact, at the time of the
auction sale, the property was already covered by a conditional sale on installment in
favor of respondent Bernardita C. Tolentino. Plainly, at the time of the auction sale,
Alberto Sta. Maria who appeared to have been notified of the auction sale was no longer
the registered owner, much less the delinquent taxpayer.
In ascertaining the identity of the delinquent taxpayer, for purposes of notifying him of
his tax delinquency and the prospect of a distraint and auction of his delinquent property,
petitioner City Treasurer should not have simply relied on the tax declaration. The property
being covered by the Torrens system, it would have been more prudent for him, which
was not difficult to do, to verify from the Office of the Register of Deeds of Quezon City
where the property is situated and as to who the registered owner was at the time the
auction sale was to take place, to determine who thereal delinquent taxpayer was within
the purview of the third paragraph of Sec. 73. For one who is no longer the lawful owner of
the land cannot be considered the "present registered owner" because, apparently, he has
already lost interest in the property, hence is not expected to defend the property from the
sale at auction. The purpose of PD No. 464 is to collect taxes from
thedelinquent taxpayer and, logically, one who is no longer the owner of the property
cannot be considered the delinquent taxpayer.
While we understand the earnestness and initiative of local
governments to collect taxes, the same must be collected from the rightful debtors and not
from those who may only appear to be the registered owners in the official files. Certainly,
properties change hands as fast as their owners can, and to deprive the present owners of
their properties by notifying only the previous owners who no longer have any interest in
them will amount not only to inequity and injustice but even to a violation of their
constitutional rights to property and due process. This interpretation as well as its
ratiocination was explained as early as 1946 in Cabrera v. The Provincial Treasurer of
Tayabas where the parties therein seemed to be in the same predicament as the parties
[17]

herein.
In Cabrera the notice of auction sale was sent to the declared owner but was
returned "unclaimed." Nevertheless, the auction sale proceeded and the property was sold
to the highest bidder.It turned out that the property had been previously conveyed by the
declared owner to another who, upon learning of the sale, filed a complaint attacking the
validity of the auction sale for lack of notice to the registered owner, and that although the
land remained in the assessment books in the name of her transferor, she had become its
registered owner several years prior to the auction sale. We resolved the controversy in
this manner -

x x x x The appellee was admittedly not notified of the auction sale, and this also vitiates the
proceeding. She is the registered owner of the land and, since 1934, has become liable for the taxes
thereon. For all purposes, sheis the delinquent taxpayer 'against whom the
taxes were assessed' referred to in Section 34 of the Commonwealth Act No. 470. It cannot be
Nemesio Cabrera (declared owner) for the latter's obligation to pay taxes ended where the
appellee's liability began (underscoring supplied).

x x x x The sale in favor of the appellant (purchaser at auction sale) cannot bind the appellee, since
the land purportedly conveyed was owned by Nemesio Cabrera, not by the appellee; and at the time
of sale, Nemesio Cabrera had no interest whatsoever in the land in question that could have passed
to the appellant.

The appellee may be criticized for her failure to have the land transferred to her name in the
assessment record. The circumstance, nevertheless, cannot supplant the absence of notice. Of
course, it is the duty of any person acquiring at the time real property to prepare and submit a tax
declaration within sixty days (Commonwealth Act No. 470, section 12), but it is no less true that
when the owner refuses or fail to make the required declaration, the provincial assessor should
himself declare the property in the name of the defaulting owner (Commonwealth Act No. 470,
Sec. 14). In this case, there is absolutely no showing that the appellee haddeliberately failed to
make the declaration to defraud the tax officials; and it may be remarked that there can be no
reason why her Torren title, which binds the whole world, cannot at least charge the Government
which had issued it, with notice thereof x x x x

Forty years later, in Serfino v. Court of Appeals, [18]


we reiterated the Cabrera doctrine
and nullified the auction sale because -

x x x x the prescribed procedure in auction sales of property for tax delinquency being in
derogation of property rights should be followed punctiliously. Strict adherence to the statutes
governing tax sales is imperative not only for the protection of the taxpayers, but also to allay any
possible suspicion of collusion between the buyer and the public officials called upon to
enforce such laws. Notice of sale to the delinquent landowners and to the public in general is an
essential and indispensable requirement of law, the non-fulfillment of which vitiates the sale x x x
x A purchaser of real estate at the tax sale obtains only such title as that held by the taxpayer,
theprinciple of caveat emptor applies. Where land is sold for delinquency taxes under the
provisions of the Provincial Assessment Law, rights of registered but undeclared owners of the land
are not affected by the proceedings and the sale conveys only such interest as the person who has
declared the property for taxation has therein.

The principle in Cabrera, reiterated in Serfino, should be, as it still is, considered valid
doctrine today, despite Estella which petitioner invokes as the latest rule on the
matter. Quite significantly, Estella did not make any reference to
the Cabrera and Serfino cases, much less did it pass upon, reverse or modify them;
instead, the Court simply declared -

Under the particular circumstances of the case, we hold that the City Treasurer had done everything
that was legally incumbent upon him. Not only did he send the pertinent notices to the declared
owner, he also caused the mandatory publication of the notice of public auction in two (2)
newspapers of general circulation pursuant to Section 65 of PD No. 464. The notices were
understandably mailed to Concepcion because as far as the City Treasurer was concerned, she was
still the 'declared owner' since the assessment of the property in question was still in her name. It
should be recalled that while petitioners had promptly secured a new transfer certificate of
title in their name after the 1970 acquisition, they neglected to effect the necessary change in the
tax declaration as then required by (Sec. 12 of Commonwealth Act No. 470 AssessmentLaw) and
later by P.D. No. 464 x x x x (italics supplied).

All told, if it were really true that petitioners were never given the opportunity to protect their
rights, they had only themselves to blame for the catastrophe that befell them. Not having been
apprised by petitioners of achange in ownership of the subject property, the government was never
placed in a position to give them that opportunity (italics supplied).

In Estella we relied on our ruling in Paguio v. Ruiz where we emphasized the


[19]

requirement of declaration by the owner under Sec. 2484 of the Revised Administrative
Code -[20]

x x x x the duty of each person acquiring real estate in the city to make a new declaration thereof
with the advertence that failure to do so shall make the assessment in the name of the previous
owner valid and binding on all persons interested, and for all purposes, as though the same had
been assessed in the name of its actual owner (italics supplied).

When the property was sold by Sta. Maria to Valencia in 1964 the law applicable was
RA No. 537 which provided for the same requirement under its Sec. 48. However, the
[21] [22]

law in force at the time of the auction sale on 29 February 1984 was already PD No.
464 which did not contain the aforecited phrase. The new law, Sec. 11 of PD No. 464,
[23]

merely states -

Any person who shall transfer real property to another shall notify the assessor of the province or
city wherein the property is situated within sixty (60) days from the date of such transfer. The
notification shall include the particulars of the transfer, the description of the property alienated and
the name and address of the transferee.

The fact that the pertinent phrase, "'failure to do so shall make the assessment in the
name of the previous owner valid and binding on all persons interested, and for all
purposes, as though the same had been assessed in the name of its actual owner," found
in both RA No. 537 and RA No. 409 was not incorporated in PD No. 464 implies that the
assessment of the subject property in 1983 in the name of Sta. Maria would not bind,
much less adversely affect, Valencia. This, in spite of the non-declaration by Valencia of
the property in her name as required by the law, for there is no longer any statutory waiver
of the right to contest assessment by the actual owner due to mere non-declaration. We
can infer from the omission that the assessment in the name of the previous owner is no
longer deemed an assessment in the name of the actual owner.
It is therefore clear that the delinquent taxpayer referred to under Sec. 72 of PD No.
464 is the actual owner of the property at the time of the delinquency and mere
compliance by the provincial or city treasurer with Sec. 65 of the decree is no longer
enough. The notification to the right person, i.e., the real owner, is an essential and
[24]

indispensable requirement of the law, non-compliance with which renders the auction sale
void.
The registered owner need not be entirely blamed for her failure to transfer the tax
declaration in her name. Section 7 of PD No. 464 directs the assessor, in case the owner
fails to make a return, to list the real estate for taxation and charge the tax against the true
owner if known, and if unknown, then as against the unknown owner. In this way, a
change of ownership may be ascertained. Along the same line did we rule in Cabrera.
WHEREFORE, the petition in G.R. No. 120435 is GRANTED. The decision and
resolution of respondent Court of Appeals which affirmed the dismissal of the complaint of
petitioners by the RTC-Br. 82, Quezon City, are SET ASIDE and Civil Case No. Q-93-
15976 is REINSTATED. The trial court is directed to hear and decide this case with
deliberate dispatch.
The petition in G.R. No. 120974, on the other hand, is DENIED. The decision and
resolution of respondent Court of Appeals affirming with modification that of the trial
court are AFFIRMED.The public auction sale conducted on 29 February 1984 is declared
VOID for lack of notice to the registered owner Teresa L. Valencia. Transfer Certificate
Title No. 357727 and Tax Declaration No. B-091-01469 in the name of the spouses
Romeo and Verna Chua are ANNULLED. The Register of Deeds of Quezon City is
ordered to cancel TCT No. 357727 and issue in lieu thereof a new one in the name of
respondent Bernardita C. Tolentino. Petitioner City Treasurer of Quezon City is ordered to
cancel likewise Tax Declaration No. B-091-01469 and issue in lieu thereof a new tax
declaration in the name of respondent Bernardita C. Tolentino. The award of attorney's
fees is deleted.
SO ORDERED.
Davide, Jr., (Chairman), Vitug, and Kapunan, JJ., concur.