THIRD DIVISION

PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF

INTERNAL REVENUE, COURT OF APPEALS, and THE COURT
OF TAX APPEALS, respondents.

DECISION
ROMERO, J.:

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals
promulgated on April 8, 1996 in CA-G.R. SP No. 36975 [1] affirming the Court of Tax
Appeals decision in CTA Case No. 4872 dated March 16, 1995 [2] ordering it to pay the
amount of P110,677,668.52 as excise tax liability for the period from the 2 nd quarter of
1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully
paid pursuant to Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to
settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd
quarter of 1992 in the total amount of P123,821,982.52 computed as follows:

PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL

EXCISE

TAX DUE

2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91

3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

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

------------------- ----------------- ----------------- ---------------------

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

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

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

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52

========== ========== =========== ===========[3]

In a letter dated August 20, 1992, [4] Philex protested the demand for payment of the
tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it
paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus
interest. Therefore, these claims for tax credit/refund should be applied against the tax
liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines,
Inc.[5]
In reply, the BIR, in a letter dated September 7, 1992, [6] found no merit in Philexs
position. Since these pending claims have not yet been established or determined with
certainty, it follows that no legal compensation can take place. Hence, he BIR reiterated
its demand that Philex settle the amount plus interest within 30 days from the receipt of
the letter.
In view of the BIRs denial of the offsetting of Philexs claim for VAT input
credit/refund against its exercise tax obligation, Philex raised the issue to the Court of
Tax Appeals on November 6, 1992. [7] In the course of the proceedings, the BIR issued a
Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the
total tax liabilities of Philex of P123,821,982.52; effectively lowered the latters tax
obligation of P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the
remaining balance of P110,677,688.52 plus interest, elucidating its reason, to wit:

Thus, for legal compensation to take place, both obligations must be liquidated and
demandable. Liquidated debts are those where the exact amount has already been
determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition, p.
259). In the instant case, the claims of the Petitioner for VAT refund is still pending
litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A fortiori,
the liquidated debt of the Petitioner to the government cannot, therefore, be set-off
against the unliquidated claim which Petitioner conceived to exist in its favor (see
Compaia General de Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39
Phil. 34).[8]

Moreover, the Court of Tax Appeals ruled that taxes cannot be subject to set-off on
compensation since claim for taxes is not a debt or contract. [9] The dispositive portion of
the CTA decision[10] provides:

In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and
Petitioner is hereby ORDERED to PAY the Respondent the amount of P110,677,668.52
representing excise tax liability for the period from the 2 nd quarter of 1991 to the
2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid
pursuant to Section 248 and 249 of the Tax Code, as amended.

Aggrieved with the decision, Philex appealed the case before the Court of Appeals
docketed as CA-G.R. CV No. 36975. [11] Nonetheless, on April 8, 1996, the Court of
Appeals affirmed the Court of Tax Appeals observation. The pertinent portion of which
reads:[12]

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

and the decision dated March 16, 1995 is AFFIRMED.

Philex filed a motion for reconsideration which was, nevertheless, denied in a

Resolution dated July 11, 1996.[13]
However, a few days after the denial of its motion for reconsideration, Philex was
able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but
also for 1992 and 1994, computed as follows:[14]
Period Covered By Tax Credit Certificate Date Of Issue Amount
Claims For Vat Number
refund/credit

1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01

1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61

1989 007732 11 July 1996 P37,322,799.19

1990-1991 007751 16 July 1996 P84,662,787.46

1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95

In view of the grant of its VAT input credit/refund, Philex now contends that the
same should, ipso jure, off-set its excise tax liabilities [15] since both had already become
due and demandable, as well as fully liquidated; [16] hence, legal compensation can
properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made the
pronouncement that taxes cannot be subject to compensation for the simple reason that
the government and the taxpayer are not creditors and debtors of each other. [17] There is
a material distinction between a tax and debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity.
[18]
We find no cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court, [19] we
categorically held that taxes cannot be subject to set-off or compensation, thus:

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

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

The ruling in Francia has been applied to the subsequent case of Caltex
Philippines, Inc. v. Commission on Audit,[20] which reiterated that:

x x x a taxpayer may not offset taxes due from the claims that he may have
against the government. Taxes cannot be the subject of compensation
because the government and taxpayer are not mutually creditors and debtors
of each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.

Further, Philexs reliance on our holding in Commissioner of Internal Revenue v.

Itogon-Suyoc Mines, Inc., wherein we ruled that a pending refund may be set off against
an existing tax liability even though the refund has not yet been approved by the
Commissioner,[21] is no longer without any support in statutory law.
It is important to note that the premise of our ruling in the aforementioned case was
anchored on Section 51(d) of the National Revenue Code of 1939. However, when the
National Internal Revenue Code of 1977 was enacted, the same provision upon which
the Itogon-Suyoc pronouncement was based was omitted.[22] Accordingly, the doctrine
enunciated in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philexs position, it asserts that the
imposition of surcharge and interest for the non-payment of the excise taxes within the
time prescribed was unjustified. Philex posits the theory that it had no obligation to pay
the excise liabilities within the prescribed period since, after all, it still has pending
claims for VAT input credit/refund with BIR.[23]
We fail to see the logic of Philexs claim for this is an outright disregard of the basic
principle in tax law that taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. [24] Evidently, to countenance Philexs whimsical
reason would render ineffective our tax collection system. Too simplistic, it finds no
support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the
ground that it has a pending tax claim for refund or credit against the government which
has not yet been granted. It must be noted that a distinguishing feature of a tax is that it
is compulsory rather than a matter of bargain. [25] Hence, a tax does not depend upon the
consent of the taxpayer.[26] If any payer can defer the payment of taxes by raising the
defense that it still has a pending claim for refund or credit, this would adversely affect
the government revenue system. A taxpayer cannot refuse to pay his taxes when they
fall due simply because he has a claim against the government or that the collection of
the tax is contingent on the result of the lawsuit it filed against the government.
[27]
Moreover, Philex's theory that would automatically apply its VAT input credit/refund
against its tax liabilities can easily give rise to confusion and abuse, depriving the
government of authority over the manner by which taxpayers credit and offset their tax
liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with
the government is immaterial for the imposition of charges and penalties prescribed
under Section 248 and 249 of the Tax Code of 1977. The payment of the surcharge is
mandatory and the BIR is not vested with any authority to waive the collection thereof.
[28]
The same cannot be condoned for flimsy reasons, [29] similar to the one advanced by
Philex in justifying its non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106(e) [30] of the National Internal
Revenue Code of 1977, which requires the refund of input taxes within 60 days,
[31]
when it took five years for the latter to grant its tax claim for VAT input credit/refund. [32]
In this regard, we agree with Philex. While there is no dispute that a claimant
has the burden of proof to establish the factual basis of his or her claim for tax credit or
refund,[33] however, once the claimant has submitted all the required documents, it is the
function of the BIR to assess these documents with purposeful dispatch. After all, since
taxpayers owe honesty to government it is but just that government render fair service
to the taxpayers.[34]
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the
refund of these erroneously paid taxes was only granted in 1996. Obviously, had the
BIR been more diligent and judicious with their duty, it could have granted the refund
earlier. We need not remind the BIR that simple justice requires the speedy refund of
wrongly-held taxes.[35] Fair dealing and nothing less, is expected by the taxpayer from
the BIR in the latter's discharge of its function. As aptly held in Roxas v. Court of Tax Appeals:
[36]

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

Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collectot kill the 'hen that lays the golden egg.' And, in
the order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously."

Despite our concern with the lethargic manner by which the BIR handled Philex's
tax claim, it is a settled rule that in the performance of governmental function, the State
is not bound by the neglect of its agents and officers. Nowhere is this more true than in
the field of taxation. [37] Again, while we understand Philex's predicament, it must be
stressed that the same is not valid reason for the non- payment of its tax liabilities.
To be sure, this is not state that the taxpayer is devoid of remedy against public
servants or employees especially BIR examiners who, in investigating tax claims are
seen to drag their feet needlessly. First, if the BIR takes time in acting upon the
taxpayer's claims for refund, the latter can seek judicial remedy before the Court of Tax
Appeals in the manner prescribed by law. [38] Second, if the inaction can be characterized
as willful neglect of duty, then recourse under the Civil Code and the Tax Code can also
be availed of.
Article 27 of the Civil Code provides:

"Art. 27. Any person suffering material or moral loss because a public servant
or employee refuses or neglects, without just cause, to perform his official duty
may file an action for damages and other relief against the latter, without
prejudice to any disciplinary action that may be taken."

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997
states:
"xxx xxx xxx

(c) wilfully neglecting to give receipts, as by law required for any sum collected
in the performance of duty or wilfully neglecting to perform, any other duties
enjoined by law."

Simply put, both provisions abhor official inaction, willful neglect and unreasonable
delay in the performance of official duties.[39] In no uncertain terms must we stress that
every public employee or servant must strive to render service to the people with utmost
diligence and efficiency. Insolence and delay have no place in government service. The
BIR, being the government collecting arm, must and should do no less. It simply cannot
be apathetic and laggard in rendering service to the taxpayer if it wishes to remain true
to its mission of hastening the country's development. We take judicial notice of the
taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to
prove its detractors wrong.

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

[1]
Penned by Justice Artemon D. Luna, concurred in by Justice Ramon A. Barcelona and Portia Alino-
Hormachuelos.
[2]
Penned by Associate Judge Manuel K. Gruba, concurred in by Presiding Judge Ernesto D. Acosta and
Associate Judge Ramon O. De Veyra.
[3]
CTA Records, pp. 34-35.
[4]
Rollo, pp. 172-174.
[5]
28 SCRA 867 (1969)
[6]
Id., pp. 175-176
[7]
Docketed as Case No. 4872, Rollo, pp. 177-187.
[8]
Rollo, p. 55.
[9]
CTA Decision, Rollo, p. 59.
[10]
Rollo, pp. 59-60.
[11]
Rollo, pp. 87-101
[12]
Rollo, p. 45.
[13]
Rollo, p. 48.
[14]
Rollo, pp. 112-116.
[15]
Memorandum, Rollo, pp. 307-308.
[16]
Ibid.
[17]
Cordero v. Gonda, 18 SCRA 331 (1966).
[18]
Commissioner of Internal Revenue v. Palanca, 18 SCRA 496 (1966).
[19]
162 SCRA 753 (1988).
[20]
208 SCRA 726 (1992).
[21]
Rollo, p. 33.
[22]
Aban, Law on Basic Taxation, 1994, p. 19.
[23]
Memorandum, Rollo, p. 389.
[24]
Commissioner of Internal Revenue v. Algue, Inc., 158 SCRA 9 (1988).
[25]
I Cooley, Taxation, 22.
[26]
Ibid.
[27]
Supra, note 19.
[28]
Republic v. Philippine Bank of Commerce, 34 SCRA 361 (1970).
[29]
Jamora v. Meer, 74 Phil. 22 (1942).
[30]
(e) Period within which refund of input taxes may be made by the Commissioner - The Commissiioner
shall refund input taxes within 60 days from the date the application for refund was filed with him or his
duly authorized representative. No refund of input taxes shall be allowed unless the VAT-
registered person files an application for refund within the period prescribed in paragraphs (a), (b) and (c)
as the case may be.
[31]
Rollo, pp. 32-33.
[32]
This provision has been amended by Section 112 (D) of Republic Act 8424 entitled the "National
Internal revenue Act of 1997."
"(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the
Commisioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of
the application filed in accordance with Subsections (A) and (B) hereof.
In case of full of partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals."
[33]
Commisioner of Internal Revenue v. Tokyo Shipping Co. Ltd., 244 SCRA 332 (1995).
[34]
Ibid.
[35]
Citibank of N.A v. Court of Appeals, G.R. No. 107434, October 19, 1997.
[36]
23 SCRA 276 (1968).
[37]
Commissioner of Internal Revenue v. Proctor and Gamble PMC, 160 SCRA 560 (1988).
[38]
Insular Lumber Co. v. Court of Appeals, 104 SCRA 721 (1981); Commissioner of Internal Revenue v.
Victoria Milling Co., Inc., 22 SCRA (1968).
[39]
Tolentino, Civil Code of the Philippines, Vol. 1, 1983, p. 117.
#2

#3
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-18994 June 29, 1963

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

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of
Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott
Price, respondents.

Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.

Benedicto and Martinez for respondents.

LABRADOR, J.:

This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of
Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an
order in this Court directing the respondent court below to execute the judgment in favor of the
Government against the estate of Walter Scott Price for internal revenue taxes.

It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January
30, 1960, this Court declared as final and executory the order for the payment by the estate of the
estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court
of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate
of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented
a petition dated June 21, 1961, to the court below for the execution of the judgment. The petition
was, however, denied by the court which held that the execution is not justifiable as the Government
is indebted to the estate under administration in the amount of P262,200. The orders of the court
below dated August 20, 1960 and September 28, 1960, respectively, are as follows:

Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price,
Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo Castrillo
of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary Public
Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary De Leon dated
December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo
dated August 2, 1958, directing the latter to pay to Mrs. Price the sum ofP368,140.00, and an
extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the
payment to the Leyte Cadastral Survey, Inc., represented by the administratrix Simeona K.
Price, as directed in the above note of the President. Considering these facts, the Court
orders that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of
Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order
of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the
amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in this
estate, the balance to be paid by the Government to her without further delay. (Order of
August 20, 1960)
 The Court has nothing further to add to its order dated August 20, 1960 and it orders that the
payment of the claim of the Collector of Internal Revenue be deferred until the Government
shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may
not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to its
citizens-creditors before it can insist in the prompt payment of the latter's account to it,
specially taking into consideration that the amount due to the Government draws interests
while the credit due to the present state does not accrue any interest. (Order of September
28, 1960)

The petition to set aside the above orders of the court below and for the execution of the claim of the
Government against the estate must be denied for lack of merit. The ordinary procedure by which to
settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for
the claimant to present a claim before the probate court so that said court may order the
administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs.
Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:

. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the
payment of debts and expenses of administration. The proper procedure is for the court to
order the sale of personal estate or the sale or mortgage of real property of the deceased
and all debts or expenses of administrator and with the written notice to all the heirs legatees
and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90,
section 2. And when sale or mortgage of real estate is to be made, the regulations contained
in Rule 90, section 7, should be complied with. 1wph1.t

Execution may issue only where the devisees, legatees or heirs have entered into
possession of their respective portions in the estate prior to settlement and payment of the
debts and expenses of administration and it is later ascertained that there are such debts
and expenses to be paid, in which case "the court having jurisdiction of the estate may, by
order for that purpose, after hearing, settle the amount of their several liabilities, and order
how much and in what manner each person shall contribute, and may issue execution if
circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.)
And this is not the instant case.

The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle
the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of
the court and such jurisdiction continues until said properties have been distributed among the heirs
entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the
proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but
to ask the court for an order to require the administrator to pay the amount due from the estate and
required to be paid.

Another ground for denying the petition of the provincial fiscal is the fact that the court having
jurisdiction of the estate had found that the claim of the estate against the Government has been
recognized and an amount of P262,200 has already been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the
Government for inheritance taxes and the claim of the intestate for services rendered have already
become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place
by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code,
and both debts are extinguished to the concurrent amount, thus:
 ART. 1200. When all the requisites mentioned in article 1279 are present, compensation
takes effect by operation of law, and extinguished both debts to the concurrent amount,
eventhough the creditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against
the estate of the deceased Walter Scott Price. Furthermore, the petition
for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy.

The petition is, therefore, dismissed, without costs.

Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.
Bengzon, C.J., took no part.

#4Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection
should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion
of the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns. The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and in accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the petitioner
assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and
1959. On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter
1

was stamp received on the same day in the office of the petitioner. On March 12, 1965, a warrant of2

distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto
Guevara, Jr., who refused to receive it on the ground of the pending protest. A search of the protest 3

in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a photostat
to BIR agent Ramon Reyes, who deferred service of the warrant. On April 7, 1965, Atty. Guevara 4

was finally informed that the BIR was not taking any action on the protest and it was only then that
he accepted the warrant of distraint and levy earlier sought to be served. Sixteen days later, on April 5

23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue
with the Court of Tax Appeals. 6
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of the decision or ruling challenged. It is true
7

that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and
8

renders hopeless a request for reconsideration," being "tantamount to an outright denial thereof
9

and makes the said request deemed rejected." But there is a special circumstance in the case at
10

bar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.

As the Court of Tax Appeals correctly noted," the protest filed by private respondent was not pro
11

forma and was based on strong legal considerations. It thus had the effect of suspending on January
18, 1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection of the said protest and the warrant
was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because
it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered. The payment was in the form of promotional fees.
These were collected by the Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees
to be personal holding company income but later conformed to the decision of the respondent
12

court rejecting this assertion. In fact, as the said court found, the amount was earned through the
13

joint efforts of the persons among whom it was distributed It has been established that the Philippine
Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell
its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons to invest in it. Ultimately, after its
14

incorporation largely through the promotion of the said persons, this new corporation purchased the
PSEDC properties. For this sale, Algue received as agent a commission of P126,000.00, and it was
15

from this commission that the P75,000.00 promotional fees were paid to the aforenamed
individuals.
16

There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon. The Court of Tax Appeals also found, after
17

examining the evidence, that no distribution of dividends was involved. 18

The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made
in one lump sum but periodically and in different amounts as each payee's need arose. It should be
19

remembered that this was a family corporation where strict business procedures were not applied
and immediate issuance of receipts was not required. Even so, at the end of the year, when the
books were to be closed, each payee made an accounting of all of the fees received by him or her,
to make up the total of P75,000.00. Admittedly, everything seemed to be informal. This
20

arrangement was understandable, however, in view of the close relationship among the persons in
the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent
was P125,000.00. After deducting the said fees, Algue still had a balance of P50,000.00 as clear
21

profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties. This finding of the respondent court is in accord with the following provision of the
Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the
stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders.23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity
of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person who
is able to must contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.

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

SO ORDERED.

#5G.R. No. 149110 April 9, 2003

NATIONAL POWER CORPORATION, petitioner,

vs.
CITY OF CABANATUAN, respondent.

PUNO, J.:

This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated March
12, 2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable
to pay franchise tax to respondent City of Cabanatuan.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No.
120, as amended.4 It is tasked to undertake the "development of hydroelectric generations of power
and the production of electricity from nuclear, geothermal and other sources, as well as, the
transmission of electric power on a nationwide basis."5 Concomitant to its mandated duty, petitioner
has, among others, the power to construct, operate and maintain power plants, auxiliary plants,
power stations and substations for the purpose of developing hydraulic power and supplying such
power to the inhabitants.6

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the
respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of
1% of the latter's gross receipts for the preceding year.9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government,10 refused to pay the tax assessment. It argued that the respondent has no authority to
impose tax on government entities. Petitioner also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges, duties or fees 11 in accordance with sec.
13 of Rep. Act No. 6395, as amended, viz:

"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and Other Charges by Government and Governmental Instrumentalities.- The
Corporation shall be non-profit and shall devote all its return from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation is hereby exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power." 12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that
petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and
2% monthly interest.13Respondent alleged that petitioner's exemption from local taxes has been
repealed by section 193 of Rep. Act No. 7160,14 which reads as follows:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural
or juridical, including government owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code."
On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled that the tax
exemption privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the
following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act
No. 7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied
repeal which is not favored; and (3) local governments have no power to tax instrumentalities of the
national government. Pertinent portion of the Order reads:

"The question of whether a particular law has been repealed or not by a subsequent law is a
matter of legislative intent. The lawmakers may expressly repeal a law by incorporating
therein repealing provisions which expressly and specifically cite(s) the particular law or
laws, and portions thereof, that are intended to be repealed. A declaration in a statute,
usually in its repealing clause, that a particular and specific law, identified by its number or
title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160
is an implied repealing clause because it fails to identify the act or acts that are intended to
be repealed. It is a well-settled rule of statutory construction that repeals of statutes by
implication are not favored. The presumption is against inconsistency and repugnancy for the
legislative is presumed to know the existing laws on the subject and not to have enacted
inconsistent or conflicting statutes. It is also a well-settled rule that, generally, general law
does not repeal a special law unless it clearly appears that the legislative has intended by
the latter general act to modify or repeal the earlier special law. Thus, despite the passage of
R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax
exemption privileges of defendant NPC remain.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the
case of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it
was held that:

'Local governments have no power to tax instrumentalities of the National

Government. PAGCOR is a government owned or controlled corporation with an
original charter, PD 1869. All of its shares of stocks are owned by the National
Government. xxx Being an instrumentality of the government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by mere local government.'

Like PAGCOR, NPC, being a government owned and controlled corporation with an original
charter and its shares of stocks owned by the National Government, is beyond the taxing
power of the Local Government. Corollary to this, it should be noted here that in the NPC
Charter's declaration of Policy, Congress declared that: 'xxx (2) the total electrification of the
Philippines through the development of power from all services to meet the needs of
industrial development and dispersal and needs of rural electrification are primary objectives
of the nations which shall be pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.' (underscoring supplied). To
allow plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal
of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is
limited to that which is provided for in its charter or other statute. Any grant of taxing power is
to be construed strictly, with doubts resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the
plaintiff could not impose the subject tax on the defendant." 16
On appeal, the Court of Appeals reversed the trial court's Order17 on the ground that section 193, in
relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the
petitioner.18 It ordered the petitioner to pay the respondent city government the following: (a) the sum
of P808,606.41 representing the franchise tax due based on gross receipts for the year 1992, (b) the
tax due every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a
surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense. 19

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision.
This was denied by the appellate court, viz:

"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated
therein that the taxing power of the province under Art. 137 (sic) of the Local Government
Code refers merely to private persons or corporations in which category it (NPC) does not
belong, and that the LGC (RA 7160) which is a general law may not impliedly repeal the NPC
Charter which is a special lawfinds the answer in Section 193 of the LGC to the effect that
'tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural
or juridical, including government-owned or controlled corporations except local water
districts xxx are hereby withdrawn.' The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED."20

In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC
NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO
CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO
SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS ENJOYING
A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION

FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE
LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A LATER LEGISLATION, WHICH
IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN

EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER
THE LOCAL GOVERNMENT CODE."21

It is beyond dispute that the respondent city government has the authority to issue Ordinance No.
165-92 and impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in
relation to section 137 of the LGC, viz:

"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other
special law, the province may impose a tax on businesses enjoying a franchise, at a rate not
exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction.
 In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one
percent (1%) of the capital investment. In the succeeding calendar year, regardless of when
the business started to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereof, as provided herein." (emphasis supplied)

x x x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may
levy the taxes, fees, and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance with the
provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of professional
and amusement taxes."

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city
government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the
taxing power of the respondent city government to private entities that are engaged in trade or
occupation for profit.22

Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest
which is conferred upon private persons or corporations, under such terms and conditions as the
government and its political subdivisions may impose in the interest of the public welfare, security
and safety." From the phraseology of this provision, the petitioner claims that the word "private"
modifies the terms "persons" and "corporations." Hence, when the LGC uses the term "franchise,"
petitioner submits that it should refer specifically to franchises granted to private natural persons and
to private corporations.23 Ergo, its charter should not be considered a "franchise" for the purpose of
imposing the franchise tax in question.

On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity
regularly engaged in as means of livelihood or with a view to profit." Petitioner claims that it is not
engaged in an activity for profit, in as much as its charter specifically provides that it is a "non-profit
organization." In any case, petitioner argues that the accumulation of profit is merely incidental to its
operation; all these profits are required by law to be channeled for expansion and improvement of its
facilities and services.24

Petitioner also alleges that it is an instrumentality of the National Government, 25 and as such, may
not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine
Amusement and Gaming Corporation26 where this Court held that local governments have no power
to tax instrumentalities of the National Government, viz:

"Local governments have no power to tax instrumentalities of the National Government.

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and actually
is exempt from local taxes. Otherwise, its operation might be burdened, impeded or
subjected to control by a mere local government.
 'The states have no power by taxation or otherwise, to retard, impede, burden or in
any manner control the operation of constitutional laws enacted by Congress to carry
into execution the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)'

This doctrine emanates from the 'supremacy' of the National Government over local
governments.

'Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least,
the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even seriously burden it from accomplishment of them.'
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, italics supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the power
to tax as ' a tool regulation' (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the 'power to destroy' (Mc Culloch
v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it."27

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of
government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its
charter cannot be amended or modified impliedly by the local government code which is a general
law. Consequently, petitioner claims that its exemption from all taxes, fees or charges under its
charter subsists despite the passage of the LGC, viz:

"It is a well-settled rule of statutory construction that repeals of statutes by implication are not
favored and as much as possible, effect must be given to all enactments of the legislature.
Moreover, it has to be conceded that the charter of the NPC constitutes a special law.
Republic Act No. 7160, is a general law. It is a basic rule in statutory construction that the
enactment of a later legislation which is a general law cannot be construed to have repealed
a special law. Where there is a conflict between a general law and a special statute, the
special statute should prevail since it evinces the legislative intent more clearly than the
general statute."28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should
prevail over the LGC. It alleges that the power of the local government to impose franchise tax is
subordinate to petitioner's exemption from taxation; "police power being the most pervasive, the
least limitable and most demanding of all powers, including the power of taxation." 29

The petition is without merit.

Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty,31 the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the power to tax emanates from
necessity;32 without taxes, government cannot fulfill its mandate of promoting the general welfare and
well-being of the people.
In recent years, the increasing social challenges of the times expanded the scope of state activity,
and taxation has become a tool to realize social justice and the equitable distribution of wealth,
economic progress and the protection of local industries as well as public welfare and similar
objectives.33 Taxation assumes even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges 34 pursuant to
Article X, section 5 of the 1987 Constitution, viz:

"Section 5.- Each Local Government unit shall have the power to create its own sources of
revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees
and charges shall accrue exclusively to the Local Governments."

This paradigm shift results from the realization that genuine development can be achieved only by
strengthening local autonomy and promoting decentralization of governance. For a long time, the
country's highly centralized government structure has bred a culture of dependence among local
government leaders upon the national leadership. It has also "dampened the spirit of initiative,
innovation and imaginative resilience in matters of local development on the part of local government
leaders."35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the
delivery of basic services, and confer them sufficient powers to generate their own sources for the
purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to
enact a local government code that will, consistent with the basic policy of local autonomy, set the
guidelines and limitations to this grant of taxing powers, viz:

"Section 3. The Congress shall enact a local government code which shall provide for a
more responsive and accountable local government structure instituted through a system of
decentralization with effective mechanisms of recall, initiative, and referendum, allocate
among the different local government units their powers, responsibilities, and resources, and
provide for the qualifications, election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all other matters relating to the organization and
operation of the local units."

To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as the Local Government
Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These
include the Barrio Charter of 1959,37 the Local Autonomy Act of 1959,38 the Decentralization Act of
196739 and the Local Government Code of 1983.40 Despite these initiatives, however, the shackles of
dependence on the national government remained. Local government units were faced with the
same problems that hamper their capabilities to participate effectively in the national development
efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of
income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence
on external sources of income, and (e) limited supervisory control over personnel of national line
agencies.41

Considered as the most revolutionary piece of legislation on local autonomy, 42 the LGC effectively
deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes
which were prohibited by previous laws such as the imposition of taxes on forest products, forest
concessionaires, mineral products, mining operations, and the like. The LGC likewise provides
enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not
prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and
leaves the determination of the actual rates to the respective sanggunian.43
One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when
specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz:

"Section 133. Common Limitations on the Taxing Powers of the Local Government
Units.- Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:

x x x

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units." (emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement
and Gaming Corporation44 relied upon by the petitioner to support its claim no longer applies. To
emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering
the local government units to tax instrumentalities of the National Government was in effect.
However, as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs.
Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject to tax.46 In enacting the LGC,
Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit.
Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an
instrumentality of the national government, was subject to real property tax, viz:

"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a
general rule, as laid down in section 133, the taxing power of local governments cannot
extend to the levy of inter alia, 'taxes, fees and charges of any kind on the national
government, its agencies and instrumentalities, and local government units'; however,
pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area
may impose the real property tax except on, inter alia, 'real property owned by the Republic
of the Philippines or any of its political subdivisions except when the beneficial use thereof
has been granted for consideration or otherwise, to a taxable person as provided in the item
(a) of the first paragraph of section 12.'"47

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the
respondent city government to impose on the petitioner the franchise tax in question.

In its general signification, a franchise is a privilege conferred by government authority, which does
not belong to citizens of the country generally as a matter of common right. 48 In its specific sense, a
franchise may refer to a general or primary franchise, or to a special or secondary franchise. The
former relates to the right to exist as a corporation, by virtue of duly approved articles of
incorporation, or a charter pursuant to a special law creating the corporation. 49 The right under a
primary or general franchise is vested in the individuals who compose the corporation and not in the
corporation itself.50 On the other hand, the latter refers to the right or privileges conferred upon an
existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect
poles or string wires.51 The rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a general power granted to a
corporation to dispose of its property, except such special or secondary franchises as are charged
with a public use.52
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a
secondary or special franchise. This is to avoid any confusion when the word franchise is used in the
context of taxation. As commonly used, a franchise tax is "a tax on the privilege of transacting
business in the state and exercising corporate franchises granted by the state." 53 It is not levied on
the corporation simply for existing as a corporation, upon its property 54 or its income,55 but on its
exercise of the rights or privileges granted to it by the government. Hence, a corporation need not
pay franchise tax from the time it ceased to do business and exercise its franchise. 56 It is within this
context that the phrase "tax on businesses enjoying a franchise" in section 137 of the LGC should be
interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise
tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the
sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under
this franchise within the territory of the respondent city government.

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395,
constitutes petitioner's primary and secondary franchises. It serves as the petitioner's charter,
defining its composition, capitalization, the appointment and the specific duties of its corporate
officers, and its corporate life span.57 As its secondary franchise, Commonwealth Act No. 120, as
amended, vests the petitioner the following powers which are not available to ordinary
corporations, viz:

"x x x

(e) To conduct investigations and surveys for the development of water power in any part of
the Philippines;

(f) To take water from any public stream, river, creek, lake, spring or waterfall in the
Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters
from lands of riparian owners and from persons owning or interested in waters which are or
may be necessary for said purposes, upon payment of just compensation therefor; to alter,
straighten, obstruct or increase the flow of water in streams or water channels intersecting or
connecting therewith or contiguous to its works or any part thereof: Provided, That just
compensation shall be paid to any person or persons whose property is, directly or indirectly,
adversely affected or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes,
mains, transmission lines, power stations and substations, and other works for the purpose
of developing hydraulic power from any river, creek, lake, spring and waterfall in the
Philippines and supplying such power to the inhabitants thereof; to acquire, construct, install,
maintain, operate, and improve gas, oil, or steam engines, and/or other prime movers,
generators and machinery in plants and/or auxiliary plants for the production of electric
power; to establish, develop, operate, maintain and administer power and lighting systems
for the transmission and utilization of its power generation; to sell electric power in bulk to (1)
industrial enterprises, (2) city, municipal or provincial systems and other government
institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions x
x x;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise
dispose of property incident to, or necessary, convenient or proper to carry out the purposes
for which the Corporation was created: Provided, That in case a right of way is necessary for
its transmission lines, easement of right of way shall only be sought: Provided, however, That
in case the property itself shall be acquired by purchase, the cost thereof shall be the fair
market value at the time of the taking of such property;
 (i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume,
street, avenue, highway or railway of private and public ownership, as the location of said
works may require xxx;

(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided
by law for instituting condemnation proceedings by the national, provincial and municipal
governments;

x x x

(m) To cooperate with, and to coordinate its operations with those of the National
Electrification Administration and public service entities;

(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs
of plants and/or projects constructed or proposed to be constructed by the Corporation.
Upon determination by the Corporation of the areas required for watersheds for a specific
project, the Bureau of Forestry, the Reforestation Administration and the Bureau of Lands
shall, upon written advice by the Corporation, forthwith surrender jurisdiction to the
Corporation of all areas embraced within the watersheds, subject to existing private rights,
the needs of waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures
to prevent environmental pollution and promote the conservation, development and
maximum utilization of natural resources xxx "58

With these powers, petitioner eventually had the monopoly in the generation and distribution of
electricity. This monopoly was strengthened with the issuance of Pres. Decree No. 40, 59 nationalizing
the electric power industry. Although Exec. Order No. 215 60 thereafter allowed private sector
participation in the generation of electricity, the transmission of electricity remains the monopoly of
the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's
territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as
amended. From its operations in the City of Cabanatuan, petitioner realized a gross income of
P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the
franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because
its stocks are wholly owned by the National Government, and its charter characterized it as a "non-
profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the
corporation of a privilege to do business. The taxable entity is the corporation which exercises the
franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a
separate and distinct entity from the National Government. It can sue and be sued under its own
name,61 and can exercise all the powers of a corporation under the Corporation Code. 62

To be sure, the ownership by the National Government of its entire capital stock does not necessarily
imply that petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 63 classifies
government-owned or controlled corporations (GOCCs) into those performing governmental
functions and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock

corporation, whether performing governmental or proprietary functions, which is directly
chartered by special law or if organized under the general corporation law is owned or
controlled by the government directly, or indirectly through a parent corporation or subsidiary
corporation, to the extent of at least a majority of its outstanding voting capital stock x x x."
(emphases supplied)

Governmental functions are those pertaining to the administration of government, and as such, are
treated as absolute obligation on the part of the state to perform while proprietary functions are those
that are undertaken only by way of advancing the general interest of society, and are merely optional
on the government.64 Included in the class of GOCCs performing proprietary functions are "business-
like" entities such as the National Steel Corporation (NSC), the National Development Corporation
(NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and
the National Water Sewerage Authority (NAWASA),65 among others.

Petitioner was created to "undertake the development of hydroelectric generation of power and the
production of electricity from nuclear, geothermal and other sources, as well as the transmission of
electric power on a nationwide basis."66 Pursuant to this mandate, petitioner generates power and
sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the
government. They are purely private and commercial undertakings, albeit imbued with public
interest. The public interest involved in its activities, however, does not distract from the true nature
of the petitioner as a commercial enterprise, in the same league with similar public utilities like
telephone and telegraph companies, railroad companies, water supply and irrigation companies,
gas, coal or light companies, power plants, ice plant among others; all of which are declared by this
Court as ministrant or proprietary functions of government aimed at advancing the general interest of
society.67

A closer reading of its charter reveals that even the legislature treats the character of the petitioner's
enterprise as a "business," although it limits petitioner's profits to twelve percent (12%), viz:68

"(n) When essential to the proper administration of its corporate affairs or necessary for the
proper transaction of its business or to carry out the purposes for which it was organized, to
contract indebtedness and issue bonds subject to approval of the President upon
recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry
out the business and purposes for which it was organized, or which, from time to time, may
be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish the
said purpose xxx."(emphases supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its
electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on
profits.69 The main difference is that the petitioner is mandated to devote "all its returns from its
capital investment, as well as excess revenues from its operation, for expansion" 70 while other
franchise holders have the option to distribute their profits to its stockholders by declaring dividends.
We do not see why this fact can be a source of difference in tax treatment. In both instances, the
taxable entity is the corporation, which exercises the franchise, and not the individual stockholders.
We also do not find merit in the petitioner's contention that its tax exemptions under its charter
subsist despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to
exist clearly and categorically, and supported by clear legal provisions. 71 In the case at bar, the
petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all
income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces,
cities, municipalities and other government agencies and instrumentalities." However, section 193 of
the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by
private and public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an
express, albeit general, repeal of all statutes granting tax exemptions from local taxes. 72 It reads:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural
or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code." (emphases supplied)

It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius.73 Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-
stock and non-profit hospital or educational institution, petitioner clearly does not belong to the
exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that
expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can
impose franchise tax "notwithstanding any exemption granted by any law or other special law." This
particular provision of the LGC does not admit any exception. In City Government of San Pablo,
Laguna v. Reyes,74 MERALCO's exemption from the payment of franchise taxes was brought as an
issue before this Court. The same issue was involved in the subsequent case of Manila Electric
Company v. Province of Laguna.75 Ruling in favor of the local government in both instances, we ruled
that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO under
special laws, viz:

"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC
to support their position that MERALCO's tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to impose franchise tax
'notwithstanding any exemption granted by any law or other special law' is all-encompassing
and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that
unless otherwise provided in this Code, tax exemptions or incentives granted to or presently
enjoyed by all persons, whether natural or juridical, including government-owned or
controlled corporations except (1) local water districts, (2) cooperatives duly registered under
R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn
upon the effectivity of this code, the obvious import is to limit the exemptions to the three
enumerated entities. It is a basic precept of statutory construction that the express mention
of one person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to
the contrary, and we find no other provision in point, any existing tax exemption or incentive
enjoyed by MERALCO under existing law was clearly intended to be withdrawn.
 Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the
local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the
gross annual receipts for the preceding calendar based on the incoming receipts realized
within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed
under existing law or charter is clearly manifested by the language used on (sic) Sections
137 and 193 categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical to attempt to enumerate all
the existing statutes providing for special tax exemptions or privileges, the LGC provided for
an express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used."76 (emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly
approved, to grant tax exemptions, initiatives or reliefs. 77 But in enacting section 37 of Ordinance No.
165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or
other special law," the respondent city government clearly did not intend to exempt the petitioner
from the coverage thereof.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of the local government units for the delivery of basic services essential to
the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the
people. As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises."78 With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of development, fiscal or otherwise,
by paying taxes or other charges due from them.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the
Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.

SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Footnotes

1
Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure. See
Petition, Rollo, pp. 8-28.

2
CA-G.R. CV No. 53297, penned by Assoc. Justice Rodrigo Cosico. See Annex "A" of the
Petition, Rollo, pp. 30-38.

3
Id., Annex "B" of the Petition, Rollo, p. 39.

4
Among the amendments to Comm. Act No. 120 are Rep. Act No. 6395 (1971) and Pres.
Decree No. 938 (1976).

5
Rep. Act No. 6395, sec. 2.
6
Id., sec. 3.

7
Rollo, p. 41.

8
"Section 37. Imposition of Tax - Notwithstanding any exemption granted by law or other
special law, there is hereby imposed an annual tax on a business enjoying franchise at a rate
of 75% of 1% of the gross receipts for the preceding year realized within the territorial
jurisdiction of Cabanatuan City."

9
Rollo, p. 41.

10
Rollo, p. 48. Rep. Act No. 6395, sec. 5. "Capital Stock of the Corporation.- The authorized
capital stock of the Corporation is three hundred million pesos divided into three million
shares having a par value of one hundred pesos each, which shares are not to be
transferred, negotiated, pledged, mortgaged, or otherwise given as a security for the
payment of any obligation. The said capital stock has been subscribed and paid wholly by
the Government of the Philippines in accordance with the provisions of Republic Act
Numbered Four Thousand Eight Hundred Ninety-Seven."

11
Rollo, pp. 52-53.

12
Rep. Act No. 6395, sec. 13, as amended by P.D. No. 938.

13
Complaint, Records, pp. 1-3. The case was docketed as Civil Case No. 1659-AF and was
raffled to Branch 30 presided by Judge Federico B. Fajardo, Jr.

14
"The Local Government Code of 1991." The law took effect on January 1, 1992.

15
Records, pp. 45-54.

16
Records, pp. 52-54.

17
Supra note 2.

18
Id. at 36-37.

19
Id. at 38.

20
Rollo, p. 39.

21
Petition, pp. 9-10; Rollo, pp. 16-17.

22
Rollo, p. 18.

23
Petition, p. 11; Rollo, p. 18.

24
Ibid.

25
Citing the case of Maceda v. Macaraig, 197 SCRA 771, 800 (1991).
26
197 SCRA 52 (1991).

27
Id. at 64-65.

28
Rollo, p. 21.

29
Id. at 21-22.

30
Commissioner vs. Pineda, 21 SCRA 105, 110 (1967) citing Bull vs. United States, 295 U.S.
247, 15 AFTR 1069, 1073; Surigao Electric Co., Inc. vs. Court of Tax Appeals, 57 SCRA 523
(1974).

Hong Kong & Shanghai Banking Corp. vs. Rafferty, 19 Phil. 145 (1918); Wee Poco vs.
31

Posadas, 64 Phil. 640 (1937); Reyes vs. Almanzor, 196 SCRA 322, 327 (1991).

32
Phil. Guaranty Co., Inc. vs. CIR, 13 SCRA 775, 780 (1965).

33
Vitug and Acosta, Tax Law and Jurisprudence, 2nd ed. (2000) at 1.

Mactan Cebu International Airport Authority vs. Marcos, 261 SCRA 667, 680 (1996) citing
34

Cruz, Isagani A., Constitutional Law (1991) at 84.

35
Pimentel, The Local Government Code of 1991: The Key to National Development (1993)
at 2-4.

36
Supra note 14.

37
Rep. Act No. 2370 (1959).

38
Rep. Act No. 2264 (1959).

39
Rep. Act No. 5185 (1967).

40
B.P. Blg. 337 (1983).

Sponsorship Remarks of Cong. Hilario De Pedro III, Records of the House of

41

Representatives, 3rd Regular Session (1989-1990), vol. 8, p. 757.

Pimentel, supra note 20; "Brilliantes, Issues and Trends in Local Governance in the
42

Philippines," The Local Government Code: An Assessment" (1999) at 3.

43
Supra note 41.

44
Supra note 26.

45
Supra note 34.

46
Id. at 692.

47
Id. at 686.
48
J.R. S. Business Corp., et al. vs. Ofilada, et al., 120 Phil. 618, 628 (1964).

49
J. Campos, Jr., I Corporation Code (1990) at 2.

50
Supra note 48.

51
Ibid.

52
Ibid.

53
People v. Knight, 67 N.E. 65, 66, 174 N.Y. 475, 63 L.R.A. 87.

54
Tremont & Sufflok Mills v. City of Lowell, 59 N.E. 1007, 178 Mass. 469.

55
United North & South Development Co. v. Health, Tex. Civ. App., 78 S.W.2d 650, 652.

56
In re Commercial Safe Deposit Co. of Buffalo, 266 N.Y.S. 626, 148 Misc. 527.

Rep. Act No. 6395, sec. 2 extends NAPOCOR's corporate existence "for fifty years from
57

and after the expiration of its present corporate existence."

58
Rep. Act No. 6395, sec. 3.

"Establishing Basic Policies for the Electric Power Industry." Issued by former President
59

Ferdinand E. Marcos on November 7, 1972.

60
"Amending Presidential Decree No. 40 and Allowing the Private Sector to Generate
Electricity." Issued by former President Corazon C. Aquino on July 10, 1987.

61
Rep. Act No. 6395, sec. 3 (d).

62
Rep. Act No. 6395, sec. 4 (p) authorizes NAPOCOR to "exercise all the powers of a
corporation under the Corporation Law insofar as they are not inconsistent with the
provisions of this Act."

63
Approved on February 4, 1986.

64
Social Security System Employees Association vs. Soriano, 7 SCRA 1016, 1020 (1963).

65
See Boy Scouts of the Philippines vs. NLRC, 196 SCRA 176, 185 (1991); Shipside
Incorporated vs. CA, 352 SCRA 334, 350 (2001).

66
Rep. Act No. 6395, Sec. 2.

National Waterworks & Sewerage Authority vs. NWSA Consolidated Unions, 11 SCRA 766,
67

774 (1964).

Rep. Act No. 7648, sec. 4. The law, also known as "Electric Power Crisis Act," was signed
68

on April 5, 1993.
 69
Rep. Act No. 6395, sec. 14 reads: "Contract with Franchise Holders, Conditions of. The
Corporation shall, in any contract for the supply of electric power to a franchise holder,
require as a condition that the franchise holder, if it receives at least sixty per cent of its
electric power and energy from the Corporation, shall not realize a rate of return of more
than twelve per cent annually on a rate base composed of the sum of its net assets in
operation revalued from time to time, plus two-month operating capital, subject to the non-
impairment-of-obligations-of-contracts provision of the Constitution: Provided, That in
determining the rate of return, interest on loans, bonds and other debts shall not be included
as expenses. It shall likewise be a condition in the contract that the Corporation shall cancel
or revoke the contract upon judgment of the Public Service Commission after due hearing
and upon a showing by customers of the franchise holder that household electrical
appliances, have been damaged resulting from deliberate overloading by, or power
deficiency of, the franchise holder. The Corporation shall renew all existing contracts with
franchise holders for the supply of electric power and energy in order to give effect to the
provisions hereof."

70
Rep. Act No. 6395, sec. 13.

71
Commissioner of Internal Revenue v. Guerrero, 21 SCRA 180 (1967).

72
City Government of San Pablo, Laguna v. Reyes, 305 SCRA 353 (1999).

73
Commissioner of Customs vs. Court of Tax Appeals, 251 SCRA 42, 56 (1995).

74
Supra note 72.

75
306 SCRA 750 (1999).

76
Supra note 72 at 361-362.

77
"Sec. 192. Authority to Grant Tax Exemption Privileges.- Local government units may,
through ordinances duly approved, grant tax exemptions, incentives or reliefs under such
terms and conditions as they may deem necessary."

78
Supra note 34 at 690.

#6G.R. No. L-43082 June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

Office of the Solicitor-General Hilado for defendant-appellant.

LAUREL, J.:

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the
defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of
P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the
collection of interst thereon at the rate of 6 per cent per annum, computed from September 15, 1932,
the date when the aforesaid tax was [paid under protest. The defendant set up a counterclaim for
P1,191.27 alleged to be interest due on the tax in question and which was not included in the
original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both
the plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court.

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a
will (Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922,
proceedings for the probate of his will and the settlement and distribution of his estate were begun in
the Court of First Instance of Zamboanga. The will was admitted to probate. Said will provides,
among other things, as follows:

4. I direct that any money left by me be given to my nephew Matthew Hanley.

5. I direct that all real estate owned by me at the time of my death be not sold or otherwise
disposed of for a period of ten (10) years after my death, and that the same be handled and
managed by the executors, and proceeds thereof to be given to my nephew, Matthew
Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be
directed that the same be used only for the education of my brother's children and their
descendants.

6. I direct that ten (10) years after my death my property be given to the above mentioned
Matthew Hanley to be disposed of in the way he thinks most advantageous.

xxx xxx xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew,
Matthew Hanley, is a son of my said brother, Malachi Hanley.

The Court of First Instance of Zamboanga considered it proper for the best interests of their estate to
appoint a trustee to administer the real properties which, under the will, were to pass to Matthew
Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed
trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as trustee until
February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue,
alleging that the estate left by the deceased at the time of his death consisted of realty valued at
P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against
the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for
deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of
payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the
defendant filed a motion in the testamentary proceedings pending before the Court of First Instance
of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to
pay to the Government the said sum of P2,052.74. The motion was granted. On September 15,
1932, the plaintiff paid said amount under protest, notifying the defendant at the same time that
unless the amount was promptly refunded suit would be brought for its recovery. The defendant
overruled the plaintiff's protest and refused to refund the said amount hausted, plaintiff went to court
with the result herein above indicated.

In his appeal, plaintiff contends that the lower court erred:

 I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir,
Matthew Hanley, from the moment of the death of the former, and that from the time, the
latter became the owner thereof.

II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on the
estate of said deceased.

III. In holding that the inheritance tax in question be based upon the value of the estate upon
the death of the testator, and not, as it should have been held, upon the value thereof at the
expiration of the period of ten years after which, according to the testator's will, the property
could be and was to be delivered to the instituted heir.

IV. In not allowing as lawful deductions, in the determination of the net amount of the estate
subject to said tax, the amounts allowed by the court as compensation to the "trustees" and
paid to them from the decedent's estate.

V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns the following error
besides:

The lower court erred in not ordering the plaintiff to pay to the defendant the sum of
P1,191.27, representing part of the interest at the rate of 1 per cent per month from April 10,
1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed
by the defendant against the estate of Thomas Hanley.

The following are the principal questions to be decided by this court in this appeal: (a) When does
the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be
computed on the basis of the value of the estate at the time of the testator's death, or on its value ten
years later? (c) In determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees? (d) What law governs the case at bar? Should the provisions of Act
No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been deliquency in the
payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his
appeal be paid by the estate? Other points of incidental importance, raised by the parties in their
briefs, will be touched upon in the course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of
inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance,devise, or
bequest." The tax therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax
imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law,
or deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil Code,
"the rights to the succession of a person are transmitted from the moment of his death." "In other
words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the deceased
ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely
as if the ancestor had executed and delivered to them a deed for the same before his death."
(Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. Chio-
Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491;
Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio,
19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil.,
531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs.
Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the Civil Code is
applicable to testate as well as intestate succession, it operates only in so far as forced heirs are
concerned. But the language of article 657 of the Civil Code is broad and makes no distinction
between different classes of heirs. That article does not speak of forced heirs; it does not even use
the word "heir". It speaks of the rights of succession and the transmission thereof from the moment
of death. The provision of section 625 of the Code of Civil Procedure regarding the authentication
and probate of a will as a necessary condition to effect transmission of property does not affect the
general rule laid down in article 657 of the Civil Code. The authentication of a will implies its due
execution but once probated and allowed the transmission is effective as of the death of the testator
in accordance with article 657 of the Civil Code. Whatever may be the time when actual transmission
of the inheritance takes place, succession takes place in any event at the moment of the decedent's
death. The time when the heirs legally succeed to the inheritance may differ from the time when the
heirs actually receive such inheritance. "Poco importa", says Manresa commenting on article 657 of
the Civil Code, "que desde el falleimiento del causante, hasta que el heredero o legatario entre en
posesion de los bienes de la herencia o del legado, transcurra mucho o poco tiempo, pues la
adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena el articulo 989, que debe
considerarse como complemento del presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil
Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the
obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly
fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to
section 1543 of the same Code. The two sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not
be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater
than that paid by the first, the former must pay the difference.

SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into
possession of the property.

(b) In other cases, within the six months subsequent to the death of the predecessor;
but if judicial testamentary or intestate proceedings shall be instituted prior to the
expiration of said period, the payment shall be made by the executor or administrator
before delivering to each beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per
centum per annum shall be added as part of the tax; and to the tax and interest due and
 unpaid within ten days after the date of notice and demand thereof by the collector, there
shall be further added a surcharge of twenty-five per centum.

A certified of all letters testamentary or of admisitration shall be furnished the Collector of

Internal Revenue by the Clerk of Court within thirty days after their issuance.

It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543,
should read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation
from the Spanish to the English version.

The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-
quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the
tax should have been paid before the delivery of the properties in question to P. J. M. Moore as
trustee on March 10, 1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are
concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the
expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax
should be based on the value of the estate in 1932, or ten years after the testator's death. The
plaintiff introduced evidence tending to show that in 1932 the real properties in question had a
reasonable value of only P5,787. This amount added to the value of the personal property left by the
deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding
deductions, interest and surcharge, would amount only to about P169.52.

If death is the generating source from which the power of the estate to impose inheritance taxes
takes its being and if, upon the death of the decedent, succession takes place and the right of the
estate to tax vests instantly, the tax should be measured by the vlaue of the estate as it stood at the
time of the decedent's death, regardless of any subsequent contingency value of any subsequent
increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and
Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep.,
747; 44 Law. ed., 969.) "The right of the state to an inheritance tax accrues at the moment of death,
and hence is ordinarily measured as to any beneficiary by the value at that time of such property as
passes to him. Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation,
p. 72.)

Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37,
pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed until the estate
vests in possession or the contingency is settled. This rule was formerly followed in New York and
has been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This
rule, horever, is by no means entirely satisfactory either to the estate or to those interested in the
property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior system, we find upon
examination of cases and authorities that New York has varied and now requires the immediate
appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its
out of the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber,
86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of
Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide
also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.)
California adheres to this new rule (Stats. 1905, sec. 5, p. 343).

But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is
taxable at the time of the predecessor's death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the
property transmitted at that time regardless of its appreciation or depreciation.

(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net
value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised
Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of only
P480.81. This sum represents the expenses and disbursements of the executors until March 10,
1924, among which were their fees and the proven debts of the deceased. The plaintiff contends that
the compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH,
JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised Administrative Code
which provides, in part, as follows: "In order to determine the net sum which must bear the tax, when
an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial expenses
of the testamentary or intestate proceedings, . . . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders,
16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him
may lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute
in the Philippines which requires trustees' commissions to be deducted in determining the net value
of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust
has been created, it does not appear that the testator intended that the duties of his executors and
trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div.,
363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the
testator expressed the desire that his real estate be handled and managed by his executors until the
expiration of the period of ten years therein provided. Judicial expenses are expenses of
administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878;
101 Minn., 485), it was said: ". . . The compensation of a trustee, earned, not in the administration of
the estate, but in the management thereof for the benefit of the legatees or devises, does not come
properly within the class or reason for exempting administration expenses. . . . Service rendered in
that behalf have no reference to closing the estate for the purpose of a distribution thereof to those
entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. .
. . Trusts . . . of the character of that here before the court, are created for the the benefit of those to
whom the property ultimately passes, are of voluntary creation, and intended for the preservation of
the estate. No sound reason is given to support the contention that such expenses should be taken
into consideration in fixing the value of the estate for the purpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley
under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3
of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law
in force when the testator died on May 27, 1922. The law at the time was section 1544 above-
mentioned, as amended by Act No. 3031, which took effect on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the time of the death
of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not
foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax
statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has
been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup.
Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be perfectly
clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S.,
602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should
be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance
tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive
effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the
Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the Revised
Administrative Code, applicable to all estates the inheritance taxes due from which have not been
paid, Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive effect.
No such effect can begiven the statute by this court.

The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No.
3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in
nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of
the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031.
Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on
both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty
days from notice and demand by rthe Collector of Internal Revenue within which to pay the tax,
instead of ten days only as required by the old law.

Properly speaking, a statute is penal when it imposes punishment for an offense committed against
the state which, under the Constitution, the Executive has the power to pardon. In common use,
however, this sense has been enlarged to include within the term "penal statutes" all status which
command or prohibit certain acts, and establish penalties for their violation, and even those which,
without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p.
1110). Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for
the collection of taxes are not classed as penal laws, although there are authorities to the contrary.
(See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup.
Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150;
State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not applicable to
the case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a
retroactive effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax
may be paid within another given time. As stated by this court, "the mere failure to pay one's tax
does not render one delinqent until and unless the entire period has elapsed within which the
taxpayer is authorized by law to make such payment without being subjected to the payment of
penalties for fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil.,
239.)

The defendant maintains that it was the duty of the executor to pay the inheritance tax before the
delivery of the decedent's property to the trustee. Stated otherwise, the defendant contends that
delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code.
This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was
made by the trial court in conformity with the wishes of the testator as expressed in his will. It is true
that the word "trust" is not mentioned or used in the will but the intention to create one is clear. No
particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words
"trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of these two
words is not conclusive on the question that a trust is created (69 C. J., p. 714). "To create a trust by
will the testator must indicate in the will his intention so to do by using language sufficient to separate
the legal from the equitable estate, and with sufficient certainty designate the beneficiaries, their
interest in the ttrust, the purpose or object of the trust, and the property or subject matter thereof.
Stated otherwise, to constitute a valid testamentary trust there must be a concurrence of three
circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or ascertain
object; statutes in some jurisdictions expressly or in effect so providing." (69 C. J., pp. 705,706.)
There is no doubt that the testator intended to create a trust. He ordered in his will that certain of his
properties be kept together undisposed during a fixed period, for a stated purpose. The probate
court certainly exercised sound judgment in appointment a trustee to carry into effect the provisions
of the will (see sec. 582, Code of Civil Procedure).

P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582
in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was
placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the
payment of the inheritance tax. The corresponding inheritance tax should have been paid on or
before March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated
that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que
trust, the beneficiary in this case. A trustee is but an instrument or agent for the cestui que
trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore
accepted the trust and took possesson of the trust estate he thereby admitted that the estate
belonged not to him but to his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p.
692, n. 63). He did not acquire any beneficial interest in the estate. He took such legal estate only as
the proper execution of the trust required (65 C. J., p. 528) and, his estate ceased upon the
fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65 C. J., p.
542).

The highest considerations of public policy also justify the conclusion we have reached. Were we to
hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type
at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has
provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain
period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty
years, or for a longer period which does not offend the rule against petuities. The collection of the tax
would then be left to the will of a private individual. The mere suggestion of this result is a sufficient
warning against the accpetance of the essential to the very exeistence of government. (Dobbins vs.
Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed.,
558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs.
Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren
Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon the privileges
enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of
money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is
allowed to object to or resist the payment of taxes solely because no personal benefit to him can be
pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts
will not enlarge, by construction, the government's power of taxation (Bromley vs. McCaughn, 280 U.
S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose a
construction as to permit evasions on merely fanciful and insubstantial distictions. (U. S. vs. Watts, 1
Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690,
followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros., Wolf & Sons
vs. McCoy, 21 Phil., 300; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking
Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When
proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construed this
way, the statute, without resulting in injustice to the taxpayer, becomes fair to the government.

That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court
is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578,
Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs.
Posadas (47 Phil., 461), this court had occassion to demonstrate trenchment adherence to this
policy of the law. It held that "the fact that on account of riots directed against the Chinese on
October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on time
and by mutual agreement closed their homes and stores and remained therein, does not authorize
the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to
accept them without the additional penalty of twenty five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the
modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay
in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may
derange the operations of government, and thereby, cause serious detriment to the public." (Dows
vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the payment of inheritance
tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee.
The interest due should be computed from that date and it is error on the part of the defendant to
compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs.
Posadas, supra), and neither the Collector of Internal Revenuen or this court may remit or decrease
such interest, no matter how heavily it may burden the taxpayer.

To the tax and interest due and unpaid within ten days after the date of notice and demand thereof
by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec.
1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector
of Internal Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29). The date
fixed for the payment of the tax and interest was November 30, 1931. November 30 being an official
holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid on that
date, the estate became liable for the payment of the surcharge.

In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the
plaintiff in his brief.

We shall now compute the tax, together with the interest and surcharge due from the estate of
Thomas Hanley inaccordance with the conclusions we have reached.

At the time of his death, the deceased left real properties valued at P27,920 and personal properties
worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing
allowable deductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19
as the net value of the estate subject to inheritance tax.

The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code,
should be imposed at the rate of one per centum upon the first ten thousand pesos and two per
centum upon the amount by which the share exceed thirty thousand pesos, plus an additional two
hundred per centum. One per centum of ten thousand pesos is P100. Two per centum of
P18,904.19 is P378.08. Adding to these two sums an additional two hundred per centum, or
P965.16, we have as primary tax, correctly computed by the defendant, the sum of P1,434.24.

To the primary tax thus computed should be added the sums collectible under section 1544 of the
Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate
of twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15,
1932, the date of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax
and interest thus computed should be added the sum of P724.88, representing a surhcarge of 25
per cent on both the tax and interest, and also P10, the compromise sum fixed by the defendant
(Exh. 29), giving a grand total of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due
from the estate. This last sum is P390.42 more than the amount demanded by the defendant in his
counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that the
plaintiff is liable only in the sum of P1,191.27 the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances. So ordered.

#7G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,

vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National Treasurer, defendants-appellants.

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

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

This question has been brought before this Court in the past. The parties are, in effect, asking for a
re-examination of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a
case where the then Court of First Instance of Rizal dismissed the portion-about complaint for refund
of registration fees paid under protest.

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

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

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

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has,
since 1956, not been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring
all tax exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless
the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest,
the amount of P19,529.75 as registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner
Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil.
212 [1951]) where it was held that motor vehicle registration fees are in reality taxes from the
payment of which PAL is exempt by virtue of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v.
Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle
registration fees are regulatory exceptional. and not revenue measures and, therefore, do not come
within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint against
Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with the
Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case No. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity
as National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action.
In support of the motion to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit
Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees
imposed as an incident of the exercise of the police power of the state. They contended that while
Act 4271 exempts PAL from the payment of any tax except two per cent on its gross revenue or
earnings, it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle
registration fees. The resolution of the motion to dismiss was deferred by the Court until after trial on
the merits.

On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by
the later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus
Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which certified the
case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL
and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at
bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by Section 8
of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks
of "registration fees." The term is repeated four times in the body thereof. Equally so,
mention is made of the "fee for registration." (Ibid., Subsection G) A subsection starts
with a categorical statement "No fees shall be charged." (lbid., Subsection H) The
conclusion is difficult to resist therefore that the Motor Vehicle Act requires the
payment not of a tax but of a registration fee under the police power. Hence the
incipient, of the section relied upon by defendant-appellee under the Back Pay Law,
It is not held liable for a tax but for a registration fee. It therefore cannot make use of
a backpay certificate to meet such an obligation.
 Any vestige of any doubt as to the correctness of the above conclusion should be
dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition
of additional tax on privately-owned passenger automobiles, motorcycles and
scooters was amended by Republic Act No. 5470 which is (sic) approved on May 30,
1969.) A special science fund was thereby created and its title expressly sets forth
that a tax on privately-owned passenger automobiles, motorcycles and scooters was
imposed. The rates thereof were provided for in its Section 3 which clearly specifies
the" Philippine tax."(Cooley to be paid as distinguished from the registration fee
under the Motor Vehicle Act. There cannot be any clearer expression therefore of the
legislative will, even on the assumption that the earlier legislation could by
subdivision the point be susceptible of the interpretation that a tax rather than a fee
was levied. What is thus most apparent is that where the legislative body relies on its
authority to tax it expressly so states, and where it is enacting a regulatory measure,
it is equally exploded (at p. 22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand,
held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of
motor vehicles are in section 8 of that law called "fees". But the appellation is no
impediment to their being considered taxes if taxes they really are. For not the name
but the object of the charge determines whether it is a tax or a fee. Geveia speaking,
taxes are for revenue, whereas fees are exceptional. for purposes of regulation and
inspection and are for that reason limited in amount to what is necessary to cover the
cost of the services rendered in that connection. Hence, a charge fixed by statute for
the service to be person,-When by an officer, where the charge has no relation to the
value of the services performed and where the amount collected eventually finds its
way into the treasury of the branch of the government whose officer or officers
collected the chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p.
110.)

From the data submitted in the court below, it appears that the expenditures of the
Motor Vehicle Office are but a small portionabout 5 per centumof the total
collections from motor vehicle registration fees. And as proof that the money
collected is not intended for the expenditures of that office, the law itself provides that
all such money shall accrue to the funds for the construction and maintenance of
public roads, streets and bridges. It is thus obvious that the fees are not collected for
regulatory purposes, that is to say, as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, for their express
object is to provide revenue with which the Government is to discharge one of its
principal functionsthe construction and maintenance of public highways for
everybody's use. They are veritable taxes, not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as
taxes, for it provides that "no other taxes or fees than those prescribed in this Act
shall be imposed," thus implying that the charges therein imposedthough called
feesare of the category of taxes. The provision is contained in section 70, of
subsection (b), of the law, as amended by section 17 of Republic Act 587, which
reads:

Sec. 70(b) No other taxes or fees than those prescribed in this Act
shall be imposed for the registration or operation or on the ownership
 of any motor vehicle, or for the exercise of the profession of
chauffeur, by any municipal corporation, the provisions of any city
charter to the contrary notwithstanding: Provided, however, That any
provincial board, city or municipal council or board, or other
competent authority may exact and collect such reasonable and
equitable toll fees for the use of such bridges and ferries, within their
respective jurisdiction, as may be authorized and approved by the
Secretary of Public Works and Communications, and also for the use
of such public roads, as may be authorized by the President of the
Philippines upon the recommendation of the Secretary of Public
Works and Communications, but in none of these cases, shall any toll
fee." be charged or collected until and unless the approved schedule
of tolls shall have been posted levied, in a conspicuous place at such
toll station. (at pp. 213-214)

Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law
(Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land
Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896,
110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states:

Section 73. Disposal of moneys collected.Twenty per centum of the money

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

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

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

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

It appears clear from the above provisions that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction
and maintenance of highways and to a much lesser degree, pay for the operating expenses of the
administering agency. On the other hand, the Philippine Rabbit case mentions a presumption arising
from the use of the term "fees," which appears to have been favored by the legislature to distinguish
fees from other taxes such as those mentioned in Section 13 of Rep. Act 4136 which reads:
 Sec. 13. Payment of taxes upon registration.No original registration of motor
vehicles subject to payment of taxes, customs s duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented to
the Commission.

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

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

It is possible for an exaction to be both tax arose. regulation. License fees are
changes. looked to as a source of revenue as well as a means of regulation
(Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license fees.
Isabela such case, the fees may properly be regarded as taxes even though they
also serve as an instrument of regulation. If the purpose is primarily revenue, or if
revenue is at least one of the real and substantial purposes, then the exaction is
properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on
Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta
98 Phil. 198.) These exactions are sometimes called regulatory taxes. (See Secs.
4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of 1954,
which classify taxes on tobacco and alcohol as regulatory taxes.) (Umali, Reviewer in
Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591-593).

Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil.
148).

If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle
registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587
quoted in the Calalang case. The same provision appears as Section 591-593). in the Land
Transportation code. It is patent therefrom that the legislators had in mind a regulatory tax as the law
refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax or
fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a tax,
Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the ownership
of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the intent to
impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an
"additional" tax," where the law could have referred to an original tax and not one in addition to the
tax already imposed on the registration, operation, or ownership of a motor vehicle under Rep. Act
41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition
in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as
the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of
registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal
to be revenue-raising. Thus, they are not mentioned by Sec. 591-593). of the Code as taxes like the
motor vehicle registration fee and chauffers' license fee. Such fees are to go into the expenditures of
the Land Transportation Commission as provided for in the last proviso of see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for
rigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular
traffic exploded in number and motor vehicles became absolute necessities without which modem
life as we know it would stand still, Congress found the registration of vehicles a very convenient
way of raising much needed revenues. Without changing the earlier deputy. of registration payments
as "fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant
to the Land Transportation and Traffic Code are actually taxes intended for additional revenues. of
government even if one fifth or less of the amount collected is set aside for the operating expenses
of the agency administering the program.

May the respondent administrative agency be required to refund the amounts stated in the complaint
of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to what
payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448
dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in legislative
franchises similar to that invoked by PAL in this case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July
11, 1985), this Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio
Communications of the Philippines, Inc., was subject to both the franchise tax and
income tax. In 1964, however, petitioner's franchise was amended by Republic Act
No. 41-42). to the effect that its franchise tax of one and one-half percentum (1-1/2%)
of all gross receipts was provided as "in lieu of any and all taxes of any kind, nature,
or description levied, established, or collected by any authority whatsoever,
municipal, provincial, or national from which taxes the grantee is hereby expressly
exempted." The issue raised to this Court now is the validity of the respondent court's
decision which ruled that the exemption under Republic Act No. 41-42). was repealed
by Section 24 of Republic Act No. 5448 dated June 27, 1968 which reads:

"(d) The provisions of existing special or general laws to the contrary

notwithstanding, all corporate taxpayers not specifically exempt under
Sections 24 (c) (1) of this Code shall pay the rates provided in this
section. All corporations, agencies, or instrumentalities owned or
controlled by the government, including the Government Service
Insurance System and the Social Security System but excluding
educational institutions, shall pay such rate of tax upon their taxable
net income as are imposed by this section upon associations or
corporations engaged in a similar business or industry. "

An examination of Section 24 of the Tax Code as amended shows clearly that the
law intended all corporate taxpayers to pay income tax as provided by the statute.
There can be no doubt as to the power of Congress to repeal the earlier exemption it
granted. Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5 of
the Constitution as amended in 1973 expressly provide that no franchise shall be
granted to any individual, firm, or corporation except under the condition that it shall
be subject to amendment, alteration, or repeal by the legislature when the public
interest so requires. There is no question as to the public interest involved. The
country needs increased revenues. The repealing clause is clear and unambiguous.
There is a listing of entities entitled to tax exemption. The petitioner is not covered by
 the provision. Considering the foregoing, the Court Resolved to DENY the petition for
lack of merit. The decision of the respondent court is affirmed.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed
because the tax exemption in the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now
provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay to
the Philippine Government during the lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower taxes.)

(a) The basic corporate income tax based on the grantee's annual net
taxable income computed in accordance with the provisions of the
Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues.
derived by the grantees from all specific. without distinction as to
transport or nontransport corporations; provided that with respect to
international airtransport service, only the gross passengers, mail,
and freight revenues. from its outgoing flights shall be subject to this
law.

The tax paid by the grantee under either of the above alternatives shall be in lieu of
all other taxes, duties, royalties, registration, license and other fees and charges of
any kind, nature or description imposed, levied, established, assessed, or collected
by any municipal, city, provincial, or national authority or government, agency, now or
in the future, including but not limited to the following:

xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and
transfer of airtransport equipment, motor vehicles, and all other personal or real
property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law.
PAL is now exempt from the payment of any tax, fee, or other charge on the registration and
licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax
provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees
paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is
enjoined functions-the collecting any tax, fee, or other charge on the registration and licensing of the
petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.

SO ORDERED.

#8

G.R. No. 115455 October 30, 1995

ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.

G.R. No. 115525 October 30, 1995

JUAN T. DAVID, petitioner,

vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary
of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their
AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.

G.R. No. 115543 October 30, 1995

RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,

vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE
BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.

G.R. No. 115544 October 30, 1995

PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115754 October 30, 1995

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

G.R. No. 115781 October 30, 1995

KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C.

CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE
ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT
COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
TAADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF
INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.

G.R. No. 115852 October 30, 1995

PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.

G.R. No. 115873 October 30, 1995

COOPERATIVE UNION OF THE PHILIPPINES, petitioner,

vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115931 October 30, 1995

PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF

PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as
the Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity
as the Commissioner of Customs, respondents.

RESOLUTION

MENDOZA, J.:

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

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

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

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

The contention has no merit.

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

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

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

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

1. R.A. NO. 7642

AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR

THIS PURPOSE THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992).

House Bill No. 2165, October 5, 1992

Senate Bill No. 32, December 7, 1992

2. R.A. NO. 7643

AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO

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

House Bill No. 1503, September 3, 1992

Senate Bill No. 968, December 7, 1992

3. R.A. NO. 7646

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

House Bill No. 1470, October 20, 1992

Senate Bill No. 35, November 19, 1992

4. R.A. NO. 7649

AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL

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

House Bill No. 5260, January 26, 1993

Senate Bill No. 1141, March 30, 1993

5. R.A. NO. 7656

AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED

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

House Bill No. 11024, November 3, 1993

Senate Bill No. 1168, November 3, 1993

6. R.A. NO. 7660

AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION

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

House Bill No. 7789, May 31, 1993

Senate Bill No. 1330, November 18, 1993

7. R.A. NO. 7717

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

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

House Bill No. 9187, November 3, 1993

Senate Bill No. 1127, March 23, 1994

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

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

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

RULE XXIX

AMENDMENTS

xxx xxx xxx

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

No amendment by substitution shall be entertained unless the text thereof is

submitted in writing.

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

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

xxx xxx xxx

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

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

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

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

Art. VI, 24 of our Constitution reads:

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

The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the
phrase "as on other Bills" in the American version, according to petitioners, shows the intention of
the framers of our Constitution to restrict the Senate's power to propose amendments to revenue
bills. Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate" and
"the words 'as in any other bills' (sic) were eliminated so as to show that these bills were not to be
like other bills but must be treated as a special kind."

The history of this provision does not support this contention. The supposed indicia of constitutional
intent are nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be
recalled that the 1935 Constitution originally provided for a unicameral National Assembly. When it
was decided in 1939 to change to a bicameral legislature, it became necessary to provide for the
procedure for lawmaking by the Senate and the House of Representatives. The work of proposing
amendments to the Constitution was done by the National Assembly, acting as a constituent
assembly, some of whose members, jealous of preserving the Assembly's lawmaking powers,
sought to curtail the powers of the proposed Senate. Accordingly they proposed the following
provision:

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

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

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

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

The power of the Senate to propose or concur with amendments is apparently

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

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

(1961))

The above-mentioned bills are supposed to be initiated by the House of

Representatives because it is more numerous in membership and therefore also
more representative of the people. Moreover, its members are presumed to be more
familiar with the needs of the country in regard to the enactment of the legislation
involved.

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

(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).

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

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

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

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

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

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

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

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

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

Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:

THE SPEAKER. The report of the conference committee is in order. It is precisely in

cases like this where a conference should be had. If the House bill had been
approved by the Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the same subject matter, the
conference committee had to be created, and we are now considering the report of
that committee.
 (2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))

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

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

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

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

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

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

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

(2) No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed,
and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings on separate
days are required and a bill has to be printed in final form before it can be passed, the need for a law
may be rendered academic by the occurrence of the very emergency or public calamity which it is
meant to address.

Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a
country like the Philippines where budget deficit is a chronic condition. Even if this were the case, an
enormous budget deficit does not make the need for R.A. No. 7716 any less urgent or the situation
calling for its enactment any less an emergency.

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

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

The purpose for which three readings on separate days is required is said to be two-fold: (1) to
inform the members of Congress of what they must vote on and (2) to give them notice that a
measure is progressing through the enacting process, thus enabling them and others interested in
the measure to prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION 10.04, p. 282 (1972)). These purposes were substantially
achieved in the case of R.A. No. 7716.

IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the
Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of
the constitutional policy of full public disclosure and the people's right to know (Art. II, 28 and Art. III,
7) the Conference Committee met for two days in executive session with only the conferees
present.

As pointed out in our main decision, even in the United States it was customary to hold such
sessions with only the conferees and their staffs in attendance and it was only in 1975 when a new
rule was adopted requiring open sessions. Unlike its American counterpart, the Philippine Congress
has not adopted a rule prescribing open hearings for conference committees.

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 copies thereof in its final form were not distributed among the
members of each House. Both the enrolled bill and the legislative journals certify that
the measure was duly enacted i.e., in accordance with Article VI, Sec. 26 (2) of the
Constitution. We are bound by such official assurances from a coordinate department
of the government, to which we owe, at the very least, a becoming courtesy.

(Id. at 710. (emphasis added))

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

1979 study:

Conference committees may be of two types: free or instructed. These committees

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

(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND

LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW,
eds.)).

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

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

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

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

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

xxx xxx xxx

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

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

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

xxx xxx xxx

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

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

AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING

ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES.

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

PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific
reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional
requirement, since it is already stated in the title that the law seeks to amend the pertinent provisions
of the NIRC, among which is 103(q), in order to widen the base of the VAT. Actually, it is the bill
which becomes a law that is required to express in its title the subject of legislation. The titles of H.
No. 11197 and S. No. 1630 in fact specifically referred to 103 of the NIRC as among the provisions
sought to be amended. We are satisfied that sufficient notice had been given of the pendency of
these bills in Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was
rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION,
DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES CONNECTED THEREWITH. It
contained a provision repealing all franking privileges. It was contended that the withdrawal of
franking privileges was not expressed in the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including the repeal of franking privileges, this Court
held:

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

The details of a legislative act need not be specifically stated in its

title, but matter germane to the subject as expressed in the title, and
adopted to the accomplishment of the object in view, may properly be
included in the act. Thus, it is proper to create in the same act the
machinery by which the act is to be enforced, to prescribe the
penalties for its infraction, and to remove obstacles in the way of its
execution. If such matters are properly connected with the subject as
expressed in the title, it is unnecessary that they should also have
special mention in the title. (Southern Pac. Co. v. Bartine, 170 Fed.
725)

(227 SCRA at 707-708)

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

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

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

Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to
which other businesses have long ago been subject. It is thus different from the tax involved in the
cases invoked by the PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L.
Ed. 660 (1936) was found to be discriminatory because it was laid on the gross advertising receipts
only of newspapers whose weekly circulation was over 20,000, with the result that the tax applied
only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long
who controlled the state legislature which enacted the license tax. The censorial motivation for the
law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S.
575, 75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have
been made liable for the sales tax or, in lieu thereof, for the use tax on the privilege of using, storing
or consuming tangible goods, the press was not. Instead, the press was exempted from both taxes.
It was, however, later made to pay a special use tax on the cost of paper and ink which made these
items "the only items subject to the use tax that were component of goods to be sold at retail." The
U.S. Supreme Court held that the differential treatment of the press "suggests that the goal of
regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is constitutionally
suspect. (See the dissent of Rehnquist, J. in that case)

Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely
and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously
granted to PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone
Authority, and many more are likewise totally withdrawn, in addition to exemptions which are partially
withdrawn, in an effort to broaden the base of the tax.

The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An
enumeration of some of these transactions will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are
granted, in some cases, to encourage agricultural production and, in other cases, for the personal
benefit of the end-user rather than for profit. The exempt transactions are:

(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-

60)
The PPI asserts that it does not really matter that the law does not discriminate against the press
because "even nondiscriminatory taxation on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of this assertion the following statement in Murdock
v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):

The fact that the ordinance is "nondiscriminatory" is immaterial. The protection

afforded by the First Amendment is not so restricted. A license tax certainly does not
acquire constitutional validity because it classifies the privileges protected by the
First Amendment along with the wares and merchandise of hucksters and peddlers
and treats them all alike. Such equality in treatment does not save the ordinance.
Freedom of press, freedom of speech, freedom of religion are in preferred position.

The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the
exercise of its right. Hence, although its application to others, such those selling goods, is valid, its
application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with
the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put
it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing to
exact a tax on him for delivering a sermon."

A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386
(1957) which invalidated a city ordinance requiring a business license fee on those engaged in the
sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by
the American Bible Society without restraining the free exercise of its right to propagate.

The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege,
much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to burden the exercise of its right any more than
to make the press pay income tax or subject it to general regulation is not to violate its freedom
under the Constitution.

Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds
derived from the sales are used to subsidize the cost of printing copies which are given free to those
who cannot afford to pay so that to tax the sales would be to increase the price, while reducing the
volume of sale. Granting that to be the case, the resulting burden on the exercise of religious
freedom is so incidental as to make it difficult to differentiate it from any other economic imposition
that might make the right to disseminate religious doctrines costly. Otherwise, to follow the
petitioner's argument, to increase the tax on the sale of vestments would be to lay an impermissible
burden on the right of the preacher to make a sermon.

On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by
7 of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration
and enforcement of provisions such as those relating to accounting in 108 of the NIRC. That the
PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the
payment of this fee because it also sells some copies. At any rate whether the PBS is liable for the
VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of
Internal Revenue.

VII. Alleged violations of the due process, equal protection and contract clauses and the rule on
taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies
transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes
should be uniform and equitable and that Congress shall "evolve a progressive system of taxation."

With respect to the first contention, it is claimed that the application of the tax to existing contracts of
the sale of real property by installment or on deferred payment basis would result in substantial
increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it
is pointed out, is something that the buyer did not anticipate at the time he entered into the contract.

The short answer to this is the one given by this Court in an early case: "Authorities from numerous
sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an
increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of
the Constitution. Even though such taxation may affect particular contracts, as it may increase the
debt of one person and lessen the security of another, or may impose additional burdens upon one
class and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal
sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not
only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22
SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the
possible exercise of the rightful authority of the government and no obligation of contract can extend
to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).

It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be
exempted.

The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods
and services was already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of
R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these
transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a
difference between the "homeless poor" and the "homeless less poor" in the example given by
petitioner, because the second group or middle class can afford to rent houses in the meantime that
they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is
inherent in the power to tax that the State be free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a singling out of one particular class for taxation,
or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord,
City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).

Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1)
which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation."

Equality and uniformity of taxation means that all taxable articles or kinds of property of the same
class be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or
ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A.
No. 7716 merely expands the base of the tax. The validity of the original VAT Law was questioned
in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on
grounds similar to those made in these cases, namely, that the law was "oppressive, discriminatory,
unjust and regressive in violation of Art. VI, 28(1) of the Constitution." (At 382) Rejecting the
challenge to the law, this Court held:

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform.
...

The sales tax adopted in EO 273 is applied similarly on all goods and services sold
to the public, which are not exempt, at the constant rate of 0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine products,
so that the costs of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.

(At 382-383)

The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of
the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the
mandate of Congress to provide for a progressive system of taxation because the law imposes a flat
rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay.

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation."
The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be minimized." (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress
is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps
are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII,
17(1) of the 1973 Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are
also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC).

Thus, the following transactions involving basic and essential goods and services are exempted from
the VAT:

(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
 (b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-

60)

On the other hand, the transactions which are subject to the VAT are those which involve goods and
services which are used or availed of mainly by higher income groups. These include real properties
held primarily for sale to customers or for lease in the ordinary course of trade or business, the right
or privilege to use patent, copyright, and other similar property or right, the right or privilege to use
industrial, commercial or scientific equipment, motion picture films, tapes and discs, radio, television,
satellite transmission and cable television time, hotels, restaurants and similar places, securities,
lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services
of franchise grantees of telephone and telegraph.

The problem with CREBA's petition is that it presents broad claims of constitutional violations by
tendering issues not at retail but at wholesale and in the abstract. There is no fully developed record
which can impart to adjudication the impact of actuality. There is no factual foundation to show in
the concrete the application of the law to actual contracts and exemplify its effect on property rights.
For the fact is that petitioner's members have not even been assessed the VAT. Petitioner's case is
not made concrete by a series of hypothetical questions asked which are no different from those
dealt with in advisory opinions.

The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere

allegation, as here, does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a
provision as void on its face, he has not made out a case. This is merely to adhere to
the authoritative doctrine that where the due process and equal protection clauses
are invoked, considering that they are not fixed rules but rather broad standards,
there is a need for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail.

(Sison, Jr. v. Ancheta, 130 SCRA at 661)

Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case,
however. Enforcement of the law may give rise to such a case. A test case, provided it is an actual
case and not an abstract or hypothetical one, may thus be presented.

Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues.
Otherwise, adjudication would be no different from the giving of advisory opinion that does not really
settle legal issues.

We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the government." This duty can only arise if an actual case or
controversy is before us. Under Art . VIII, 5 our jurisdiction is defined in terms of "cases" and all that
Art. VIII, 1, 2 can plausibly mean is that in the exercise of that jurisdiction we have the judicial
power to determine questions of grave abuse of discretion by any branch or instrumentality of the
government.

Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a
court to hear and decide cases pending between parties who have the right to sue and be sued in
the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from
legislative and executive power. This power cannot be directly appropriated until it is apportioned
among several courts either by the Constitution, as in the case of Art. VIII, 5, or by statute, as in the
case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P.
Blg. 129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all others."
(United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its jurisdiction, this
Court cannot inquire into any allegation of grave abuse of discretion by the other departments of the
government.

VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of
the Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a
definite policy of granting tax exemption to cooperatives that the present Constitution embodies
provisions on cooperatives. To subject cooperatives to the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting
cooperatives from the payment of income taxes and sales taxes but in 1984, because of the crisis
which menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986,
P.D. No. 2008 again granted cooperatives exemption from income and sales taxes until December
31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally in 1987 the
framers of the Constitution "repudiated the previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated revocation of the tax exemption to
cooperatives and instead upheld the policy of strengthening the cooperatives by way of the grant of
tax exemptions," by providing the following in Art. XII:

1. The goals of the national economy are a more equitable distribution of

opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.

The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
 domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective organizations, shall be encouraged
to broaden the base of their ownership.

15. The Congress shall create an agency to promote the viability and growth of
cooperatives as instruments for social justice and economic development.

Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out
cooperatives by withdrawing their exemption from income and sales taxes under P.D. No. 175, 5.
What P.D. No. 1955, 1 did was to withdraw the exemptions and preferential treatments theretofore
granted to private business enterprises in general, in view of the economic crisis which then beset
the nation. It is true that after P.D. No. 2008, 2 had restored the tax exemptions of cooperatives in
1986, the exemption was again repealed by E.O. No. 93, 1, but then again cooperatives were not
the only ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all,
including government and private entities. In the second place, the Constitution does not really
require that cooperatives be granted tax exemptions in order to promote their growth and viability.
Hence, there is no basis for petitioner's assertion that the government's policy toward cooperatives
had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put
an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter
of policy cooperatives should be granted tax exemptions, but that is left to the discretion of
Congress. If Congress does not grant exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.

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

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

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

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

SO ORDERED.

#9G.R. No. 99886 March 31, 1993

JOHN H. OSMEA, petitioner,

vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity
as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of
Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.

Nachura & Sarmiento for petitioner.

The Solicitor General for public respondents.

NARVASA, C.J.:

The petitioner seeks the corrective, prohibitive and coercive remedies provided by Rule 65 of the
1

Rules of Court, upon the following posited grounds, viz.:

2 3

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now,
the Office of Energy Affairs), created pursuant to 8, paragraph 1, of P.D. No. 1956, as amended,
"said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution; 4

2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order
No. 137, for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board;" 5

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund, because it contravenes 8, paragraph 2 (2) of
6

P. D. 1956, as amended; and

4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of
the pump prices and petroleum products to the levels prevailing prior to the said Order.

It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a
Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The
OPSF was designed to reimburse oil companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil.

Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024, and 7

ordered released from the National Treasury to the Ministry of Energy. The same Executive Order
also authorized the investment of the fund in government securities, with the earnings from such
placements accruing to the fund.

President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the
amount of the underrecovery being left for determination by the Ministry of Finance.

Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion; that to abate the worsening deficit, "the Energy Regulatory
8

Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the respondents Oscar
Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his
capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board "are poised to accept,
process and pay claims not authorized under P.D. 1956." 9

The petition further avers that the creation of the trust fund violates
29(3), Article VI of the Constitution, reading as follows:

(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government.

The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund'
to be used only for the purpose indicated, and not channeled to another government
objective." Petitioner further points out that since "a 'special fund' consists of monies collected
10

through the taxing power of a State, such amounts belong to the State, although the use thereof is
limited to the special purpose/objective for which it was created." 11

He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI
of the Constitution, viz.:

(2) The Congress may, by law, authorize the President to fix, within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government;

and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how to
tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how
much to tax." 12

The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general
fund for the reason that the Constitution so provides, and because they are, supposedly, taxes
levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a
portion thereof is taken from collections of ad valorem taxes and the increases thereon.

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

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

The foregoing arguments suggest the presence of misconceptions about the nature
and functions of the OPSF. The OPSF is a "Trust Account" which was established
"for the purpose of minimizing the frequent price changes brought about by
exchange rate adjustment and/or changes in world market prices of crude oil and
imported petroleum products." Under P.D. No. 1956, as amended by Executive
15

Order No. 137 dated 27 February 1987, this Trust Account may be funded from any
of the following sources:

a) Any increase in the tax collection from ad valorem tax or customs

duty imposed on petroleum products subject to tax under this
Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board
of Energy;

b) Any increase in the tax collection as a result of the lifting of tax

exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy:

c) Any additional amount to be imposed on petroleum products to

augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons
or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.

xxx xxx xxx

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

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

of the sugar stabilization fees and explained their nature and character, viz.:

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

xxx xxx xxx

The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose that of "financing the growth and
development of the sugar industry and all its components, stabilization of the
domestic market including the foreign market." The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co.
263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied
for a special purpose, the revenues collected are to be treated as a special fund, to
be, in the language of the statute, "administered in trust" for the purpose intended.
Once the purpose has been fulfilled or abandoned, the balance if any, is to be
transferred to the general funds of the Government. That is the essence of the trust
intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(1). 17

The character of the Stabilization Fund as a special kind of fund is emphasized by

the fact that the funds are deposited in the Philippine National Bank and not in the
Philippine Treasury, moneys from which may be paid out only in pursuance of an
appropriation made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the
1935 Constitution, Article VI, Sec. 23(1). (Emphasis supplied).
Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from
the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is
placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to
the scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed, the practice is not without precedent.

With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products provides
a sufficient standard by which the authority must be exercised. In addition to the general policy of the
law to protect the local consumer by stabilizing and subsidizing domestic pump rates, 8(c) of P.D.
1956 expressly authorizes the ERB to impose additional amounts to augment the resources of the
18

Fund.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on
how much to tax." The Court is cited to this requirement by the petitioner on the premise that what
19

is involved here is the power of taxation; but as already discussed, this is not the case. What is here
involved is not so much the power of taxation as police power. Although the provision authorizing the
ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with expediency in
carrying out the objectives of the law which are embraced by the police power of the State.

The interplay and constant fluctuation of the various factors involved in the determination of the price
of oil and petroleum products, and the frequently shifting need to either augment or exhaust the
Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed by
the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or avoid
the undesirable consequences of such fluidity. As such, the standard as it is expressed, suffices to
guide the delegate in the exercise of the delegated power, taking account of the circumstances
under which it is to be exercised.

For a valid delegation of power, it is essential that the law delegating the power must be (1) complete
in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix a
standard limits of which
are sufficiently determinate or determinable to which the delegate must conform. 20

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself
determines matters of principle and lays down fundamental policy. Otherwise, the
charge of complete abdication may be hard to repel. A standard thus defines
legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may be
carried out. Thereafter, the executive or administrative office designated may in
pursuance of the above guidelines promulgate supplemental rules and regulations.
The standard may either be express or implied. If the former, the non-delegation
objection is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act considered as
a whole. 21

It would seem that from the above-quoted ruling, the petition for prohibition should fail.
The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable
standard which guides the exercise of the power granted to the ERB. By the same token, the proper
exercise of the delegated power may be tested with ease. It seems obvious that what the law
intended was to permit the additional imposts for as long as there exists a need to protect the
general public and the petroleum industry from the adverse consequences of pump rate fluctuations.
"Where the standards set up for the guidance of an administrative officer and the action taken are in
fact recorded in the orders of such officer, so that Congress, the courts and the public are assured
that the orders in the judgment of such officer conform to the legislative standard, there is no failure
in the performance of the legislative functions." 22

This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon which the delegation of power may
be justified.

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

The petition assails the payment of certain items or accounts in favor of the petroleum companies
(i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.)
because not authorized by law. Petitioner contends that "these claims are not embraced in the
enumeration in 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of
domestic prices of petroleum products,'" and since these items are reimbursements for which the
24

OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by
P5,277.2 million." It is argued "that under the principle of ejusdem generis . . . the term 'other
25

factors' (as used in 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result
in the reduction of domestic prices of petroleum products." 26

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

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., passed upon
27

the application of ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:

The rule of ejusdem generis states that "[w]here words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words
are not to be construed in their widest extent, but are held to be as applying only to
persons or things of the same kind or class as those specifically mentioned." A 28

reading of subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valorem taxes. Therefore,
subparagraph (iii) cannot be limited by the enumeration in these subparagraphs.
What should be considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly
allows the cost underrecovery only if such were incurred as a result of the reduction
of domestic prices of petroleum products.

The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2
of 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of domestic
prices of petroleum products. Under the same provision, however, the payment of inventory losses is
upheld as valid, being clearly a result of domestic price reduction, when oil companies incur a cost
underrecovery for yet unsold stocks of oil in inventory acquired at a higher price.

Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is
equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and
regulations as held in Caltex and which have been pointed to by the Solicitor General. At any rate,
29

doubts about the propriety of such reimbursements have been dispelled by the enactment of R.A.
6952, establishing the Petroleum Price Standby Fund, 2 of which specifically authorizes the
reimbursement of "cost underrecovery incurred as a result of fuel oil sales to the National Power
Corporation."

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

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

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

SO ORDERED.

Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo,
Melo, Campos, Jr., and Quiason, JJ., concur.

Gutierrez, Jr., J., is on leave.

# Footnotes

1 The writ of certiorari is, of course, available only as against tribunals, boards or
officers exercising judicial or quasi-judicial functions.

2 The petition alleges separate causes or grounds for each extraordinary writ sought.

3 Rollo, pp. 1 to 4.

4 Rollo, p. 2.

5 Id.

6 When this petition was filed, the amount involved was P5,277.4 million.
7 Issued on 9 May 1985.

8 Rollo, pp. 8-9.

9 Rollo, p. 11; emphasis supplied.

10 Id., pp. 13-4.

11 Id., p. 15.

12 Rollo, p. 17.

13 Comment of the Respondents; Rollo, p. 63.

14 G.R. Nos. L-79501-03 [23 June 1988] 162 SCRA 521; Decided jointly with
Citizen's Alliance for Consumer Protection v. Energy Regulatory Board et al., G.R.
Nos. L-78888-90, and Kilusang Mayo Uno Labor Center v. Energy Regulatory Board,
et al., G.R. Nos. L-79590-92; emphasis supplied.

15 Citing E.O. No. 137, Sec. 1 (amending 8 of P.D. 1956).

16 158 SCRA 626, emphasis supplied.

17 "(3) All money collected on any tax levied for a special purpose shall be treated as
a special fund and paid out for such purpose only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the government." (1987 Constitution, Art. VI, Sec.
28[3]).

18 Supra; see footnote 14 and related text.

19 Rollo, p. 17.

20 SEE Vigan Electric Light Co., Inc. v. Public Service Commission, G.R. No.
L-19850, 30 January 1964 and Pelaez v. Auditor General, G.R. No. L-23825, 24
December 1965; see also Gonzales, N. Administrative Law A Text, (1979) at 29.

21 De La Llana v. Alba, 112 SCRA 294, citing Edu v. Ericta, 35 SCRA

481: Cf. Agustin v. Edu, 88 SCRA 195.

22 Hirabayashi v. U.S., 390 U.S. 99.

23 When this petition was filed, the amount involved was P5,277.4 million.

24 Rollo, p. 20.

25 Id., p. 21.

26 Id., p. 20.
 27 Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., G.R. No.
92585, 8 May 1992, En Banc. N.B. The Solicitor General seems to have taken a
different position in this case, with respect to the application of ejusdem generis.

28 Smith Bell and Co., Ltd. v. Register of Deeds of Davao, 96 Phil. 53

[1954], citing BLACK on Interpretation of Law, 2nd ed. at 203: see also Republic v.
Migrio 189 SCRA 289 [1990].

29 Supra at note 25; SEE also Maceda v. Hon. Catalino Macaraig, Jr., et al., G.R.
No. 88291, 197 SCRA 771 (1991).

#10G.R. No. 92585 May 8, 1992

CALTEX PHILIPPINES, INC., petitioner,

vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C.
FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.

DAVIDE, JR., J.:

This is a petition erroneously brought under Rule 44 of the Rules of Court questioning the authority
1

of the Commission on Audit (COA) in disallowing petitioner's claims for reimbursement from the Oil
Price Stabilization Fund (OPSF) and seeking the reversal of said Commission's decision denying its
claims for recovery of financing charges from the Fund and reimbursement of underrecovery arising
from sales to the National Power Corporation, Atlas Consolidated Mining and Development
Corporation (ATLAS) and Marcopper Mining Corporation (MAR-COPPER), preventing it from
exercising the right to offset its remittances against its reimbursement vis-a-vis the OPSF and
disallowing its claims which are still pending resolution before the Office of Energy Affairs (OEA) and
the Department of Finance (DOF).

Pursuant to the 1987 Constitution, any decision, order or ruling of the Constitutional
2

Commissions may be brought to this Court on certiorari by the aggrieved party within thirty (30)
3

days from receipt of a copy thereof. The certiorari referred to is the special civil action
for certiorari under Rule 65 of the Rules of Court. 4

Considering, however, that the allegations that the COA acted with:
(a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the findings
and rulings of the administrator of the fund itself and in disallowing a claim which is still pending
resolution at the OEA level, and (b) "grave abuse of discretion and completely without
jurisdiction" in declaring that petitioner cannot avail of the right to offset any amount that it may be
5

required under the law to remit to the OPSF against any amount that it may receive by way of
reimbursement therefrom are sufficient to bring this petition within Rule 65 of the Rules of Court,
and, considering further the importance of the issues raised, the error in the designation of the
remedy pursued will, in this instance, be excused.

The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.)
No. 1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as
follows:
Sec. 8 . There is hereby created a Trust Account in the books of accounts of the
Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the
purpose of minimizing frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of crude oil and imported
petroleum products. The Oil Price Stabilization Fund may be sourced from any of the
following:

a) Any increase in the tax collection from ad valorem tax or customs

duty imposed on petroleum products subject to tax under this Decree
arising from exchange rate adjustment, as may be determined by the
Minister of Finance in consultation with the Board of Energy;

b) Any increase in the tax collection as a result of the lifting of tax

exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy;

c) Any additional amount to be imposed on petroleum products to

augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment by persons
or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.

The Fund herein created shall be used for the following:

1) To reimburse the oil companies for cost increases in crude oil and
imported petroleum products resulting from exchange rate
adjustment and/or increase in world market prices of crude oil;

2) To reimburse the oil companies for possible cost under-recovery

incurred as a result of the reduction of domestic prices of petroleum
products. The magnitude of the underrecovery, if any, shall be
determined by the Ministry of Finance. "Cost underrecovery" shall
include the following:

i. Reduction in oil company take as directed by the

Board of Energy without the corresponding reduction
in the landed cost of oil inventories in the possession
of the oil companies at the time of the price change;

ii. Reduction in internal ad valorem taxes as a result

of foregoing government mandated price reductions;

iii. Other factors as may be determined by the Ministry

of Finance to result in cost underrecovery.
 The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of
Energy.

The material operative facts of this case, as gathered from the pleadings of the parties, are not
disputed.

On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred to as
Petitioner, directing the latter to remit to the OPSF its collection, excluding that unremitted for the
years 1986 and 1988, of the additional tax on petroleum products authorized under the aforesaid
Section 8 of P.D. No. 1956 which, as of 31 December 1987, amounted to P335,037,649.00 and
informing it that, pending such remittance, all of its claims for reimbursement from the OPSF shall be
held in abeyance. 6

On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification with
the OEA showed that the grand total of its unremitted collections of the above tax is
P1,287,668,820.00, broken down as follows:

1986 P233,190,916.00
1987 335,065,650.00
1988 719,412,254.00;

directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from
receipt of the letter; advising it that the COA will hold in abeyance the audit of all its claims for
reimbursement from the OPSF; and directing it to desist from further offsetting the taxes collected
against outstanding claims in 1989 and subsequent periods. 7

In its letter of 3 May 1989, petitioner requested the COA for an early release of its reimbursement
certificates from the OPSF covering claims with the Office of Energy Affairs since June 1987 up to
March 1989, invoking in support thereof COA Circular No. 89-299 on the lifting of pre-audit of
government transactions of national government agencies and government-owned or controlled
corporations. 8

In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the reimbursement certificates from the OPSF
and repeated its earlier directive to petitioner to forward payment of the latter's unremitted collections to the OPSF to facilitate COA's audit
action on the reimbursement claims. 9

By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal for the
payment of the collections and the recovery of claims, since the outright payment of the sum of
P1.287 billion to the OEA as a prerequisite for the processing of said claims against the OPSF will
cause a very serious impairment of its cash position. The proposal reads: 10

We, therefore, very respectfully propose the following:

(1) Any procedural arrangement acceptable to COA to facilitate

monitoring of payments and reimbursements will be administered by
the ERB/Finance Dept./OEA, as agencies designated by law to
administer/regulate OPSF.

(2) For the retroactive period, Caltex will deliver to OEA, P1.287
billion as payment to OPSF, similarly OEA will deliver to Caltex the
same amount in cash reimbursement from OPSF.
 (3) The COA audit will commence immediately and will be conducted
expeditiously.

(4) The review of current claims (1989) will be conducted

expeditiously to preclude further accumulation of reimbursement from
OPSF.

On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921
accepting the above-stated proposal but prohibiting petitioner from further offsetting remittances and
reimbursements for the current and ensuing years. Decision No. 921 reads:
11

This pertains to the within separate requests of Mr. Manuel A. Estrella, President,
Petron Corporation, and Mr. Francis Ablan, President and Managing Director, Caltex
(Philippines) Inc., for reconsideration of this Commission's adverse action embodied
in its letters dated February 2, 1989 and March 9, 1989, the former directing
immediate remittance to the Oil Price Stabilization Fund of collections made by the
firms pursuant to P.D. 1956, as amended by E.O. No. 137, S. 1987, and the latter
reiterating the same directive but further advising the firms to desist from offsetting
collections against their claims with the notice that "this Commission will hold in
abeyance the audit of all . . . claims for reimbursement from the OPSF."

It appears that under letters of authority issued by the Chairman, Energy Regulatory
Board, the aforenamed oil companies were allowed to offset the amounts due to the
Oil Price Stabilization Fund against their outstanding claims from the said Fund for
the calendar years 1987 and 1988, pending with the then Ministry of Energy, the
government entity charged with administering the OPSF. This Commission, however,
expressing serious doubts as to the propriety of the offsetting of all types of
reimbursements from the OPSF against all categories of remittances, advised these
oil companies that such offsetting was bereft of legal basis. Aggrieved thereby, these
companies now seek reconsideration and in support thereof clearly manifest their
intent to make arrangements for the remittance to the Office of Energy Affairs of the
amount of collections equivalent to what has been previously offset, provided that
this Commission authorizes the Office of Energy Affairs to prepare the corresponding
checks representing reimbursement from the OPSF. It is alleged that the
implementation of such an arrangement, whereby the remittance of collections due to
the OPSF and the reimbursement of claims from the Fund shall be made within a
period of not more than one week from each other, will benefit the Fund and not
unduly jeopardize the continuing daily cash requirements of these firms.

Upon a circumspect evaluation of the circumstances herein obtaining, this

Commission perceives no further objectionable feature in the proposed arrangement,
provided that 15% of whatever amount is due from the Fund is retained by the Office
of Energy Affairs, the same to be answerable for suspensions or disallowances,
errors or discrepancies which may be noted in the course of audit and surcharges for
late remittances without prejudice to similar future retentions to answer for any
deficiency in such surcharges, and provided further that no offsetting of remittances
and reimbursements for the current and ensuing years shall be allowed.

Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive Director
Wenceslao R. De la Paz of the Office of Energy Affairs: 12

Dear Atty. dela Paz:

Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and
based on our initial verification of documents submitted to us by your Office in
support of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to May 31, 1989,
as well as its outstanding claims against the Oil Price Stabilization Fund (OPSF) as
of May 31, 1989, we are pleased to inform your Office that Caltex (Philippines), Inc.
shall be required to remit to OPSF an amount of P1,505,668,906, representing
remittances to the OPSF which were offset against its claims reimbursements (net of
unsubmitted claims). In addition, the Commission hereby authorize (sic) the Office of
Energy Affairs (OEA) to cause payment of P1,959,182,612 to Caltex, representing
claims initially allowed in audit, the details of which are presented hereunder: . . .

As presented in the foregoing computation the disallowances totalled P387,683,535,

which included P130,420,235 representing those claims disallowed by OEA, details
of which is (sic) shown in Schedule 1 as summarized as follows:

Disallowance of COA
Particulars Amount

Recovery of financing charges P162,728,475 /a

Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558

P257,263,300

Disallowances of OEA 130,420,235

Total P387,683,535

The reasons for the disallowances are discussed hereunder:

a. Recovery of Financing Charges

Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate
that recovery of financing charges by oil companies is not among the items for which
the OPSF may be utilized. Therefore, it is our view that recovery of financing charges
has no legal basis. The mechanism for such claims is provided in DOF Circular 1-87.

b. Product Sales Sales to International Vessels/Airlines

BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order
No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity date that (sic)
oil companies should pay OPSF impost on export sales of petroleum products.
Effective February 7, 1987 sales to international vessels/airlines should not be
included as part of its domestic sales. Changing the effectivity date of the resolution
from February 7, 1987 to October 20, 1987 as covered by subsequent ERB
Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to include in
their domestic sales volumes to international vessels/airlines and claim the
corresponding reimbursements from OPSF during the period. It is our opinion that
the effectivity of the said resolution should be February 7, 1987.
 c. Inventory losses Settlement of Ad Valorem

We reviewed the system of handling Borrow and Loan (BLA) transactions including
the related BLA agreement, as they affect the claims for reimbursements of ad
valorem taxes. We observed that oil companies immediately settle ad valorem taxes
for BLA transaction (sic). Loan balances therefore are not tax paid inventories of
Caltex subject to reimbursements but those of the borrower. Hence, we recommend
reduction of the claim for July, August, and November, 1987 amounting to
P14,034,786.

d. Sales to Atlas/Marcopper

LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the
suspension of payment of all taxes, duties, fees, imposts and other charges whether
direct or indirect due and payable by the copper mining companies in distress to the
national and local governments." It is our opinion that LOI 1416 which implements
the exemption from payment of OPSF imposts as effected by OEA has no legal
basis.

Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the amount
as herein authorized shall be subject to availability of funds of OPSF as of May 31,
1989 and applicable auditing rules and regulations. With regard to the disallowances,
it is further informed that the aggrieved party has 30 days within which to appeal the
decision of the Commission in accordance with law.

On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision
based on the following grounds: 13

A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES,

ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF
FINANCE AND THE ENERGY REGULATORY BOARD PURSUANT TO EXECUTIVE
ORDER NO. 137.

xxx xxx xxx

B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF

EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY
REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED AND
APPLIED UNLESS DECLARED NULL AND VOID BY COURTS OR REPEALED BY
LEGISLATION.

xxx xxx xxx

C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS

AUTHORIZED BY THE EXECUTIVE BRANCH OF GOVERNMENT, REMAINS
VALID.

xxx xxx xxx

On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for
Reconsideration. 14
On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner
Fernandez dissenting in part, handed down Decision No. 1171 affirming the disallowance for
recovery of financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while
allowing the recovery of product sales or those arising from export sales. Decision No. 1171 reads
15

as follows:

Anent the recovery of financing charges you contend that Caltex Phil. Inc. has the
.authority to recover financing charges from the OPSF on the basis of Department of
Finance (DOF) Circular 1-87, dated February 18, 1987, which allowed oil companies
to "recover cost of financing working capital associated with crude oil shipments,"
and provided a schedule of reimbursement in terms of peso per barrel. It appears
that on November 6, 1989, the DOF issued a memorandum to the President of the
Philippines explaining the nature of these financing charges and justifying their
reimbursement as follows:

As part of your program to promote economic recovery, . . . oil

companies (were authorized) to refinance their imports of crude oil
and petroleum products from the normal trade credit of 30 days up to
360 days from date of loading . . . Conformably . . ., the oil companies
deferred their foreign exchange remittances for purchases by
refinancing their import bills from the normal 30-day payment term up
to the desired 360 days. This refinancing of importations carried
additional costs (financing charges) which then became, due to
government mandate, an inherent part of the cost of the purchases of
our country's oil requirement.

We beg to disagree with such contention. The justification that financing charges
increased oil costs and the schedule of reimbursement rate in peso per barrel
(Exhibit 1) used to support alleged increase (sic) were not validated in our
independent inquiry. As manifested in Exhibit 2, using the same formula which the
DOF used in arriving at the reimbursement rate but using comparable percentages
instead of pesos, the ineluctable conclusion is that the oil companies are actually
gaining rather than losing from the extension of credit because such extension
enables them to invest the collections in marketable securities which have much
higher rates than those they incur due to the extension. The Data we used were
obtained from CPI (CALTEX) Management and can easily be verified from our
records.

With respect to product sales or those arising from sales to international vessels or
airlines, . . ., it is believed that export sales (product sales) are entitled to claim
refund from the OPSF.

As regard your claim for underrecovery arising from inventory losses, . . . It is the
considered view of this Commission that the OPSF is not liable to refund such surtax
on inventory losses because these are paid to BIR and not OPSF, in view of which
CPI (CALTEX) should seek refund from BIR. . . .

Finally, as regards the sales to Atlas and Marcopper, it is represented that you are
entitled to claim recovery from the OPSF pursuant to LOI 1416 issued on July 17,
1984, since these copper mining companies did not pay CPI (CALTEX) and OPSF
imposts which were added to the selling price.
 Upon a circumspect evaluation, this Commission believes and so holds that the CPI
(CALTEX) has no authority to claim reimbursement for this uncollected OPSF impost
because LOI 1416 dated July 17, 1984, which exempts distressed mining companies
from "all taxes, duties, import fees and other charges" was issued when OPSF was
not yet in existence and could not have contemplated OPSF imposts at the time of its
formulation. Moreover, it is evident that OPSF was not created to aid distressed
mining companies but rather to help the domestic oil industry by stabilizing oil prices.

Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it
imputes to the COA the commission of the following errors: 16

RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF

FINANCING CHARGES FROM THE OPSF.

II

RESPONDENT COMMISSION ERRED IN DISALLOWING

CPI's CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM
17

SALES TO NPC.

III

RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR

REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER.

IV

RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING

ITS LEGAL RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS
REIMBURSEMENT VIS-A-VIS THE OPSF.

RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH

ARE STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF.

In the Resolution of 5 April 1990, this Court required the respondents to comment on the petition
within ten (10) days from notice.18

On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by the
Office of the Solicitor General, filed their Comment.19

This Court resolved to give due course to this petition on 30 May 1991 and required the parties to file
their respective Memoranda within twenty (20) days from notice. 20

In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the Comment
filed on 6 September 1990 be considered as the Memorandum for respondents. 21

Upon the other hand, petitioner filed its Memorandum on 14 August 1991.
I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that:

(1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added a
second purpose, to wit:

2) To reimburse the oil companies for possible cost underrecovery incurred as a

result of the reduction of domestic prices of petroleum products. The magnitude of
the underrecovery, if any, shall be determined by the Ministry of Finance. "Cost
underrecovery" shall include the following:

i. Reduction in oil company take as directed by the Board of Energy

without the corresponding reduction in the landed cost of oil
inventories in the possession of the oil companies at the time of the
price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing

government mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance to

result in cost underrecovery.

the "other factors" mentioned therein that may be determined by the Ministry (now Department) of
Finance may include financing charges for "in essence, financing charges constitute unrecovered
cost of acquisition of crude oil incurred by the oil companies," as explained in the 6 November 1989
Memorandum to the President of the Department of Finance; they "directly translate to cost
underrecovery in cases where the money market placement rates decline and at the same time the
tax on interest income increases. The relationship is such that the presence of underrecovery or
overrecovery is directly dependent on the amount and extent of financing charges."

(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the
basis of Department of Finance Circular No.
1-87, dated 18 February 1987, which provides:

To allow oil companies to recover the costs of financing working capital associated
with crude oil shipments, the following guidelines on the utilization of the Oil Price
Stabilization Fund pertaining to the payment of the foregoing (sic) exchange risk
premium and recovery of financing charges will be implemented:

1. The OPSF foreign exchange premium shall be reduced to a flat

rate of one (1) percent for the first (6) months and 1/32 of one percent
per month thereafter up to a maximum period of one year, to be
applied on crude oil' shipments from January 1, 1987. Shipments with
outstanding financing as of January 1, 1987 shall be charged on the
basis of the fee applicable to the remaining period of financing.

2. In addition, for shipments loaded after January 1987, oil

companies shall be allowed to recover financing charges directly from
the OPSF per barrel of crude oil based on the following schedule:

F
i
n
a
n
c
i
n
g

P
e
r
i
o
d

R
e
i
m
b
u
r
s
e
m
e
n
t

R
a
t
e

P
e
s
o
s

p
e
r

B
a
r
r
e
l
 Less than 180 days None
180 days to 239 days 1.90
241 (sic) days to 299 4.02
300 days to 369 (sic) days 6.16
360 days or more 8.28

The above rates shall be subject to review every sixty

days. 22

Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised the
Office of Energy Affairs as follows:

HON. VICENTE T. PATERNO

Deputy Executive Secretary
For Energy Affairs
Office of the President
Makati, Metro Manila

Dear Sir:

This refers to the letters of the Oil Industry dated December 4, 1986 and February 5,
1987 and subsequent discussions held by the Price Review committee on February
6, 1987.

On the basis of the representations made, the Department of Finance recognizes the
necessity to reduce the foreign exchange risk premium accruing to the Oil Price
Stabilization Fund (OPSF). Such a reduction would allow the industry to recover
partly associated financing charges on crude oil imports. Accordingly, the OPSF
foreign exchange risk fee shall be reduced to a flat charge of 1% for the first six (6)
months plus 1/32% of 1% per month thereafter up to a maximum period of one year,
effective January 1, 1987. In addition, since the prevailing company take would still
leave unrecovered financing charges, reimbursement may be secured from the
OPSF in accordance with the provisions of the attached Department of Finance
circular.
23

Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the
guidelines for the computation of the foreign exchange risk fee and the recovery of financing charges
from the OPSF, to wit:

B. FINANCE CHARGES

1. Oil companies shall be allowed to recover financing charges

directly from the OPSF for both crude and product shipments loaded
after January 1, 1987 based on the following rates:

F
i
n
a
n
c
 i
n
g

P
e
r
i
o
d

R
e
i
m
b
u
r
s
e
m
e
n
t

R
a
t
e

(
P
B
b
l
.
)

Less than 180 days None

180 days to 239 days 1.90
240 days to 229 (sic) days 4.02
300 days to 359 days 6.16
360 days to more 8.28

2. The above rates shall be subject to review every sixty days. 24

Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing further
guidelines on the recoverability of financing charges, to wit:

Following are the supplemental rules to Department of Finance Circular No. 1-87
dated February 18, 1987 which allowed the recovery of financing charges directly
from the Oil Price Stabilization Fund. (OPSF):
 1. The Claim for reimbursement shall be on a per shipment basis.

2. The claim shall be filed with the Office of Energy Affairs together
with the claim on peso cost differential for a particular shipment and
duly certified supporting documents provided for under Ministry of
Finance No. 11-85.

3. The reimbursement shall be on the form of reimbursement

certificate (Annex A) to be issued by the Office of Energy Affairs. The
said certificate may be used to offset against amounts payable to the
OPSF. The oil companies may also redeem said certificates in cash if
not utilized, subject to availability of funds.
25

The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-
017. 26

The COA can neither ignore these issuances nor formulate its own interpretation of the laws in the
light of the determination of executive agencies. The determination by the Department of Finance
and the OEA that financing charges are recoverable from the OPSF is entitled to great weight and
consideration. The function of the COA, particularly in the matter of allowing or disallowing certain
27

expenditures, is limited to the promulgation of accounting and auditing rules for, among others, the
disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or
uses of government funds and properties. 28

(3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's claim that
petitioner is gaining, instead of losing, from the extension of credit, is belatedly raised and not
supported by expert analysis.

In impeaching the validity of petitioner's assertions, the respondents argue that:

1. The Constitution gives the COA discretionary power to disapprove irregular or

unnecessary government expenditures and as the monetary claims of petitioner are
not allowed by law, the COA acted within its jurisdiction in denying them;

2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing charges
from the OPSF;

3. Under the principle of ejusdem generis, the "other factors" mentioned in the
second purpose of the OPSF pursuant to E.O. No. 137 can only include "factors
which are of the same nature or analogous to those enumerated;"

4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of

the Department of Finance violates P.D. No. 1956 and E.O. No. 137; and

5. Department of Finance rules and regulations implementing P.D. No. 1956 do not
likewise allow reimbursement of financing
charges. 29

We find no merit in the first assigned error.

As to the power of the COA, which must first be resolved in view of its primacy, We find the theory of
petitioner that such does not extend to the disallowance of irregular, unnecessary, excessive,
extravagant, or unconscionable expenditures, or use of government funds and properties, but only to
the promulgation of accounting and auditing rules for, among others, such disallowance to be
untenable in the light of the provisions of the 1987 Constitution and related laws.

Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:

Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining
to, the Government, or any of its subdivisions, agencies, or instrumentalities,
including government-owned and controlled corporations with original charters, and
on a post-audit basis: (a) constitutional bodies, commissions and offices that have
been granted fiscal autonomy under this Constitution; (b) autonomous state colleges
and universities; (c) other government-owned or controlled corporations and their
subsidiaries; and (d) such non-governmental entities receiving subsidy or equity,
directly or indirectly, from or through the government, which are required by law or
the granting institution to submit to such audit as a condition of subsidy or equity.
However, where the internal control system of the audited agencies is inadequate,
the Commission may adopt such measures, including temporary or special pre-audit,
as are necessary and appropriate to correct the deficiencies. It shall keep the general
accounts, of the Government and, for such period as may be provided by law,
preserve the vouchers and other supporting papers pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this
Article, to define the scope of its audit and examination, establish the techniques and
methods required therefor, and promulgate accounting and auditing rules and
regulations, including those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or, unconscionable expenditures, or uses of
government funds and properties.

These present powers, consistent with the declared independence of the Commission, are broader
30

and more extensive than that conferred by the 1973 Constitution. Under the latter, the Commission
was empowered to:

Examine, audit, and settle, in accordance with law and regulations, all accounts
pertaining to the revenues, and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities including government-owned or
controlled corporations, keep the general accounts of the Government and, for such
period as may be provided by law, preserve the vouchers pertaining thereto; and
promulgate accounting and auditing rules and regulations including those for the
prevention of irregular, unnecessary, excessive, or extravagant expenditures or uses
of funds and property. 31

Upon the other hand, under the 1935 Constitution, the power and authority of the COA's precursor,
the General Auditing Office, were, unfortunately, limited; its very role was markedly passive. Section
2 of Article XI thereofprovided:

Sec. 2. The Auditor General shall examine, audit, and settle all accounts pertaining to
the revenues and receipts from whatever source, including trust funds derived from
 bond issues; and audit, in accordance with law and administrative regulations, all
expenditures of funds or property pertaining to or held in trust by the Government or
the provinces or municipalities thereof. He shall keep the general accounts of the
Government and the preserve the vouchers pertaining thereto. It shall be the duty of
the Auditor General to bring to the attention of the proper administrative officer
expenditures of funds or property which, in his opinion, are irregular, unnecessary,
excessive, or extravagant. He shall also perform such other functions as may be
prescribed by law.

As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant expenditures

or uses of funds, the 1935 Constitution did not grant the Auditor General the power to issue rules
and regulations to prevent the same. His was merely to bring that matter to the attention of the
proper administrative officer.

The ruling on this particular point, quoted by petitioner from the cases of Guevarra
vs. Gimenez and Ramos vs. Aquino, are no longer controlling as the two (2) were decided in the
32 33

light of the 1935 Constitution.

There can be no doubt, however, that the audit power of the Auditor General under the 1935
Constitution and the Commission on Audit under the 1973 Constitution authorized them to
disallow illegal expenditures of funds or uses of funds and property. Our present Constitution retains
that same power and authority, further strengthened by the definition of the COA's general
jurisdiction in Section 26 of the Government Auditing Code of the Philippines and Administrative
34

Code of 1987. Pursuant to its power to promulgate accounting and auditing rules and regulations
35

for the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of

funds, the COA promulgated on 29 March 1977 COA Circular No. 77-55. Since the COA is
36

responsible for the enforcement of the rules and regulations, it goes without saying that failure to
comply with them is a ground for disapproving the payment of the proposed expenditure. As
observed by one of the Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G.
Bernas: 37

It should be noted, however, that whereas under Article XI, Section 2, of the 1935
Constitution the Auditor General could not correct "irregular, unnecessary, excessive
or extravagant" expenditures of public funds but could only "bring [the matter] to the
attention of the proper administrative officer," under the 1987 Constitution, as also
under the 1973 Constitution, the Commission on Audit can "promulgate accounting
and auditing rules and regulations including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable
expenditures or uses of government funds and properties." Hence, since the
Commission on Audit must ultimately be responsible for the enforcement of these
rules and regulations, the failure to comply with these regulations can be a ground for
disapproving the payment of a proposed expenditure.

Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more active
role and invested it with broader and more extensive powers, they did not intend merely to make the
COA a toothless tiger, but rather envisioned a dynamic, effective, efficient and independent
watchdog of the Government.

The issue of the financing charges boils down to the validity of Department of Finance Circular No.
1-87, Department of Finance Circular No. 4-88 and the implementing circulars of the OEA, issued
pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to determine
"other factors" which may result in cost underrecovery and a consequent reimbursement from the
OPSF.

The Solicitor General maintains that, following the doctrine of ejusdem generis, financing charges
are not included in "cost underrecovery" and, therefore, cannot be considered as one of the "other
factors." Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not explicitly define what
"cost underrecovery" is. It merely states what it includes. Thus:

. . . "Cost underrecovery" shall include the following:

i. Reduction in oil company takes as directed by the Board of Energy without the
corresponding reduction in the landed cost of oil inventories in the possession of the
oil companies at the time of the price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government

mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost
underrecovery.

These "other factors" can include only those which are of the same class or nature as the two
specifically enumerated in subparagraphs (i) and (ii). A common characteristic of both is that they are
in the nature of government mandated price reductions. Hence, any other factor which seeks to be a
part of the enumeration, or which could qualify as a cost underrecovery, must be of the same class
or nature as those specifically enumerated.

Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance broad
and unrestricted authority to determine or define "other factors."

Both views are unacceptable to this Court.

The rule of ejusdem generis states that "[w]here general words follow an enumeration of persons or
things, by words of a particular and specific meaning, such general words are not to be construed in
their widest extent, but are held to be as applying only to persons or things of the same kind or class
as those specifically mentioned. A reading of subparagraphs (i) and (ii) easily discloses that they
38

do not have a common characteristic. The first relates to price reduction as directed by the Board of
Energy while the second refers to reduction in internal ad valorem taxes. Therefore, subparagraph
(iii) cannot be limited by the enumeration in these subparagraphs. What should be considered for
purposes of determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2)
of the Section which explicitly allows cost underrecovery only if such were incurred as a result of the
reduction of domestic prices of petroleum products.

Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in the
sense that such were incurred as a result of the inability to fully offset financing expenses from yields
in money market placements, they do not, however, fall under the foregoing provision of P.D. No.
1956, as amended, because the same did not result from the reduction of the domestic price of
petroleum products. Until paragraph (2), Section 8 of the decree, as amended, is further amended
by Congress, this Court can do nothing. The duty of this Court is not to legislate, but to apply or
interpret the law. Be that as it may, this Court wishes to emphasize that as the facts in this case have
shown, it was at the behest of the Government that petitioner refinanced its oil import payments from
the normal 30-day trade credit to a maximum of 360 days. Petitioner could be correct in its assertion
that owing to the extended period for payment, the financial institution which refinanced said
payments charged a higher interest, thereby resulting in higher financing expenses for the petitioner.
It would appear then that equity considerations dictate that petitioner should somehow be allowed to
recover its financing losses, if any, which may have been sustained because it accommodated the
request of the Government. Although under Section 29 of the National Internal Revenue Code such
losses may be deducted from gross income, the effect of that loss would be merely to reduce its
taxable income, but not to actually wipe out such losses. The Government then may consider some
positive measures to help petitioner and others similarly situated to obtain substantial relief. An
amendment, as aforestated, may then be in order.

Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the
Department of Finance to determine or define "other factors" is to uphold an undue delegation of
legislative power, it clearly appearing that the subject provision does not provide any standard for the
exercise of the authority. It is a fundamental rule that delegation of legislative power may be
sustained only upon the ground that some standard for its exercise is provided and that the
legislature, in making the delegation, has prescribed the manner of the exercise of the delegated
authority.39

Finally, whether petitioner gained or lost by reason of the extensive credit is rendered irrelevant by
reason of the foregoing disquisitions. It may nevertheless be stated that petitioner failed to disprove
COA's claim that it had in fact gained in the process. Otherwise stated, petitioner failed to sufficiently
show that it incurred a loss. Such being the case, how can petitioner claim for reimbursement? It
cannot have its cake and eat it too.

II. Anent the claims arising from sales to the National Power Corporation, We find for the petitioner.
The respondents themselves admit in their Comment that underrecovery arising from sales to NPC
are reimbursable because NPC was granted full exemption from the payment of taxes; to prove this,
respondents trace the laws providing for such exemption. The last law cited is the Fiscal Incentives
40

Regulatory Board's Resolution No. 17-87 of 24 June 1987 which provides, in part, "that the tax and
duty exemption privileges of the National Power Corporation, including those pertaining to its
domestic purchases of petroleum and petroleum products . . . are restored effective March 10,
1987." In a Memorandum issued on 5 October 1987 by the Office of the President, NPC's tax
exemption was confirmed and approved.

Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products to
the NPC is evident in the recently passed Republic Act No. 6952 establishing the Petroleum Price
Standby Fund to support the OPSF. The pertinent part of Section 2, Republic Act No. 6952
41

provides:

Sec. 2. Application of the Fund shall be subject to the following conditions:

(1) That the Fund shall be used to reimburse the oil companies for (a)
cost increases of imported crude oil and finished petroleum products
resulting from foreign exchange rate adjustments and/or increases in
world market prices of crude oil; (b) cost underrecovery incurred as a
result of fuel oil sales to the National Power Corporation (NPC); and
(c) other cost underrecoveries incurred as may be finally decided by
the Supreme
Court; . . .

Hence, petitioner can recover its claim arising from sales of petroleum products to the National
Power Corporation.
III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner
relies on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of
payments of all taxes, duties, fees and other charges, whether direct or indirect, due and payable by
the copper mining companies in distress to the national government. Pursuant to this LOI, then
Minister of Energy, Hon. Geronimo Velasco, issued Memorandum Circular No. 84-11-22 advising the
oil companies that Atlas Consolidated Mining Corporation and Marcopper Mining Corporation are
among those declared to be in distress.

In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August
1989 letter to Executive Director Wenceslao R. de la Paz, states that "it is our opinion that LOI 1416
which implements the exemption from payment of OPSF imposts as effected by OEA has no legal
basis;" in its Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no authority to claim
42

reimbursement for this uncollected impost because LOI 1416 dated July 17, 1984, . . . was issued
when OPSF was not yet in existence and could not have contemplated OPSF imposts at the time of
its formulation." It is further stated that: "Moreover, it is evident that OPSF was not created to aid
43

distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices."

In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have intended
to exempt said distressed mining companies from the payment of OPSF dues for the following
reasons:

a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956
creating the OPSF was promulgated on October 10, 1984, while E.O. 137, amending
P.D. 1956, was issued on February 25, 1987.

b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line
with the government's effort to prevent the collapse of the copper industry. P.D No.
1956, as amended, was issued for the purpose of minimizing frequent price changes
brought about by exchange rate adjustments and/or changes in world market prices
of crude oil and imported petroleum product's; and

c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other
charges, whether direct or indirect, due and payable by the copper mining companies
in distress to the Notional and Local Governments . . ." On the other hand, OPSF
dues are not payable by (sic) distressed copper companies but by oil companies. It is
to be noted that the copper mining companies do not pay OPSF dues. Rather, such
imposts are built in or already incorporated in the prices of oil products.44

Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining
companies, it does not accord petitioner the same privilege with respect to its obligation to pay
OPSF dues.

We concur with the disquisitions of the respondents. Aside from such reasons, however, it is
apparent that LOI 1416 was never published in the Official Gazette as required by Article 2 of the
45

Civil Code, which reads:

Laws shall take effect after fifteen days following the completion of their publication in
the Official Gazette, unless it is otherwise provided. . . .

In applying said provision, this Court ruled in the case of Taada vs. Tuvera: 46
 WHEREFORE, the Court hereby orders respondents to publish in the Official
Gazette all unpublished presidential issuances which are of general application, and
unless so published they shall have no binding force and effect.

Resolving the motion for reconsideration of said decision, this Court, in its Resolution promulgated
on 29 December 1986, ruled:
47

We hold therefore that all statutes, including those of local application and private
laws, shall be published as a condition for their effectivity, which shall begin fifteen
days after publication unless a different effectivity date is fixed by the legislature.

Covered by this rule are presidential decrees and executive orders promulgated by
the President in the exercise of legislative powers whenever the same are validly
delegated by the legislature or, at present, directly conferred by the Constitution.
Administrative rules and regulations must also be published if their purpose is to
enforce or implement existing laws pursuant also to a valid delegation.

xxx xxx xxx

WHEREFORE, it is hereby declared that all laws as above defined shall immediately
upon their approval, or as soon thereafter as possible, be published in full in the
Official Gazette, to become effective only after fifteen days from their publication, or
on another date specified by the legislature, in accordance with Article 2 of the Civil
Code.

LOI 1416 has, therefore, no binding force or effect as it was never published in the Official Gazette
after its issuance or at any time after the decision in the abovementioned cases.

Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on 18
June 1987. As amended, the said provision now reads:

Laws shall take effect after fifteen days following the completion of their publication
either in the Official Gazette or in a newspaper of general circulation in the
Philippines, unless it is otherwiseprovided.

We are not aware of the publication of LOI 1416 in any newspaper of general circulation pursuant to
Executive Order No. 200.

Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim must still
fail. Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor
of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it
48

is in fact covered by the exemption so claimed. The party claiming exemption must therefore be
expressly mentioned in the exempting law or at least be within its purview by clear legislative intent.

In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS
and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may
suspend the payment of taxes by copper mining companies, it does not give petitioner the same
privilege with respect to the payment of OPSF dues.

IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the
Department of Finance has still to issue a final and definitive ruling thereon; accordingly, it was
premature for COA to disallow it. By doing so, the latter acted beyond its jurisdiction. Respondents,
49

on the other hand, contend that said amount was already disallowed by the OEA for failure to
substantiate it. In fact, when OEA submitted the claims of petitioner for pre-audit, the
50

abovementioned amount was already excluded.

An examination of the records of this case shows that petitioner failed to prove or substantiate its
contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF.
Additionally, We find no reason to doubt the submission of respondents that said amount has already
been passed upon by the OEA. Hence, the ruling of respondent COA disapproving said claim must
be upheld.

V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from
petitioner may be offset against petitioner's outstanding claims from said fund. Petitioner contends
that it should be allowed to offset its claims from the OPSF against its contributions to the fund as
this has been allowed in the past, particularly in the years 1987 and 1988. 51

Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code on
compensation and Section 21, Book V, Title I-B of the Revised Administrative Code which provides
for "Retention of Money for Satisfaction of Indebtedness to Government." Petitioner also mentions
52

communications from the Board of Energy and the Department of Finance that supposedly authorize
compensation.

Respondents, on the other hand, citing Francia vs. IAC and Fernandez, contend that there can be
53

no offsetting of taxes against the claims that a taxpayer may have against the government, as taxes
do not arise from contracts or depend upon the will of the taxpayer, but are imposed by law.
Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised
Administrative Code, is misplaced because "while this provision empowers the COA to withhold
payment of a government indebtedness to a person who is also indebted to the government and
apply the government indebtedness to the satisfaction of the obligation of the person to the
government, like authority or right to make compensation is not given to the private person." The54

reason for this, as stated in Commissioner of Internal Revenue vs. Algue, Inc., is that money due
55

the government, either in the form of taxes or other dues, is its lifeblood and should be collected
without hindrance. Thus, instead of giving petitioner a reason for compensation or set-off, the
Revised Administrative Code makes it the respondents' duty to collect petitioner's indebtedness to
the OPSF.

Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a
result of taxation because "P.D. 1956, amended, did not create a source of taxation; it instead
established a special fund . . .," and that the OPSF contributions do not go to the general fund of
56

the state and are not used for public purpose, i.e., not for the support of the government, the
administration of law, or the payment of public expenses. This alleged lack of a public purpose
behind OPSF exactions distinguishes such from a tax. Hence, the ruling in the Francia case is
inapplicable.

Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the
OPSF; the said law provides in part that:

Sec. 2. Application of the fund shall be subject to the following conditions:

xxx xxx xxx

 (3) That no amount of the Petroleum Price Standby Fund shall be
used to pay any oil company which has an outstanding obligation to
the Government without said obligation being offset first, subject to
the requirements of compensation or offset under the Civil Code.

We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose
because they go to a special fund of the government. Taxation is no longer envisioned as a measure
merely to raise revenue to support the existence of the government; taxes may be levied with a
regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police power of the state. There can be no
57

doubt that the oil industry is greatly imbued with public interest as it vitally affects the general
welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and
cause economic crisis of untold proportions. It would have a chain reaction in terms of, among
others, demands for wage increases and upward spiralling of the cost of basic commodities. The
stabilization then of oil prices is of prime concern which the state, via its police power, may properly
address.

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is
taxation. No amount of semantical juggleries could dim this fact.

It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government and taxpayer
58

are not mutually creditors and debtors of each other and a claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off. 59

We may even further state that technically, in respect to the taxes for the OPSF, the oil companies
merely act as agents for the Government in the latter's collection since the taxes are, in reality,
passed unto the end-users the consuming public. In that capacity, the petitioner, as one of such
companies, has the primary obligation to account for and remit the taxes collected to the
administrator of the OPSF. This duty stems from the fiduciary relationship between the two; petitioner
certainly cannot be considered merely as a debtor. In respect, therefore, to its collection for the
OPSF vis-a-vis its claims for reimbursement, no compensation is likewise legally feasible. Firstly, the
Government and the petitioner cannot be said to be mutually debtors and creditors of each other.
Secondly, there is no proof that petitioner's claim is already due and liquidated. Under Article 1279 of
the Civil Code, in order that compensation may be proper, it is necessary that:

(1) each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) both debts consist in a sum of :money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;

(3) the two (2) debts be due;

(4) they be liquidated and demandable;

(5) over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.

That compensation had been the practice in the past can set no valid precedent. Such a practice
has no legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims
 against their OPSF contributions. Instead, it prohibits the government from paying any amount from
the Petroleum Price Standby Fund to oil companies which have outstanding obligations with the
government, without said obligation being offset first subject to the rules on compensation in the Civil
Code.

WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged
decision of the Commission on Audit, except that portion thereof disallowing petitioner's claim for
reimbursement of underrecovery arising from sales to the National Power Corporation, which is
hereby allowed.

With costs against petitioner.

SO ORDERED.

11.

12. same sa #8

#13 SUPREME COURT

Manila

EN BANC

G.R. No. 88291 May 31, 1991

ERNESTO M. MACEDA, petitioner,

vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the
President; HON. VICENTE R. JAYME, in his capacity as Secretary of the Department of
Finance; HON. SALVADOR MISON, in his capacity as Commissioner, Bureau of Customs;
HON. JOSE U. ONG, in his capacity as Commissioner of Internal Revenue; NATIONAL
POWER CORPORATION; the FISCAL INCENTIVES REVIEW BOARD; Caltex (Phils.) Inc.;
Pilipinas Shell Petroleum Corporation; Philippine National Oil Corporation; and Petrophil
Corporation, respondents.

Villamor & Villamor Law Offices for petitioner.

Angara, Abello, Concepcion, Regala & Cruz for Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex (Phils.), Inc.

GANCAYCO, J.:

This petition seeks to nullify certain decisions, orders, rulings, and resolutions of respondents
Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of
Customs and the Fiscal Incentives Review Board FIRB for exempting the National Power
Corporation (NPC) from indirect tax and duties.

The relevant facts are not in dispute.

On November 3, 1986, Commonwealth Act No. 120 created the NPC as a public corporation to
undertake the development of hydraulic power and the production of power from other sources. 1

On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges under

Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities.

On September 10, 1971, Republic Act No. 6395 revised the charter of the NPC wherein Congress
declared as a national policy the total electrification of the Philippines through the development of
power from all sources to meet the needs of industrial development and rural electrification which
should be pursued coordinately and supported by all instrumentalities and agencies of the
government, including its financial institutions. The corporate existence of NPC was extended to
2

carry out this policy, specifically to undertake the development of hydro electric generation of power
and the production of electricity from nuclear, geothermal and other sources, as well as the
transmission of electric power on a nationwide basis. Being a non-profit corporation, Section 13 of
3

the law provided in detail the exemption of the NPC from all taxes, duties, fees, imposts and other
charges by the government and its instrumentalities.

On January 22, 1974, Presidential Decree No. 380 amended section 13, paragraphs (a) and (d) of
Republic Act No. 6395 by specifying, among others, the exemption of NPC from such taxes, duties,
fees, imposts and other charges imposed "directly or indirectly," on all petroleum products used by
NPC in its operation. Presidential Decree No. 938 dated May 27, 1976 further amended the
aforesaid provision by integrating the tax exemption in general terms under one paragraph.

On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges granted in
favor of government-owned or controlled corporations including their subsidiaries. However, said
4

law empowered the President and/or the then Minister of Finance, upon recommendation of the
FIRB to restore, partially or totally, the exemption withdrawn, or otherwise revise the scope and
coverage of any applicable tax and duty.

Pursuant to said law, on February 7, 1985, the FIRB issued Resolution No. 10-85 restoring the tax
and duty exemption privileges of NPC from June 11, 1984 to June 30, 1985. On January 7, 1986,
the FIRB issued resolution No. 1-86 indefinitely restoring the NPC tax and duty exemption privileges
effective July 1, 1985.

However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and duty
incentives granted to government and private entities which had been restored under Presidential
Decree Nos. 1931 and 1955 but it gave the authority to FIRB to restore, revise the scope and
prescribe the date of effectivity of such tax and/or duty exemptions.

On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty exemption
privileges effective March 10, 1987. On October 5, 1987, the President, through respondent
Executive Secretary Macaraig, Jr., confirmed and approved FIRB Resolution No. 17-87.
As alleged in the petition, the following are the background facts:

The following are the facts relevant to NPC's questioned claim for refunds of taxes and
duties originally paid by respondents Caltex, Petrophil and Shell for specific and ad
valorem taxes to the BIR; and for Customs duties and ad valorem taxes paid by PNOC, Shell
and Caltex to the Bureau of Customs on its crude oil importation.

Many of the factual statements are reproduced from the Senate Committee on Accountability
of Public Officers and Investigations (Blue Ribbon) Report No. 474 dated January 12, 1989
and approved by the Senate on April 21, 1989 (copy attached hereto as Annex "A") and are
identified in quotation marks:

1. Since May 27, 1976 when P.D. No. 938 was issued until June 11, 1984 when P.D. No.
1931 was promulgated abolishing the tax exemptions of all government-owned or-controlled
corporations, the oil firms never paid excise or specific and ad valorem taxes for petroleum
products sold and delivered to the NPC. This non-payment of taxes therefore spanned a
period of eight (8) years. (par. 23, p. 7, Annex "A")

During this period, the Bureau of Internal Revenue was not collecting specific taxes on the
purchases of NPC of petroleum products from the oil companies on the erroneous belief that
the National Power Corporation (NPC) was exempt from indirect taxes as reflected in the
letter of Deputy Commissioner of Internal Revenue (DCIR) Romulo Villa to the NPC dated
October 29, 1980 granting blanket authority to the NPC to purchase petroleum products from
the oil companies without payment of specific tax (copy of this letter is attached hereto as
petitioner's Annex "B").

2. The oil companies started to pay specific and ad valorem taxes on their sales of oil
products to NPC only after the promulgation of P.D. No. 1931 on June 11, 1984, withdrawing
all exemptions granted in favor of government-owned or-controlled corporations and
empowering the FIRB to recommend to the President or to the Minister of Finance the
restoration of the exemptions which were withdrawn. "Specifically, Caltex paid the total
amount of P58,020,110.79 in specific and ad valorem taxes for deliveries of petroleum
products to NPC covering the period from October 31, 1984 to April 27, 1985." (par. 23, p. 7,
Annex "A")

3. Caltex billings to NPC until June 10, 1984 always included customs duty without the tax
portion. Beginning June 11, 1984, when P.D. 1931 was promulgated abolishing NPC's tax
exemptions, Caltex's billings to NPC always included both duties and taxes. (Caturla, tsn,
Oct. 10, 1988, pp. 1-5) (par. 24, p, 7, Annex "A")

4. For the sales of petroleum products delivered to NPC during the period from October,
1984 to April, 1985, NPC was billed a total of P522,016,77.34 (sic) including both duties and
taxes, the specific tax component being valued at P58,020,110.79. (par. 25, p. 8, Annex "A").

5. Fiscal Incentives Review Board (FIRB) Resolution 10-85, dated February 7, 1985, certified
true copy of which is hereto attached as Annex "C", restored the tax exemption privileges of
NPC effective retroactively to June 11, 1984 up to June 30, 1985. The first paragraph of said
resolution reads as follows:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the
National Power Corporation under C.A. No. 120, as amended, are restored up to
June 30, 1985.
Because of this restoration (Annex "G") the NPC applied on September 11, 1985 with the
BIR for a "refund of Specific Taxes paid on petroleum products . . . in the total amount of
P58,020,110.79. (par. 26, pp. 8-9, Annex "A")

6. In a letter to the president of the NPC dated May 8, 1985 (copy attached as petitioner's
Annex "D"), Acting BIR Commissioner Ruben Ancheta declared:

FIRB Resolution No. 10-85 serves as sufficient basis to allow NPC to purchase
petroleum products from the oil companies free of specific and ad valorem taxes,
during the period in question.

The "period in question" is June 1 1, 1 984 to June 30, 1 985.

7. On June 6, 1985The president of the NPC, Mr. Gabriel Itchon, wrote Mr. Cesar Virata,
Chairman of the FIRB (Annex "E"), requesting "the FIRB to resolve conflicting rulings on the
tax exemption privileges of the National Power Corporation (NPC)." These rulings involve
FIRB Resolutions No. 1-84 and 10-85. (par. 40, p. 12, Annex "A")

8. In a letter to the President of NPC (Annex "F"), dated June 26, 1985, Minister Cesar Virata
confirmed the ruling of May 8, 1985 of Acting BIR Commissioner Ruben Ancheta, (par. 41, p.
12, Annex "A")

9. On October 22, 1985, however, under BIR Ruling No. 186-85, addressed to Hanil
Development Co., Ltd., a Korean contractor of NPC for its infrastructure projects, certified
true copy of which is attached hereto as petitioner's Annex "E", BIR Acting Commissioner
Ruben Ancheta ruled:

In Reply please be informed that after a re-study of Section 13, R.A. 6395, as
amended by P.D. 938, this Office is of the opinion, and so holds, that the scope of
the tax exemption privilege enjoyed by NPC under said section covers only taxes for
which it is directly liable and not on taxes which are only shifted to it. (Phil. Acetylene
vs. C.I.R. et al., G.R. L-19707, Aug. 17, 1967) Since contractor's tax is directly
payable by the contractor, not by NPC, your request for exemption, based on the
stipulation in the aforesaid contract that NPC shall assume payment of your
contractor's tax liability, cannot be granted for lack of legal basis." (Annex "H")
(emphasis added)

Said BIR ruling clearly states that NPC's exemption privileges covers (sic) only taxes for
which it is directly liable and does not cover taxes which are only shifted to it or for indirect
taxes. The BIR, through Ancheta, reversed its previous position of May 8, 1985 adopted by
Ancheta himself favoring NPC's indirect tax exemption privilege.

10. Furthermore, "in a BIR Ruling, unnumbered, "dated June 30, 1986, "addressed to Caltex
(Annex "F"), the BIR Commissioner declared that PAL's tax exemption is limited to taxes for
which PAL is directly liable, and that the payment of specific and ad valorem taxes on
petroleum products is a direct liability of the manufacturer or producer thereof". (par. 51, p.
15, Annex "A")

11. On January 7, 1986, FIRB Resolution No. 1-86 was issued restoring NPC's tax
exemptions retroactively from July 1, 1985 to a indefinite period, certified true copy of which
is hereto attached as petitioner's Annex "H".
12. NPC's total refund claim was P468.58 million but only a portion thereof i.e. the
P58,020,110.79 (corresponding to Caltex) was approved and released by way of a Tax
Credit Memo (Annex "Q") dated July 7, 1986, certified true copy of which [is) attached hereto
as petitioner's Annex "F," which was assigned by NPC to Caltex. BIR Commissioner Tan
approved the Deed of Assignment on July 30, 1987, certified true copy of which is hereto
attached as petitioner's Annex "G"). (pars. 26, 52, 53, pp. 9 and 15, Annex "A")

The Deed of Assignment stipulated among others that NPC is assigning the tax credit to
Caltex in partial settlement of its outstanding obligations to the latter while Caltex, in turn,
would apply the assigned tax credit against its specific tax payments for two (2) months. (per
memorandum dated July 28, 1986 of DCIR Villa, copy attached as petitioner Annex "G")

13. As a result of the favorable action taken by the BIR in the refund of the P58.0 million tax
credit assigned to Caltex, the NPC reiterated its request for the release of the balance of its
pending refunds of taxes paid by respondents Petrophil, Shell and Caltex covering the period
from June 11, 1984 to early part of 1986 amounting to P410.58 million. (The claim of the first
two (2) oil companies covers the period from June 11, 1984 to early part of 1986; while that
of Caltex starts from July 1, 1985 to early 1986). This request was denied on August 18,
1986, under BIR Ruling 152-86 (certified true copy of which is attached hereto as petitioner's
Annex "I"). The BIR ruled that NPC's tax free privilege to buy petroleum products covered
only the period from June 11, 1984 up to June 30, 1985. It further declared that, despite
FIRB No. 1-86, NPC had already lost its tax and duty exemptions because it only enjoys
special privilege for taxes for which it is directly liable. This ruling, in effect, denied the P410
Million tax refund application of NPC (par. 28, p. 9, Annex "A")

14. NPC filed a motion for reconsideration on September 18, 1986. Until now the BIR has not
resolved the motion. (Benigna, II 3, Oct. 17, 1988, p. 2; Memorandum for the Complainant,
Oct. 26, 1988, p. 15)." (par. 29, p. 9, Annex "A")

15. On December 22, 1986, in a 2nd Indorsement to the Hon. Fulgencio S. Factoran, Jr., BIR
Commissioner Tan, Jr. (certified true copy of which is hereto attached and made a part
hereof as petitioner's Annex "J"), reversed his previous position and states this time that all
deliveries of petroleum products to NPC are tax exempt, regardless of the period of delivery.

16. On December 17, 1986, President Corazon C. Aquino enacted Executive Order No. 93,
entitled "Withdrawing All Tax and Duty Incentives, Subject to Certain Exceptions, Expanding
the Powers of the Fiscal Incentives Review Board and Other Purposes."

17. On June 24, 1987, the FIRB issued Resolution No. 17-87, which restored NPC's tax
exemption privilege and included in the exemption "those pertaining to its domestic
purchases of petroleum and petroleum products, and the restorations were made to retroact
effective March 10, 1987, a certified true copy of which is hereto attached and made a part
hereof as Annex "K".

18. On August 6, 1987, the Hon. Sedfrey A. Ordoez, Secretary of Justice, issued Opinion
No. 77, series of 1987, opining that "the power conferred upon Fiscal Incentives Review
Board by Section 2a (b), (c) and (d) of Executive order No. 93 constitute undue delegation of
legislative power and, therefore, [are] unconstitutional," a copy of which is hereto attached
and made a part hereof as Petitioner's Annex "L."

19. On October 5, 1987, respondent Executive Secretary Macaraig, Jr. in a Memorandum to

the Chairman of the FIRB a certified true copy of which is hereto attached and made a part
hereof as petitioner's Annex "M," confirmed and approved FIRB Res. No. 17-87 dated June
24, 1987, allegedly pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93.

20. Secretary Vicente Jayme in a reply dated May 20, 1988 to Secretary Catalino Macaraig,
who by letter dated May 2, 1988 asked him to rule "on whether or not, as the law now
stands, the National Power Corporation is still exempt from taxes, duties . . . on its local
purchases of . . . petroleum products . . ." declared that "NPC under the provisions of its
Revised Charter retains its exemption from duties and taxes imposed on the petroleum
products purchased locally and used for the generation of electricity," a certified true copy of
which is attached hereto as petitioner's Annex "N." (par. 30, pp. 9-10, Annex "A")

21. Respondent Executive Secretary came up likewise with a confirmatory letter dated June
1 5, 1988 but without the usual official form of "By the Authority of the President," a certified
true copy of which is hereto attached and made a part hereof as Petitioner's Annex "O".

22. The actions of respondents Finance Secretary and the Executive Secretary are based on
the RESOLUTION No. 17-87 of FIRB restoring the tax and duty exemption of the respondent
NPC pertaining to its domestic purchases of petroleum products (petitioner's Annex K supra).

23. Subsequently, the newspapers particularly, the Daily Globe, in its issue of July 11, 1988
reported that the Office of the President and the Department of Finance had ordered the BIR
to refund the tax payments of the NPC amounting to Pl.58 Billion which includes the P410
Million Tax refund already rejected by BIR Commissioner Tan, Jr., in his BIR Ruling No. 152-
86. And in a letter dated July 28, 1988 of Undersecretary Marcelo B. Fernando to BIR
Commissioner Tan, Jr. the Pl.58 Billion tax refund was ordered released to NPC (par. 31, p. 1
0, Annex "A")

24. On August 8, 1988, petitioner "wrote both Undersecretary Fernando and Commissioner
Tan requesting them to hold in abeyance the release of the Pl.58 billion and await the
outcome of the investigation in regard to Senate Resolution No. 227," copies attached as
Petitioner's Annexes "P" and "P-1 " (par. 32, p. 10, Annex "A").

Reacting to this letter of the petitioner, Undersecretary Fernando wrote Commissioner Tan of
the BIR dated August, 1988 requesting him to hold in abeyance the release of the tax
refunds to NPC until after the termination of the Blue Ribbon investigation.

25. In the Bureau of Customs, oil companies import crude oil and before removal thereof
from customs custody, the corresponding customs duties and ad valorem taxes are paid.
Bunker fuel oil is one of the petroleum products processed from the crude oil; and same is
sold to NPC. After the sale, NPC applies for tax credit covering the duties and ad valorem
exemption under its Charter. Such applications are processed by the Bureau of Customs and
the corresponding tax credit certificates are issued in favor of NPC which, in turn assigns it to
the oil firm that imported the crude oil. These certificates are eventually used by the
assignee-oil firms in payment of their other duty and tax liabilities with the Bureau of
Customs. (par. 70, p. 19, Annex "A")

A lesser amount totalling P740 million, covering the period from 1985 to the present, is being
sought by respondent NPC for refund from the Bureau of Customs for duties paid by the oil
companies on the importation of crude oil from which the processed products sold locally by
them to NPC was derived. However, based on figures submitted to the Blue Ribbon
Committee of the Philippine Senate which conducted an investigation on this matter as
mandated by Senate Resolution No. 227 of which the herein petitioner was the sponsor, a
much bigger figure was actually refunded to NPC representing duties and ad valorem taxes
paid to the Bureau of Customs by the oil companies on the importation of crude oil from
1979 to 1985.

26. Meantime, petitioner, as member of the Philippine Senate introduced P.S. Res. No. 227,
entitled:

Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, To

conduct a Formal and Extensive Inquiry into the Reported Massive Tax
Manipulations and Evasions by Oil Companies, particularly Caltex (Phils.) Inc.,
Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the
Non-Existing Exemption of National Power Corporation (NPC) from Indirect Taxes,
Resulting Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the
Department of Finance, Their Refusal to Pay Since 1976 Customs Duties Amounting
to Billions of Pesos on Imported Crude Oil Purportedly for the Use of the National
Power Corporation, the Non-Payment of Surtax on Windfall Profits from Increases in
the Price of Oil Products in August 1987 amounting Maybe to as Much as Pl.2 Billion
Surtax Paid by Them in 1984 and For Other Purposes.

27. Acting on the above Resolution, the Blue Ribbon Committee of the Senate did conduct a
lengthy formal inquiry on the matter, calling all parties interested to the witness stand
including representatives from the different oil companies, and in due time submitted its
Committee Report No. 474 . . . The Blue Ribbon Committee recommended the following
courses of action.

1. Cancel its approval of the tax refund of P58,020,110.70 to the National Power
Corporation (NPC) and its approval of Tax Credit memo covering said amount
(Annex "P" hereto), dated July 7, 1986, and cancel its approval of the Deed of
Assignment (Annex "Q" hereto) by NPC to Caltex, dated July 28, 1986, and collect
from Caltex its tax liabilities which were erroneously treated as paid or settled with
the use of the tax credit certificate that NPC assigned to said firm.:

1.1. NPC did not have any indirect tax exemption since May 27, 1976 when
PD 938 was issued. Therefore, the grant of a tax refund to NPC in the
amount of P58 million was illegal, and therefore, null and void. Such refund
was a nullity right from the beginning. Hence, it never transferred any right in
favor of NPC.

2. Stop the processing and/or release of Pl.58 billion tax refund to NPC and/or oil
companies on the same ground that the NPC, since May 27, 1976 up to June 17,
1987 was never granted any indirect tax exemption. So, the P1.58 billion represent
taxes legally and properly paid by the oil firms.

3. Start collection actions of specific or excise and ad valorem taxes due on

petroleum products sold to NPC from May 27, 1976 (promulgation of PD 938) to
June 17, 1987 (issuance of EO 195).

B. For the Bureau of Customs (BOC) to do the following:

1. Start recovery actions on the illegal duty refunds or duty credit certificates for purchases of
petroleum products by NPC and allegedly granted under the NPC charter covering the years
1978-1988 . . .
 28. On March 30, 1989, acting on the request of respondent Finance Secretary for clearance
to direct the Bureau of Internal Revenue and of Customs to proceed with the processing of
claims for tax credits/refunds of the NPC, respondent Executive Secretary rendered his
ruling, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, the clearance is hereby GRANTED and, accordingly, unless
restrained by proper authorities, that department and/or its line-tax bureaus may now proceed with
the processing of the claims of the National Power Corporation for duty and tax free exemption
and/or tax credits/ refunds, if there be any, in accordance with the ruling of that Department dated
May 20,1988, as confirmed by this Office on June 15, 1988 . . . 5

Hence, this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary
injunction and/or restraining order, praying among others that:

1. Upon filing of this petition, a temporary restraining order forthwith be issued against
respondent FIRB Executive Secretary Macaraig, and Secretary of Finance Jayme restraining
them and other persons acting for, under, and in their behalf from enforcing their resolution,
orders and ruling, to wit:

A. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

B. Memorandum-Order of the Office of the President dated October 5, 1987

(petitioner's Annex "M");

C. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

D. Order of the Executive Secretary dated March 30, l989 (petitioner's Annex "Q");
and

E. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N").

2. Said temporary restraining order should also include respondent Commissioners of

Customs Mison and Internal Revenue Ong restraining them from processing and releasing
any pending claim or application by respondent NPC for tax and duty refunds.

3. Thereafter, and during the pendency of this petition, to issue a writ or preliminary
injunction against above-named respondents and all persons acting for and in their behalf.

4. A decision be rendered in favor of the petitioner and against the respondents:

A. Declaring that respondent NPC did not enjoy indirect tax exemption privilege since May
27, 1976 up to the present;

B. Nullifying the setting aside the following:

1. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

2. Memorandum-Order of the Office of the President dated October 5, 1987

(petitioner's Annex "M");

3. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");
 4. Order of the Executive Secretary dated March 30, 1989 (petitioner's Annex "Q");

5. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N"

6. Tax Credit memo dated July 7, 1986 issued to respondent NPC representing tax
refund for P58,020,110.79 (petitioner's Annex "F");

7. Deed of Assignment of said tax credit memo to respondent Caltex dated July 30,
1987 (petitioner's Annex "G");

8. Application of the assigned tax credit of Caltex in payment of its tax liabilities with
the Bureau of Internal Revenue and

9. Illegal duty and tax refunds issued by the Bureau of Customs to respondent NPC
by way of tax credit certificates from 1979 up to the present.

C. Declaring as illegal and null and void the pending claims for tax and duty refunds by
respondent NPC with the Bureau of Customs and the Bureau of Internal Revenue;

D. Prohibiting respondents Commissioner of Customs and Commissioner of Internal

Revenue from enforcing the abovequestioned resolution, orders and ruling of respondents
Executive Secretary, Secretary of Finance, and FIRB by processing and releasing
respondent NPC's tax and duty refunds;

E. Ordering the respondent Commissioner of Customs to deny as being null and void the
pending claims for refund of respondent NPC with the Bureau of Customs covering the
period from 1985 to the present; to cancel and invalidate the illegal payment made by
respondents Caltex, Shell and PNOC by using the tax credit certificates assigned to them by
NPC and to recover from respondents Caltex, Shell and PNOC all the amounts appearing in
said tax credit certificates which were used to settle their duty and tax liabilities with the
Bureau of Customs.

F. Ordering respondent Commissioner of Internal Revenue to deny as being null and void the
pending claims for refund of respondent NPC with the Bureau of Internal Revenue covering
the period from June 11, 1984 to June 17, 1987.

PETITIONER prays for such other relief and remedy as may be just and equitable in the
premises. 6

The issues raised in the petition are the following:

To determine whether respondent NPC is legally entitled to the questioned tax and duty
refunds, this Honorable Court must resolve the following issues:

Main issue

Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption
with the enactment of P.D. No. 938 on May 27, 1976 which amended P.D. No. 380, issued on
January 11, 1974.

Corollary issues
 1. Whether or not FIRB Resolution No. 10-85 dated February 7, 1985 which restored NPC's
tax exemption privilege effective June 11, 1984 to June 30, 1985 and FIRB Resolution No. 1-
86 dated January 7, 1986 restoring NPC's tax exemption privilege effective July 1, 1985
included the restoration of indirect tax exemption to NPC and

2. Whether or not FIRB could validly and legally issue Resolution No. 17-87 dated June 24,
1987 which restored NPC's tax exemption privilege effective March 10, 1987; and if said
Resolution was validly issued, the nature and extent of the tax exemption privilege restored
to NPC. 7

In a resolution dated June 6, 1989, the Court, without giving due course to the petition, required
respondents to comment thereon, within ten (10) days from notice. The respondents having
submitted their comment, on October 10, 1989 the Court required petitioner to file a consolidated
reply to the same. After said reply was filed by petitioner on November 15, 1989 the Court gave due
course to the petition, considering the comments of respondents as their answer to the petition, and
requiring the parties to file simultaneously their respective memoranda within twenty (20) days from
notice. The parties having submitted their respective memoranda, the petition was deemed
submitted for resolution.

First the preliminary issues.

Public respondents allege that petitioner does not have the standing to challenge the questioned
orders and resolution.

In the petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a
duly-elected Senator of the Philippines." Public respondent argues that petitioner must show he has
sustained direct injury as a result of the action and that it is not sufficient for him to have a mere
general interest common to all members of the public. 8

The Court however agrees with the petitioner that as a taxpayer he may file the instant petition
following the ruling in Lozada when it involves illegal expenditure of public money. The petition
questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said
assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR
and Bureau of Customs.

Assuming petitioner has the personality to file the petition, public respondents also allege that the
proper remedy for petitioner is an appeal to the Court of Tax Appeals under Section 7 of R.A. No.
125 instead of this petition. However Section 11 of said law provides

Sec. 11. Who may appeal; effect of appealAny person, association or corporation
adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the
Collector of Customs (Commissioner of Customs) or any provincial or City Board of
Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after
receipt of such decision or ruling.

From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the
Commissioner of Internal Revenue, the Commissioner of Customs or any provincial or city Board of
Assessment Appeal who may appeal to the Court of Tax Appeals. Petitioner does not fall under this
category.
Public respondents also contend that mandamus does not lie to compel the Commissioner of
Internal Revenue to impose a tax assessment not found by him to be proper. It would be tantamount
to a usurpation of executive functions. 9

Even in Meralco, this Court recognizes the situation when mandamus can control the discretion of
the Commissioners of Internal Revenue and Customs when the exercise of discretion is tainted with
arbitrariness and grave abuse as to go beyond statutory authority. 10

Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an
unlawful exercise of jurisdiction or to prevent the oppressive exercise of legal authority. Precisely,
11 12

petitioner questions the lawfulness of the acts of public respondents in this case.

Now to the main issue.

It may be useful to make a distinction, for the purpose of this disposition, between a direct tax and an
indirect tax. A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in. Examples are the custom duties and ad valorem taxes paid by the oil companies to the
Bureau of Customs for their importation of crude oil, and the specific and ad valorem taxes they pay
to the Bureau of Internal Revenue after converting the crude oil into petroleum products.

On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else ." For example, the excise and ad valorem taxes that oil companies pay to the
13

Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted to
its buyer, like the NPC, by adding them to the "cash" and/or "selling price."

The main thrust of the petition is that under the latest amendment to the NPC charter by Presidential
Decree No. 938, the exemption of NPC from indirect taxation was revoked and repealed. While
petitioner concedes that NPC enjoyed broad exemption privileges from both direct and indirect taxes
on the petroleum products it used, under Section 13 of Republic Act No, 6395 and more so under
Presidential Decree No. 380, however, by the deletion of the phrases "directly or indirectly" and "on
all petroleum products used by the Corporation in the generation, transmission, utilization and sale
of electric power" he contends that the exemption from indirect taxes was withdrawn by P.D. No.
938.

Petitioner further states that the exemption of NPC provided in Section 13 of Presidential Decree No.
938 regarding the payments of "all forms of taxes, etc." cannot be interpreted to include indirect tax
exemption. He cites Philippine Aceytelene Co. Inc. vs. Commissioner of Internal
Revenue. Petitioner emphasizes the principle in taxation that the exception contained in the tax
14

statutes must be strictly construed against the one claiming the exemption, and that the rule that
a tax statute granting exemption must be strictly construed against the one claiming the exemption is
similar to the rule that a statute granting taxing power is to be construed strictly, with doubts resolved
against its existence. Petitioner cites rulings of the BIR that the phrase exemption from "all taxes,
15

etc." from "all forms of taxes" and "in lieu of all taxes" covers only taxes for which the taxpayer is
directly liable.
16

On the corollary issues. First, FIRB Resolution Nos. 10-85 and 10-86 issued under Presidential
Decree No. 1931, the relevant provision of which are to wit:

P.D. No. 1931 provides as follows:

 Sec. 1. The provisions of special or general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes . . . heretofore granted in favor of government-
owned or controlled corporations are hereby withdrawn. (Emphasis supplied.)

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon
the recommendation of the Fiscal Incentives Review Board . . . is hereby empowered to
restore, partially or totally, the exemptions withdrawn by Section 1 above . . . (Emphasis
supplied.)

The relevant provisions of FIRB resolution Nos. 10-85 and 1-86 are the following:

Resolution. No. 10-85

BE IT RESOLVED AS IT IS HEREBY RESOLVED, That:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power
Corporation under C.A. No. 120 as amended are restored up to June 30, 1985.

2. Provided, That to restoration does not apply to the following:

a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-
84;

b. commercially-funded importations; and

c. interest income derived from any investment source.

3. Provided further, That in case of importations funded by international financing agreements, the
NPC is hereby required to furnish the FIRB on a periodic basis the particulars of items received or to
be received through such arrangements, for purposes of tax and duty exemptions privileges. 17

Resolution No. 1-86

BE IT RESOLVED AS IT IS HEREBY RESOLVED: That:

1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power
Corporation (NPC) under Commonwealth Act No. 120, as amended, are restored: Provided, That
importations of fuel oil (crude oil equivalent), and coal of the herein grantee shall be subject to the
basic and additional import duties; Provided, further, that the following shall remain fully taxable:

a. Commercially-funded importations; and

b. Interest income derived by said grantee from bank deposits and yield or any other
monetary benefits from deposit substitutes, trust funds and other similar
arrangements.

2. The NPC as a government corporation is exempt from the real property tax on land and
improvements owned by it provided that the beneficial use of the property is not transferred to
another pursuant to the provisions of Sec. 10(a) of the Real Property Tax Code, as amended. 18
Petitioner does not question the validity and enforceability of FIRB Resolution Nos. 10-85 and 1-86.
Indeed, they were issued in compliance with the requirement of Section 2, P.D. No. 1931, whereby
the FIRB should make the recommendation subject to the approval of "the President of the
Philippines and/or the Minister of Finance." While said Resolutions do not appear to have been
approved by the President, they were nevertheless approved by the Minister of Finance who is also
duly authorized to approve the same. In fact it was the Minister of Finance who signed and
promulgated said resolutions. 19

The observation of Mr. Justice Sarmiento in the dissenting opinion that FIRB Resolution Nos. 10-85
and 1-86 which were promulgated by then Acting Minister of Finance Alfredo de Roda, Jr. and
Minister of Finance Cesar E.A Virata, as Chairman of FIRB respectively, should be separately
approved by said Minister of Finance as required by P.D. 1931 is, a superfluity. An examination of
the said resolutions which are reproduced in full in the dissenting opinion show that the said officials
signed said resolutions in the dual capacity of Chairman of FIRB and Minister of Finance.

Mr. Justice Sarmiento also makes reference to the case National Power Corporation vs. Province of
Albay, wherein the Court observed that under P.D. No. 776 the power of the FIRB was only
20

recommendatory and requires the approval of the President to be valid. Thus, in said case the Court
held that FIRB Resolutions Nos. 10-85 and 1-86 not having been approved by the President were
not valid and effective while the validity of FIRB 17-87 was upheld as it was duly approved by the
Office of the President on October 5, 1987.

However, under Section 2 of P.D. No. 1931 of June 11, 1984, hereinabove reproduced, which
amended P.D. No. 776, it is clearly provided for that such FIRB resolution, may be approved by the
"President of the Philippines and/or the Minister of Finance." To repeat, as FIRB Resolutions Nos.
10-85 and 1-86 were duly approved by the Minister of Finance, hence they are valid and effective. To
this extent, this decision modifies or supersedes the Court's earlier decision in Albay afore-referred
to.

Petitioner, however, argues that under both FIRB resolutions, only the tax and duty exemption
privileges enjoyed by the NPC under its charter, C.A. No. 120, as amended, are restored, that is,
only its direct tax exemption privilege; and that it cannot be interpreted to cover indirect taxes under
the principle that tax exemptions are construed stricissimi juris against the taxpayer and liberally in
favor of the taxing authority.

Petitioner argues that the release by the BIR of the P58.0 million refund to respondent NPC by way
of a tax credit certificate which was assigned to respondent Caltex through a deed of assignment
21

approved by the BIR is patently illegal. He also contends that the pending claim of respondent NPC
22

in the amount of P410.58 million with respondent BIR for the sale and delivery to it of bunker fuel by
respondents Petrophil, Shell and Caltex from July 1, 1985 up to 1986, being illegal, should not be
released.

Now to the second corollary issue involving the validity of FIRB Resolution No. 17-87 issued on June
24, 1987. It was issued under authority of Executive Order No. 93 dated December 17, 1986 which
grants to the FIRB among others, the power to recommend the restoration of the tax and duty
exemptions/incentives withdrawn thereunder.

Petitioner stresses that on August 6, 1987 the Secretary of Justice rendered Opinion No. 77 to the
effect that the powers conferred upon the FIRB by Section 2(a), (b), and (c) and (4) of Executive
Order No. 93 "constitute undue delegation of legislative power and is, therefore, unconstitutional."
Petitioner observes that the FIRB did not merely recommend but categorically restored the tax and
duty exemption of the NPC so that the memorandum of the respondent Executive Secretary dated
October 5, 1987 approving the same is a surplusage.

Further assuming that FIRB Resolution No. 17-87 to have been legally issued, following the doctrine
in Philippine Aceytelene, petitioner avers that the restoration cannot cover indirect taxes and it
cannot create new indirect tax exemption not otherwise granted in the NPC charter as amended by
Presidential Decree No. 938.

The petition is devoid of merit.

The NPC is a non-profit public corporation created for the general good and welfare wholly owned
23

by the government of the Republic of the Philippines. From the very beginning of its corporate
24

existence, the NPC enjoyed preferential tax treatment to enable the Corporation to pay the
25

indebtedness and obligation and in furtherance and effective implementation of the policy
enunciated in Section one of "Republic Act No. 6395" which provides:
26

Sec. 1. Declaration of PolicyCongress hereby declares that (1) the comprehensive

development, utilization and conservation of Philippine water resources for all beneficial
uses, including power generation, and (2) the total electrification of the Philippines through
the development of power from all sources to meet the need of rural electrification are
primary objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government including its financial institutions.

From the changes made in the NPC charter, the intention to strengthen its preferential tax treatment
is obvious.

Under Republic Act No. 358, its exemption is provided as follows:

Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities."

Under Republic Act No. 6395:

Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and other Charges by Government and Governmental Instrumentalities. The
Corporation shall be non-profit and shall devote all its returns from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation is hereby declared exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;
 (c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power. (Emphasis supplied.)

Under Presidential Decree No. 380:

Sec. 13. Non-profit Character of the Corporation: Exemption from all Taxes, Duties, Fees,
Imposts and other Charges by the Government and Government Instrumentalities. The
Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation, including its subsidiaries, is
hereby declared, exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and services fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other governmental agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operation and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly
by the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum produced used by the Corporation in the
generation, transmission, utilization, and sale of electric power. (Emphasis supplied.)

Under Presidential Decree No. 938:

Sec. 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Fees,
Imposts and Other Charges by the Government and Government Instrumentalities.The
Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
the indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section One of this Act, the Corporation, including its subsidiaries
hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well
as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any
court or administrative proceedings. (Emphasis supplied.)

It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to
cover "all taxes, duties, fees, imposts, charges, etc. . . ." However, the amendment under Republic
Act No. 6395 enumerated the details covered by the exemption. Subsequently, P.D. No. 380, made
even more specific the details of the exemption of NPC to cover, among others, both direct and
indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 amended
the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from "all
forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal
bonds, supersedeas bonds, in any court or administrative proceedings."

The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the
tax exemptions it has been enjoying before. The rationale for this exemption is that being non-profit
the NPC "shall devote all its returns from its capital investment as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay the indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section one of this Act, . . ." 27

The preamble of P.D. No. 938 states

WHEREAS, in the application of the tax exemption provision of the Revised Charter, the non-
profit character of the NPC has not been fully utilized because of restrictive interpretations of
the taxing agencies of the government on said provisions. . . . (Emphasis supplied.)

It is evident from the foregoing that the lawmaker did not intend that the said provisions of P.D. No.
938 shall be construed strictly against NPC. On the contrary, the law mandates that it should be
interpreted liberally so as to enhance the tax exempt status of NPC.

Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation of
statutes granting tax exemptions to NPC.

Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case
of exemptions in favor of a government political subdivision or instrumentality. 28

The basis for applying the rule of strict construction to statutory provisions granting tax
exemptions or deductions, even more obvious than with reference to the affirmative or
levying provisions of tax statutes, is to minimize differential treatment and foster impartiality,
fairness, and equality of treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely
to reduce the amount of money that has to be handled by government in the course of its
operations. For these reasons, provisions granting exemptions to government agencies may
be construed liberally, in favor of non tax liability of such agencies.
29

In the case of property owned by the state or a city or other public corporations, the express
exemption should not be construed with the same degree of strictness that applies to exemptions
contrary to the policy of the state, since as to such property "exemption is the rule and taxation the
exception."30

The contention of petitioner that the exemption of NPC from indirect taxes under Section 13 of R.A.
No. 6395 and P.D. No. 380, is deemed repealed by P.D. No. 938 when the reference to it was
deleted is not well-taken.

Repeal by implication is not favored unless it is manifest that the legislature so intended. As laws are
presumed to be passed with deliberation and with knowledge of all existing ones on the subject, it is
logical to conclude that in passing a statute it is not intended to interfere with or abrogate a former
law relating to the same subject matter, unless the repugnancy between the two is not only
irreconcilable but also clear and convincing as a result of the language used, or unless the latter Act
fully embraces the subject matter of the earlier. The first effort of a court must always be to
31

reconcile or adjust the provisions of one statute with those of another so as to give sensible effect to
both provisions.32

The legislative intent must be ascertained from a consideration of the statute as a whole, and not of
an isolated part or a particular provision alone. When construing a statute, the reason for its
33

enactment should be kept in mind and the statute should be construed with reference to its intended
scope and purpose and the evil sought to be remedied.
34 35

The NPC is a government instrumentality with the enormous task of undertaking development of
hydroelectric generation of power and production of electricity from other sources, as well as the
transmission of electric power on a nationwide basis, to improve the quality of life of the people
pursuant to the State policy embodied in Section E, Article II of the 1987 Constitution.

It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax exemption of
NPC from all forms of taxes including indirect taxes as provided for under R.A. No. 6895 and P.D.
No. 380 if it is to attain its goals.

Further, the construction of P.D. No. 938 by the Office charged with its implementation should be
given controlling weight. 36

Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the Secretary of Finance of
June 26, 1985 confirming said ruling, the letters of the BIR of August 18, 1986, and December 22,
1986, the letter of the Secretary of Finance of February 19, 1987, the Memorandum of the Executive
Secretary of October 9, 1987, by authority of the President, confirming and approving FIRB
Resolution No. 17-87, the letter of the Secretary of Finance of May 20, 1988 to the Executive
Secretary rendering his opinion as requested by the latter, and the latter's reply of June 15, 1988, it
was uniformly held that the grant of tax exemption to NPC under C.A. No. 120, as
amended, included exemption from payment of all taxes relative to NPC's petroleum purchases
including indirect taxes. Thus, then Secretary of Finance Vicente Jayme in his letter of May 20,
37

1988 to the Executive Secretary Macaraig aptly stated the justification for this tax exemption of NPC

The issue turns on the effect to the exemption of NPC from taxes of the deletion of the
phrase 'taxes imposed indirectly on oil products and its exemption from 'all forms of taxes.' It
is suggested that the change in language evidenced an intention to exempt NPC only from
taxes directly imposed on or payable by it; since taxes on fuel-oil purchased by it; since taxes
on fuel-oil purchased by NPC locally are levied on and paid by its oil suppliers, NPC thereby
lost its exemption from those taxes. The principal authority relied on is the 1967 case
of Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20 SCRA 1056.

First of all, tracing the changes made through the years in the Revised Charter, the
strengthening of NPC's preferential tax treatment was clearly the intention. To the extent that
the explanatory "whereas clauses" may disclose the intent of the law-maker, the changes
effected by P.D. 938 can only be read as being expansive rather than restrictive, including its
version of Section 13.

Our Tax Code does not recognize that there are taxes directly imposed and those imposed
indirectly. The textbook distinction between a direct and an indirect tax may be based on the
possibility of shifting the incidence of the tax. A direct tax is one which is demanded from the
very person intended to be the payor, although it may ultimately be shifted to another. An
example of a direct tax is the personal income tax. On the other hand, indirect taxes are
those which are demanded from one person in the expectation and intention that he shall
indemnify himself at the expense of another. An example of this type of tax is the sales tax
levied on sales of a commodity.

The distinction between a direct tax and one indirectly imposed (or an indirect tax) is really of
no moment. What is more relevant is that when an "indirect tax" is paid by those upon whom
the tax ultimately falls, it is paid not as a tax but as an additional part of the cost or of the
market price of the commodity.

This distinction was made clear by Chief Justice Castro in the Philippine Acetylene case,
when he analyzed the nature of the percentage (sales) tax to determine whether it is a tax on
the producer or on the purchaser of the commodity. Under out Tax Code, the sales tax falls
upon the manufacturer or producer. The phrase "pass on" the tax was criticized as being
inaccurate. Justice Castro says that the tax remains on the manufacturer alone. The
purchaser does not pay the tax; he pays an amount added to the price because of the tax.
Therefore, the tax is not "passed on" and does not for that reason become an "indirect tax"
on the purchaser. It is eminently possible that the law maker in enacting P.D. 938 in 1976
may have used lessons from the analysis of Chief Justice Castro in 1967 Philippine
Acetylene case.

When P.D. 938 which exempted NPC from "all forms of taxes" was issued in May 1976, the
so-called oil crunch had already drastically pushed up crude oil Prices from about $1.00 per
bbl in 1971 to about $10 and a peak (as it turned out) of about $34 per bbl in 1981. In 1974-
78, NPC was operating the Meralco thermal plants under a lease agreement. The power
generated by the leased plants was sold to Meralco for distribution to its customers. This
lease and sale arrangement was entered into for the benefit of the consuming public, by
reducing the burden on the swiftly rising world crude oil prices. This objective was achieved
by the use of NPC's "tax umbrella under its Revised Charterthe exemption from specific
taxes on locally purchased fuel oil. In this context, I can not interpret P.D. 938 to have
withdrawn the exemption from tax on fuel oil to which NPC was already entitled and which
exemption Government in fact was utilizing to soften the burden of high crude prices.

There is one other consideration which I consider pivotal. The taxes paid by oil companies
on oil products sold to NPC, whether paid to them by NPC or no never entered into the rates
charged by NPC to its customers not even during those periods of uncertainty engendered
by the issuance of P.D. 1931 and E. 0. 93 on NP/Cs tax status. No tax component on the
fuel have been charged or recovered by NPC through its rates.

There is an import duty on the crude oil imported by the local refineries. After the refining
process, specific and ad valorem taxes are levied on the finished products including fuel oil
or residue upon their withdrawal from the refinery. These taxes are paid by the oil companies
as the manufacturer thereof.

In selling the fuel oil to NPC, the oil companies include in their billings the duty and tax
component. NPC pays the oil companies' invoices including the duty component but net of
the tax component. NPC then applies for drawback of customs duties paid and for a credit in
amount equivalent to the tax paid (by the oil companies) on the products purchased. The tax
credit is assigned to the oil companiesas payment, in effect, of the tax component shown
in the sales invoices. (NOTE: These procedures varied over timeThere were instances
when NPC paid the tax component that was shifted to it and then applied for tax credit.
There were also side issues raised because of P.D. 1931 and E.O. 93 which withdrew all
exemptions of government corporations. In these latter instances, the resolutions of the
Fiscal Incentives Review Board (FIRB) come into play. These incidents will not be touched
upon for purposes of this discussion).

NPC rates of electricity are structured such that changes in its cost of fuel are automatically
(without need of fresh approvals) reflected in the subsequent months billing rates.

This Fuel Cost Adjustment clause protects NPC's rate of return. If NPC should ever accept
liability to the tax and duty component on the oil products, such amount will go into its fuel
cost and be passed on to its customers through corresponding increases in rates. Since
1974, when NPC operated the oil-fired generating stations leased from Meralco (which
plants it bought in 1979), until the present time, no tax on fuel oil ever went into NPC's
electric rates.

That the exemption of NPC from the tax on fuel was not withdrawn by P.D. 938 is impressed
upon me by yet another circumstance. It is conceded that NPC at the very least, is exempt
from taxes to which it is directly liable. NPC therefore could very well have imported its fuel
oil or crude residue for burning at its thermal plants. There would have been no question in
such a case as to its exemption from all duties and taxes, even under the strictest
interpretation that can be put forward. However, at the time P.D. 938 was issued in 1976,
there were already operating in the Philippines three oil refineries. The establishment of
these refineries in the Philippines involved heavy investments, were economically desirable
and enabled the country to import crude oil and process / refine the same into the various
petroleum products at a savings to the industry and the public. The refining process
produced as its largest output, in volume, fuel oil or residue, whose conventional economic
use was for burning in electric or steam generating plants. Had there been no use locally for
the residue, the oil refineries would have become largely unviable.

Again, in this circumstances, I cannot accept that P.D. 938 would have in effect forced NPC
to by-pass the local oil refineries and import its fossil fuel requirements directly in order to
avail itself of its exemption from "direct taxes." The oil refineries had to keep operating both
for economic development and national security reasons. In fact, the restoration by the FIRB
of NPC's exemption after P.D. 1931 and E.O. 93 expressly excluded direct fuel oil
importations, so as not to prejudice the continued operations of the local oil refineries.

To answer your query therefore, it is the opinion of this Department that NPC under the
provisions of its Revised Charter retains its exemption from duties and taxes imposed on the
petroleum products purchased locally and used for the generation of electricity.

The Department in issuing this ruling does so pursuant to its power and function to supervise
and control the collection of government revenues by the application and implementation of
revenue laws. It is prepared to take the measures supplemental to this ruling necessary to
carry the same into full effect.

As presented rather extensively above, the NPC electric power rates did not carry the taxes
and duties paid on the fuel oil it used. The point is that while these levies were in fact paid to
the government, no part thereof was recovered from the sale of electricity produced. As a
consequence, as of our most recent information, some P1.55 B in claims represent amounts
for which the oil suppliers and NPC are "out-of-pocket. There would have to be specific order
to the Bureaus concerned for the resumption of the processing of these claims." 38
In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of Finance,
the said opinion ruling of the latter was confirmed and its implementation was directed. 39

The Court finds and so holds that the foregoing reasons adduced in the aforestated letter of the
Secretary of Finance as confirmed by the then Executive Secretary are well-taken. When the NPC
was exempted from all forms of taxes, duties, fees, imposts and other charges, under P.D. No. 938,
it means exactly what it says, i.e., all forms of taxes including those that were imposed directly or
indirectly on petroleum products used in its operation.

Reference is made in the dissenting opinion to contrary rulings of the BIR that the exemption of the
NPC extends only to taxes for which it is directly liable and not to taxes merely shifted to it. However,
these rulings are predicated on Philippine Acytelene.

The doctrine in Philippine Acytelene decided in 1967 by this Court cannot apply to the present case.
It involved the sales tax of products the plaintiff sold to NPC from June 2, 1953 to June 30,1958
when NPC was enjoying tax exemption from all taxes under Commonwealth Act No. 120, as
amended by Republic Act No. 358 issued on June 4, 1949 hereinabove reproduced.

In said case, this Court held, that the sales tax is due from the manufacturer and not the buyer, so
plaintiff cannot claim exemptions simply because the NPC, the buyer, was exempt.

However, on September 10, 1971, Republic Act No. 6395 was passed as the revised charter of NPC
whereby Section 13 thereof was amended by emphasizing its non-profit character and expanding
the extent of its tax exemption.

As petitioner concedes, Section 13(d) aforestated of this amendment under Republic Act No. 6345
spells out clearly the exemption of the NPC from indirect taxes. And as hereinabove stated, in P.D.
No. 380, the exemption of NPC from indirect taxes was emphasized when it was specified to include
those imposed "directly and indirectly."

Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated under Section 13 defining
the same in general terms to cover "all forms of taxes, duties, fees, imposts, etc." which, as
hereinabove discussed, logically includes exemption from indirect taxes on petroleum products used
in its operation.

This is the status of the tax exemptions the NPC was enjoying when P.D. No. 1931 was passed, on
the authority of which FIRB Resolution Nos. 10-85 and 1-86 were issued, and when Executive Order
No. 93 was promulgated, by which FIRB Resolution 17-87 was issued.

Thus, the ruling in Philippine Acetylene cannot apply to this case due to the different environmental
circumstances. As a matter of fact, the amendments of Section 13, under R.A. No. 6395, P.D. No,
380 and P.D. No. 838 appear to have been brought about by the earlier inconsistent rulings of the
tax agencies due to the doctrine in Philippine Acetylene, so as to leave no doubt as to the exemption
of the NPC from indirect taxes on petroleum products it uses in its operation. Effectively, said
amendments superseded if not abrogated the ruling in Philippine Acetylene that the tax exemption of
NPC should be limited to direct taxes only.

In the light of the foregoing discussion the first corollary issue must consequently be resolved in the
affirmative, that is, FIRB Resolution No. 10-85 dated February 7, 1985 and FIRB Resolution No. 1-
86 dated January 7, 1986 which restored NPC's tax exemption privileges included the restoration of
the indirect tax exemption of the NPC on petroleum products it used.
On the second corollary issue as to the validity of FIRB resolution No. 17-87 dated June 24, 1987
which restored NPC's tax exemption privilege effective March 10, 1987, the Court finds that the
same is valid and effective.

It provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption

privileges of the National Power Corporation, including those pertaining to its domestic
purchases of petroleum and petroleum products, granted under the terms and conditions of
Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers,
objectives and functions, and for other purposes), as amended, are restored effective March
10, 1987, subject to the following conditions:

1. The restoration of the tax and duty exemption privileges does not apply to the following:

1.1. Importation of fuel oil (crude equivalent) and coal;

1.2. Commercially-funded importations (i.e., importations which include but are not
limited to those financed by the NPC's own internal funds, domestic borrowings from
any source whatsoever, borrowing from foreign-based private financial institutions,
etc.); and

1.3. Interest income derived from any source.

2. The NPC shall submit to the FIRB a report of its expansion program, including details of
disposition of relieved tax and duty payments for such expansion on an annual basis or as
often as the FIRB may require it to do so. This report shall be in addition to the usual FIRB
reporting requirements on incentive availment. 40

Executive Order No. 93 provides as follows

Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax
and duty incentives granted " to government and private entities are hereby withdrawn,
except:

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

b) those conferred by effective international agreements to which the Government of

the Republic of the Philippines is a signatory;

c) those enjoyed-by enterprises registered with:

(i) the Board of Investments pursuant to Presidential Decree No. 1789, as

amended;

(ii) the Export Processing Zone Authority, pursuant to Presidential Decree No.
66, as amended;

(iii) the Philippine Veterans Investment Development Corporation Industrial

Authority pursuant to Presidential Decree No. 538, as amended;
 d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of
Instruction No. 1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the Fiscal

Incentives Review Board.

Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as
amended, is hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/of duty exemption that may be restored.

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

d) prescribe the date or period of effectivity of the restoration of tax and/or duty
exemption;

e) formulate and submit to the President for approval, a complete system for the
grant of subsidies to deserving beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential treatment in taxation, indicating
the source of funding therefor, eligible beneficiaries and the terms and conditions for
the grant thereof taking into consideration the international commitments of the
Philippines and the necessary precautions such that the grant of subsidies does not
become the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall
take into account any or all of the following considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged;

d) in general, the greater national interest to be served.

True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of the view
that the powers conferred upon the FIRB by Sections 2(a), (b), (c), and (d) of Executive Order No.
93 constitute undue delegation of legislative power and is therefore unconstitutional. However, he
was overruled by the respondent Executive Secretary in a letter to the Secretary of Finance dated
March 30, 1989. The Executive Secretary, by authority of the President, has the power to modify,
alter or reverse the construction of a statute given by a department secretary. 41

A reading of Section 3 of said law shows that it set the policy to be the greater national interest. The
standards of the delegated power are also clearly provided for.

The required "standard" need not be expressed. In Edu vs. Ericta and in De la Llana vs. Alba this
42 43

Court held: "The standard may be either express or implied. If the former, the non-delegated
objection is easily met. The standard though does not have to be spelled out specifically. It could be
implied from the policy and purpose of the act considered as a whole."

In People vs. Rosenthal the broad standard of "public interest" was deemed sufficient. In Calalang
44

vs. Williams, , it was "public welfare" and in Cervantes vs. Auditor General, it was the purpose of
45 46

promotion of "simplicity, economy and efficiency." And, implied from the purpose of the law as a
whole, "national security" was considered sufficient standard and so was "protection of fish fry or
47

fish eggs.48

The observation of petitioner that the approval of the President was not even required in said
Executive Order of the tax exemption privilege approved by the FIRB unlike in previous similar
issuances, is not well-taken. On the contrary, under Section l(f) of Executive Order No. 93,
aforestated, such tax and duty exemptions extended by the FIRB must be approved by the
President. In this case, FIRB Resolution No. 17-87 was approved by the respondent Executive
Secretary, by authority of the President, on October 15, 1987. 49

Mr. Justice Isagani A. Cruz commenting on the delegation of legislative power stated

The latest in our jurisprudence indicates that delegation of legislative power has become the
rule and its non-delegation the exception. The reason is the increasing complexity of modern
life and many technical fields of governmental functions as in matters pertaining to tax
exemptions. This is coupled by the growing inability of the legislature to cope directly with the
many problems demanding its attention. The growth of society has ramified its activities and
created peculiar and sophisticated problems that the legislature cannot be expected
reasonably to comprehend. Specialization even in legislation has become necessary. To
many of the problems attendant upon present day undertakings, the legislature may not
have the competence, let alone the interest and the time, to provide the required direct and
efficacious, not to say specific solutions.
50

Thus, in the case of Tablarin vs. Gutierrez, this Court enunciated the rationale in favor of delegation
51

of legislative functions

One thing however, is apparent in the development of the principle of separation of powers
and that is that the maxim of delegatus non potest delegare or delegati potestas non potest
delegare, adopted this practice (Delegibus et Consuetudiniis Anglia edited by G.E. Woodline,
Yale University Press, 1922, Vol. 2, p. 167) but which is also recognized in principle in the
Roman Law d. 17.18.3) has been made to adapt itself to the complexities of modern
government, giving rise to the adoption, within certain limits, of the principle of subordinate
legislation, not only in the United States and England but in practically all modern
governments. (People vs. Rosenthal and Osmea, 68 Phil. 318, 1939). Accordingly, with the
growing complexities of modern life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws, there is a constantly
 growing tendency toward the delegation of greater power by the legislative, and toward the
approval of the practice by the Courts. (Emphasis supplied.)

The legislative authority could not or is not expected to state all the detailed situations wherein the
tax exemption privileges of persons or entities would be restored. The task may be assigned to an
administrative body like the FIRB.

Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute.
Such presumption can be overturned if its invalidity is proved beyond reasonable doubt. Otherwise,
a liberal interpretation in favor of constitutionality of legislation should be adopted.
52

E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB
And as above discussed, the tax exemption privilege that was restored to NPC by FIRB Resolution
No. 17-87 of June 1987 includes exemption from indirect taxes and duties on petroleum products
used in its operation.

Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been
upheld in Albay.53

In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos. 1931 and 1955 issued by
President Marcos in 1984 are invalid as they were presumably promulgated under the infamous
Amendment No. 6 and that as they cover tax exemption, under Section 17(4), Article VIII of the 1973
Constitution, the same cannot be passed "without the concurrence of the majority of all the members
of the Batasan Pambansa." And, even conceding that the reservation of legislative power in the
President was valid, it is opined that it was not validly exercised as there is no showing that such
presidential encroachment was justified under the conditions then existing. Consequently, it is
concluded that Executive Order No. 93, which was intended to implement said decrees, is also
illegal. The authority of the President to sub-delegate to the FIRB powers delegated to him is also
questioned.

In Albay, as above stated, this Court upheld the validity of P.D. Nos. 776 and 1931. The latter
54

decree withdrew tax exemptions of government-owned or controlled corporations including their

subsidiaries but authorized the FIRB to restore the same. Nevertheless, in Albay, as above-
discussed, this Court ruled that the tax exemptions under FIRB Resolution Nos. 10-85 and 1-86
cannot be enforced as said resolutions were only recommendatory and were not duly approved by
the President of the Philippines as required by P.D. No. 776. The Court also sustained in Albay the
55

validity of Executive Order No. 93, and of the tax exemptions restored under FIRB Resolution No.
17-87 which was issued pursuant thereto, as it was duly approved by the President as required by
said executive order.

Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987 Constitution, it is
provided that:

All existing laws, decrees, executive orders, proclamation, letters of instructions, and other
executive issuances not inconsistent with this constitution shall remain operative until
amended, repealed or revoked.

Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown that they are inconsistent
with the Constitution.1wphi1
Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order No. 93 are not valid and are
unconstitutional, the result would be the same, as then the latest applicable law would be P.D. No.
938 which amended the NPC charter by granting exemption to NPC from all forms of taxes. As
above discussed, this exemption of NPC covers direct and indirect taxes on petroleum products
used in its operation. This is as it should be, if We are to hold as invalid and inoperative the
withdrawal of such tax exemptions under P.D. No. 1931 as well as under Executive Order No. 93
and the delegation of the power to restore these exemptions to the FIRB.

The Court realizes the magnitude of the consequences of this decision. To reiterate, in Albay this
Court ruled that the NPC is liable for real estate taxes as of June 11, 1984 (the date of promulgation
of P.D. No. 1931) when NPC had ceased to enjoy tax exemption privileges since FIRB Resolution
Nos. 1085 and 1-86 were not validly issued. The real estate tax liability of NPC from June 11, 1984
to December 1, 1990 is estimated to amount to P7.49 billion plus another P4.76 billion in fuel import
duties the firm had earlier paid to the government which the NPC now proposed to pass on to the
consumers by another 33-centavo increase per kilowatt hour in power rates on top of the 17-centavo
increase per kilowatt hour that took effect just over a week ago., Hence, another case has been
56

filed in this Court to stop this proposed increase without a hearing.

As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86 were issued, P.D. No. 776
dated August 24, 1975 was already amended by P.D. No. 1931 , wherein it is provided that such
57

FIRB resolutions may be approved not only by the President of the Philippines but also by the
Minister of Finance. Such resolutions were promulgated by the Minister of Finance in his own right
and also in his capacity as FIRB Chairman. Thus, a separate approval thereof by the Minister of
Finance or by the President is unnecessary.

As earlier stated a reexamination of the ruling in Albay on this aspect is therefore called for and
consequently, Albay must be considered superseded to this extent by this decision. This is because
P.D. No. 938 which is the latest amendment to the NPC charter granting the NPC exemption from all
forms of taxes certainly covers real estate taxes which are direct taxes.

This tax exemption is intended not only to insure that the NPC shall continue to generate electricity
for the country but more importantly, to assure cheaper rates to be paid by the consumers.

The allegation that this is in effect allowing tax evasion by oil companies is not quite correct. There
1a\^/phi1

are various arrangements in the payment of crude oil purchased by NPC from oil companies.
Generally, the custom duties paid by the oil companies are added to the selling price paid by NPC.
As to the specific and ad valorem taxes, they are added a part of the seller's price, but NPC pays the
price net of tax, on condition that NPC would seek a tax refund to the oil companies. No tax
component on fuel had been charged or recovered by NPC from the consumers through its power
rates. Thus, this is not a case of tax evasion of the oil companies but of tax relief for the NPC. The
58

billions of pesos involved in these exemptions will certainly inure to the ultimate good and benefit of
the consumers who are thereby spared the additional burden of increased power rates to cover
these taxes paid or to be paid by the NPC if it is held liable for the same.

The fear of the serious implication of this decision in that NPC's suppliers, importers and contractors
may claim the same privilege should be dispelled by the fact that (a) this decision particularly treats
of only the exemption of the NPC from all taxes, duties, fees, imposts and all other charges imposed
by the government on the petroleum products it used or uses for its operation; and (b) Section 13(d)
of R.A. No. 6395 and Section 13(d) of P.D. No. 380, both specifically exempt the NPC from all taxes,
duties, fees, imposts and all other charges imposed by the government on all petroleum products
used in its operation only, which is the very exemption which this Court deems to be carried over by
the passage of P.D. No. 938. As a matter of fact in Section 13(d) of P.D. No. 380 it is specified that
the aforesaid exemption from taxes, etc. covers those "directly or indirectly" imposed by the
"Republic of the Philippines, its provincies, cities, municipalities and other government agencies and
instrumentalities" on said petroleum products. The exemption therefore from direct and indirect tax
on petroleum products used by NPC cannot benefit the suppliers, importers and contractors of NPC
of other products or services.

The Court realizes the laudable objective of petitioner to improve the revenue of the government.
The amount of revenue received or expected to be received by this tax exemption is, however, not
going to any of the oil companies. There would be no loss to the government. The said amount shall
accrue to the benefit of the NPC, a government corporation, so as to enable it to sustain its
tremendous task of providing electricity for the country and at the least cost to the consumers.
Denying this tax exemption would mean hampering if not paralyzing the operations of the NPC. The
resulting increased revenue in the government will also mean increased power rates to be
shouldered by the consumers if the NPC is to survive and continue to provide our power
requirements. The greater interest of the people must be paramount.
59

WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

SO ORDERED.

Narvasa, Melencio-Herrera, Feliciano, Bidin, Medialdea and Regalado, JJ., concur.

Fernan C.J., No part.
Paras, J., I dissent, but the NPC should be refunded not by the consuming public but by the oil
companies for ultimately these oil companies get the benefit of the alleged tax exemption.
Padilla, J., took no part.

Separate Opinions

CRUZ, J., Dissenting:

I join Mr. Justice Abraham F. Sarmiento in his excellent dissent and would stress only the following
additional observations.

A tax exemption represents a loss of revenue to the State and must therefore not be lightly granted
or inferred. When claimed, it must be strictly construed against the taxpayer, who must prove that he
comes under the exemption rather than the rule that every one must contribute his just share in the
maintenance of the government.

In the case at bar, the ponencia would justify the tax exemption as having been validly granted under
P.D. Nos. 1931 and 1955 and Resolutions Nos. 10-85 and 1-86 of the Fiscal Incentives Review
Board. It is also asserted that FIRB Resolution No. 17-87, which restored MPC's tax exemption
effective March 10 1987, was lawfully adopted pursuant to a valid delegation of power made by
Executive Order No. 93.

When P.D. Nos. 1931 and 1955 were issued by President Marcos in 1984, the Batasang Pambansa
was already in existence and discharging its legislative powers. Presumably, these decrees were
promulgated under the infamous Amendment No. 6. Assuming that the reservation of legislative
power in the President was then valid, I submit that the power was nevertheless not validly
exercised. My reason is that the President could legislate under the said amendment only if the
Batasang Pambansa "failed or was unable to act adequately on any matter that in his judgment
required immediate action" to meet the "exigency." There is no showing that the presidential
encroachment on legislative prerogatives was justified under these conditions. Simply because the
rubber-stamp legislature then meekly submitted did not make the usurpation valid.

By these decrees, President Marcos, exercising legislative power, delegated it to himself as

executive and empowered himself and/or the Minister of Finance to restore the exemptions
previously withdrawn.

As the decrees themselves were invalid it should follow that Executive Order No. 93, which was
intended only to implement them, should also be illegal. But even assuming the legality of the said
decrees, I would still question the authority of the President to sub-delegate the powers delegated to
her thereunder.

Such sub-delegation was not permissible because potestas delegata non delegari potest Even if we
were to disregard the opinion of Secretary of Justice Sedfrey A. Ordoez that there were no
sufficient standards in Executive Order No. 93 (although he was reversed on this legal questions by
the Executive Secretary), the President's delegated authority could still not be extended to the FIRB
which was not a delegate of the legislature.

It is remarkable that the respondents could seriously argue that a mere administrative body like the
FIRB can exercise the legislative power to grant tax exemptions. I am not aware that any other such
agency, including the Bureau of Internal Revenue and the Bureau of Customs, has this authority. An
administrative body can apply tax exemptions under existing law but it cannot itself create such
exemptions. This is a prerogative of the Congress that cannot be usurped by or even delegated to a
mere administrative body.

In fact, the decrees clearly provided that it was the President and/or the Minister of Finance who
could restore the exemption, subject only to the recommendation of the FIRB. The FIRB was not
empowered to directly restore the exemption. And even if it be accepted that the FIRB merely
recommended the exemption, which was approved by the Finance Minister, there would still be the
curious anomaly of Minister Virata upholding his very own act as chairman of the FIRB.

This Court called it a "travesty of justice" when in Zambales Chromite vs. Court of Appeals, 94 SCRA
261, the Secretary of Agriculture and Natural Resources approved a decision earlier rendered by
him when he was the Director of Mines, and in Anzaldo vs. Clave, 119 SCRA 353, where the
respondent, as presidential executive assistant, affirmed on appeal to Malacaang his own decision
as chairman of the Civil Service Commission.

It is important to note that when P.D. Nos. 1931 and 1955 were issued by President Marcos, the rule
under the 1973 Constitution was that "no law granting a tax exemption shall be passed without the
concurrence of a majority of all the members of the Batasang Pambansa." (Art. VIII, Sec. 17[4]).
Laws are usually passed by only a majority of those present in the chamber, there being a quorum,
but not where it grants a tax exemption. This requires an absolute majority. Yet, despite this stringent
limitation on the national legislature itself, such stricture does not inhibit the President and the FIRB
in the exercise of their delegated power. It would seem that the delegate has more power than the
principal. Significantly, this limitation is maintained in the present Constitution under Article VI,
Section 28(4).

The ponencia holds that the rule of strict construction is not applicable where the grantee is an
agency of the government itself, like the MPC in the case before us. I notice, however, that the
ultimate beneficiaries of the expected tax credit will be the oil companies, which certainly are not part
of the Republic of the Philippines. As the tax refunds will not be enjoyed by the MPC itself, I see no
reason why we should be exceptionally lenient in applying the exception.

The tax credits involved in this petition are tremendousno less than Pl.58 billion. This amount
could go a long way in improving the national economy and the well-being of the Filipino people,
who deserve the continuing solicitude of the government, including this Court. I respectfully submit
that it is to them that we owe our foremost loyalty.

Gutierrez, Jr., J., concurs

SARMIENTO, J., dissenting:

I would like to point out specifically two things in connection with the majority's disposition as to: (1)
Finance Incentives Review Board FIRB Resolutions Nos. 10-85 and 186; and (2) the National Power
Corporation's tax exemption vis-a-vis our decision in the case of Philippine Acetylene Co., Inc. vs.
Commission of Internal Revenue, and in the light of the provisions of its charter, Republic Act No.
1

6395, and the various amendments entered into it.

(1)

On pages 20-23 of the Decision, the majority suggests that FIRB Resolutions Nos. 10-85 and 1-86
had validly restored the National Power Corporation's tax exemption privileges, which Presidential
Decree No. 1931 had meanwhile suspended. I wish to stress that in the case of National Power
Corporation vs. Province of Albay, the Court held that the FIRB Resolutions Nos. 10-85 and 1-86
2

had the bare force of recommendations and did not operate as a restoration, in the absence of an
approval by the President (in then President Marcos' exercise of legislative powers), of tax
exemptions. The Court noted that there is nothing in Presidential Decree No. 776, the FIRB charter,
conferring on it the authority to grant or restore exemptions, other than to make recommendations on
what exemptions to grant or restore. I quote:

xxx xxx xxx

It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was
merely to "recommend to the President of the Philippines and for reasons of compatibility
with the declared economic policy, the withdrawal, modification, revocation or suspension of
the enforceability of any of the abovecited statutory subsidies or tax exemption grants,
except those granted by the Constitution." It has no authority to impose taxes or revoke
existing ones, which, after all, under the Constitution, only the legislature may
accomplish. . . .3

xxx xxx xxx

As the Court held there, it was only on March 10, 1987 that the restoration became effective, not
because Resolutions Nos. 10-85 and 1-86 decreed a restoration, but because of Resolution No. 17-
87 which, on the other hand, carried the approval of the Office of the President . (FIRB Resolution
4

No. 17-87 made the National Power Corporation's exemption effective March 10, 1987.) Hence, the
National Power Corporation, so the Court held, was liable for payment of real property taxes to the
Province of Albay between. June 11, 1984, the date Presidential Decree No. 1931 (withdrawing its
tax exemptions) took effect, and March 10, 1987,

As far therefore as the majority in the present case rules that the National Power Corporation is also
entitled to a refund as a result of FIRB Resolutions Nos. 10-15 and 1-86, I respectfully submit that a
serious conflict has arisen.

While it is true that FIRB Resolutions Nos. 10-85 and 1-86 were signed by the Finance Minister
Cesar Virata, I submit nonetheless, as Albay in fact held, that the signature of the Mr. Virata is not
5

enough to restore an exemption. The reason is that Mr. Virata signed them (FIRB Resolutions Nos.
10-85 and 1-86) in his capacity as chairman of the Finance Incentives Review Board FIRB. I find this
clear from the very Resolutions in question:

FISCAL INCENTIVES REVIEW BOARD

RESOLUTION NO. 10-85

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National
Power Corporation under C.A. No. 120 as amended are restored up to June 30, 1985.

2. Provided, That this restoration does not apply to the following:

a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-
84;

b. commercially-funded importations; and

c. interest income derived from any investment source.

3. Provided further, That in case of importations funded by international financing

agreements, the NPC is hereby required to furnish the FIRB on a periodic basis the
particulars of items received or to be received through such arrangements, for purposes of
tax and duty exemption privileges.

(Sgd.) ALFREDO PIO DE RODA, JR.

Acting Minister of Finance
Acting Chairman, FIRB

FISCAL INCENTIVES REVIEW BOARD

RESOLUTION NO. 1-86

BE IT RESOLVED, AS IT IS HEREBY RESOLVED: That:

1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National
Power Corporation (NPC) under Commonwealth Act No. 120, as amended, are
restored; Provided, That importations of fuel oil (crude oil equivalent) and coal of the herein
grantee shall be subject to the basic and additional import duties; Provided, further, That the
following shall remain fully taxable:

a. Commercially-funded importations; and

 b. Interest income derived by said grantee from bank deposits and yield or any other
monetary benefits from deposit substitutes, trust fund and other similar
arrangements.

2. The NPC as a government corporation is exempt from the real property tax on land and
improvements owned by it provided that the beneficial use of the property is not transferred
to another pursuant to the provisions of Sec. 40(a) of the Real Property Tax Code, as
amended.

(Sgd.) CESAR E.A. VIRATA

Minister of Finance
Chairman-FIRB

I respectfully submit that to say that Mr. Virata's signature is sufficient (please note that Resolution
No. 10-85 was not even signed by Mr. Virata, but rather by Mr. Alfredo Pio de Roda, Jr.) is in fact to
confer on the Board actual "restoration" or even exemption powers, because in all cases, FIRB
Resolutions are signed by Mr. Virata (or the acting chairman) in his capacity as Board Chairman. I
submit that we can not consider an FIRB Resolution as an act of Mr. Virata in his capacity as
Minister of Finance (and therefore, as a grant or restoration of tax exemption) although Mr. Virata
also happened to be concurrently, Minister of Finance, because to do so would be to blur the
distinction between the capacities in which he, Mr. Virata, actually acted. I submit that he, Mr. Virata,
need have issued separate approvals of the Resolutions in question, in his capacity as Finance
Minister.

Parenthetically, on the issue of the constitutional validity of Executive Order No. 93, insofar as it
"delegates" the power to restore exemptions to the FIRB, I hold that in the first place, Executive
Order No. 93 makes no delegation at all. As the majority points out, "[u]nder Section 1 (f) of
Executive Order No. 93, aforestated, such tax and duty exemptions extended by the FIRB must be
approved by the President." Hence, the FIRB does not exercise any powerand as I had held, its
6

powers does not merely recommendatoryand it is the President who in fact exercises it. It is true
that Executive Order No. 93 has set out certain standards by which the FIRB as a reviewing body,
may act, but I do not believe that a genuine delegation question has arisen because precisely, the
acts of the Board are subject to approval by the President, in the exercise of her legislative powers
under the Freedom Constitution. 7

(2)

According to the Decision, the National Power Corporation, under its charter, is also exempt from
indirect taxes, and that there is nothing irregular about what is apparently standard operating
procedure between the Corporation and the oil firms in which the latter sell to the Corporation of "net
of tax" and that thereafter, the Corporation assigns to them its tax credit.

I gather first, and with all due respect, that there has been a misunderstanding about so-called
indirect taxes and the theory of shifting taxes. In Philippine Acetylene Co., Inc., supra, the Court
intimated that there are no such things as indirect taxes for purposes of exemption, and that the
National Power Corporation's exemption from taxes can not be claimed, as well, by a manufacturer
(who sells his products to the Corporation) on the theory that the taxes he will shift will be shifted to a
tax-exempt entity. According to the Court, "the purchaser does not pay the tax . . . [h]e pays or may
pay the seller more for the goods because of the seller's obligation, but that is all and the amount
added because of the tax is paid to get the goods and for nothing else." 8
It is true that a tax may be shifted, that is, to enable the payor to escape its effects by adding it to the
price, thereby transferring the burden to the purchaser of whom the incidence of the tax settles
(indirect tax). I submit, however, that it is only for purposes of escape from taxation.
As Acetylene has clarified, the tax which the manufacturer is liable to pay directly under a statute is
still a personal tax and in "passing and tax on" to the purchaser, he does not really make the latter
pay the tax, and what the latter pays actually is just the price. Thus, for purposes of exemption, and
so Acetylene tells us, the manufacturer can not claim one because the purchaser happens to be
exempted from taxes. Mutatis mutandis and so I respectfully submit, the purchaser can not be
allowed to accept the goods "net of tax" because it never paid for the tax in the first place, and was
never liable therefor in the second place.

According to the majority, Philippine Acetylene has been "abrogated," and the majority points to the
various amendments to the charter of the National Power Corporation as authority for its view.

First, there is nothing in those amendments that would remotely point to this conclusion.

Second, Acetylene's pronouncement is founded on the very science of taxationthat indirect taxes
are no taxes for purposes of exemption, and that consequently, one who did not pay taxes can not
claim an exemption although the price he paid for the goods included taxes. To enable him to claim
an exemption, as the majority would now enable him (Acetylene having been "abrogated"), is, I
submit, to defeat the very laws of science.

The theory of "indirect taxes" and that no exemption is possible therefrom, so I reiterate, are well-
settled concepts of taxation, as the law of supply and demand is to the law of economics. A
President is said (unfairly) to have attempted it, but one can not repeal the law on supply and
demand.

I do not find the National Power Corporation's alleged exemption from indirect tax evident, as the
majority finds it evident, from the Corporation's charter, Republic Act No. 6395, as amended by
Presidential Decrees Nos. 380 and 938. It is true that since Commonwealth Act No. 120 (the
Corporation's original charter, which Republic Act No. 6395 repealed), the Corporation has enjoyed a
"preferential tax treatment," I seriously doubt, however, whether or not that preference embraces
"indirect taxes" as wellwhich, as I said, are no taxes for purposes of claims for exemptions by the
"indirect payor." And albeit Presidential Decree No. 938 refers to "all forms of taxes," I can not take
that to include, as a matter of logic, "indirect taxes," and as discussed above, that scenario is not
possible.

I quite agree that the legislative intent, based on a perusal of Republic Act No. 6395 and subsequent
amendatory statutes was to give the National Power Corporation a broad tax preference on account
of the vital functions it performs, indeed, "to enable the Corporation to pay the indebtedness and
obligation and in furtherance and effective implementation of the policy initiated" by its charter. I
submit, however, that that alone can not entitle the Corporation to claim an exemption for indirect
taxes. I also believe that its existing exemption from direct taxes is sufficient to serve the legislative
purpose.

The fact that the National Power Corporation has been tasked with an enormous undertaking "to
improve," as the majority puts it, "the quality of life of the people" pursuant to constitutional mandates
is no reason, I believe, to include indirect taxes within the coverage of its preferential tax treatment.
After all, it is exempt from direct taxes, and the fact that it will be made to shoulder indirect taxes
(which are no taxes) will not defeat its exemption or frustrate the intent of both legislature and
Constitution.
I do not think that the majority can point to the various executive constructions as authorities for its
own construction. First and foremost, with respect to then Commissioner Ruben Ancheta's ruling of
May 8, 1985 cited on pages 32-33 of the Decision, it is notable that in his BIR Ruling No. 183-85,
dated October 22, 1985, he in fact reversed himself, I quote:

In reply please be informed that after a re-study of Section 13, R.A. 6395 as amended by
P.D. No. 938, this Office is of the opinion, and so holds, that the scope of the tax exemption
privilege enjoyed by NPC under said section covers only taxes for which it is directly liable
and not on taxes which are merely shifted to it. (Phil. Acetylene Co. vs. Comm. of Internal
Revenue, 20 SCRA 1056,1967). Since contractor's tax is directly payable by the contractor,
not by NPC, your request for exemption, based on the stipulation in the aforesaid contract
that NPC shall assume payment of your contractor's tax liability, cannot be granted for lack of
legal basis. (emphasis added) 9

In yet another ruling, then Commissioner Bienvenido Tan likewise declared, in connection with an
apparent claim for refund by the Philippine Airlines, that "PAL's tax exemption is limited to taxes for
which PAL is directly liable, and that the payment of specific and ad valorem taxes on petroleum
products is a direct liability of the manufacturer or producer thereof . . ." 10

Again, under BIR Ruling No. 152-86, the Bureau of Internal Revenue reiterated, as to the National
Power Corporation's claim for a refund I quote:

. . . this Office has maintained the stand that your tax exemption privileges covers only taxes
for which you are directly liable. 11

Per BIR Ruling No. 70-043, dated August 27, 1970, the Bureau likewise held that the term "all forms
of taxes" covers only direct taxes, 12

In his letter addressed to former BIR Commissioner Tan, Atty. Reynoso Floreza, BIR Assistant
Commissioner for Legal, opposed Caltex Philippines' claim for a P58-million refund, and although
the Commissioner at that time hedged he was later persuaded by Special Assistant Abraham De la
Via and in fact, instructed Atty. De la Via to "prepare [the] corresponding notice to NPC and
Caltex" to inform them that their claim has been denied. (Although strangely, he changed his mind
13

later.)

Hence, I do not think that we can judiciously rely on executive construction because executive
construction has been at best, erratic, and at worst, conflicting.

I do not find that majority's historical construction a reliable yardstick in this case, for if the historical
development of the law were any indication, the legislative intent is, on the contrary, to exclude
indirect taxes from the coverage of the National Power Corporation's tax exemption. Thus, under
Commonwealth Act No. 120, the Corporation was made exempt from the payment of all taxes in
connection with the issuance of bonds. Under Republic Act No. 358, it was made exempt from the
payment of all taxes, duties, fees, imposts, and charges of the national and local governments.

Under Republic Act No. 6395, the National Power Corporation was further declared exempt:

(e) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation . . .
By virtue of Presidential Decree No. 380, it was made exempt:

(d) from all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly
by the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the corporation in the
generation, transmission, utilization and sale of electric power.

By virtue however of Presidential Decree No. 938, reference to "indirect taxes" was omitted thus:

. . .To enable the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section One of this Act, the Corporation,
including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes,
duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds,
supersedeas bonds, in any court or administrative proceedings.

The deletion of "indirect taxes" in the Decree is, so I hold, significant, because if the intent of the law
were truly to exempt the National Power Corporation from so-called indirect taxes as well, the law
would have said so specifically, as it said so specifically in Presidential Decree No. 380.

I likewise do not think that the reference to the whereas clauses of Presidential Decree No. 938 is
warranted, in particular, the following whereas clause:

WHEREAS, in the application of the tax exemption provisions of the Revised Charter, the
non-profit character of NPC has not been fully utilized because of the restrictive
interpretations of the taxing agencies of the government on said provisions;

I am not certain whether it can be basis for a "liberal" construction. I am more inclined to believe that
the term "restrictive interpretations" refers to BIR rulings confining the exemption to the Corporation
alone (but not its subsidiaries), and not, rather, to the scope of its exemption. Indeed, as Presidential
Decree No. 938 specifically declares, "the Corporation, including its subsidiaries, is hereby declared
exempt . . . "
14

The majority expresses the apprehension that if the National Power Corporation were to be made to
assume "indirect taxes," the latter will be forced to pass them on to the consuming public.

First, and as Acetylene held, we do not even know if the payor will in fact "pass them on." "A
decision to absorb the burden of the tax is largely a matter of economics." Furthermore:
15

In the long run a sales tax is probably shifted to the consumer, but during the period when
supply is being adjusted to changes in demand it must be in part absorbed. In practice the
businessman will treat the levy as an added cost of operation and distribute it over his sales
as he would any other cost, increasing by more than the amount of the tax prices of goods
demand for which will be least affected and leaving other prices unchanged. 47 Harv. Ld.
Rev. 860, 869 (1934). 16

It therefore appears to me that any talk of the public ultimately absorbing the tax is pure speculation.

Second, it has typically been the bogeyman that business, with due respect, has invoked to avoid
the payment of tax. And to be sure, the populist allure of that argument has appealed to many, yet it
has probably also obscured what is as fundamental as protecting consumerspreserving public
revenue, the very lifeblood of the nation. I am afraid that this is not healthy policy, and what occurs to
meand what indeed leaves me very uncomfortableis that by the stroke of the pen, we should
have in fact given away P13,750,214,639.00 (so it is said) of legitimate government money.

According moreover to Committee Report No. 474 of the Senate, "NPC itself says that it does not
use taxes to increase prices of electricity to consumers because the cost of electric generation and
sale already takes into account the tax component. " 17

I can not accept finally, what to me is an unabashed effort by the oil firms to evade taxes, the
arrangement (as I gather from the Decision) between the National Power Corporation and the oil
companies in which the former assigns its tax credit to the latter. I also presume that this is the
natural consequence of the "understanding," as I discussed above, to purchase oil "net of tax"
between NAPOCOR and the oil firms, because logically, the latter will look for other sources from
which to recoup the taxes they had failed to shift and recover their losses as a result. According to
the Decision, no tax is left unpaid because they have been pre-paid before the oil is delivered to the
National Power Corporation. But whatever taxes are paid are in fact wiped out because the
subsequent credit transfer will enable the oil companies to recover the taxes pre- paid.

According to the majority, "[t]his is not a case of tax evasion of the oil companies but a tax relief for
the NPC." The problem, precisely, is that while it is NPC which is entitled to "tax relief," the
18

arrangement between NPC and the oil companies has enabled instead the latter to enjoy relief
when relief is due to NPC alone. The point still remains that no tax money actually reaches our
coffers because as I said, that arrangement enables them to wipe it out. If the NPC were the direct
importer, I would then have no reason to object, after all, the NPC is exempt from direct taxation and
secondly, the money it is paying to finance its importations belongs to the government. The law,
however, gave the exemption to NPC, not the oil companies.

According to the Decision: "The amount of revenue received or expected to be received by this tax
exemption is, however, not going to any of the oil companies. . . " and that "[t]here would be no loss
19

to the government." 20

With due respect to the majority, it is erroneous, if not misleading, to say that no money is going to
the oil companies and that the government is not losing anything. Definitely, the tax credit
assignment arrangement between the NPC and the oil firms enables the latter to recover revenue
they have paid. And definitely, that means loss for the government.

The majority is concerned with the high cost of electricity. The increasing cost of electricity is
however due to myriad factors, foremost of which, is the devaluation of the peso and as recent
21

events have suggested, "miscalculations" at the top levels of NPC. I can not however attribute it, as
the majority in all earnest attributes it, to the fact, far-fetched as it is, that the NPC has not been
allowed to enjoy exemption from indirect taxes.

Tax exemptions furthermore are a matter of personal privilege of the grantee. It has been held that
as such, they can not be assigned, unless the statute granting them permits an assignment. 22

While "shifting the burden of tax" is a permissible method of avoiding a tax, evading it is a totally
different matter. And while I agree with the National Power Corporation should be given the widest
financial assistance possible, assistance should not be an excuse for plain tax evasion, if not tax
fraud, by Big Business, in particular, Big Oil.

(3) Postscripts
With all due respect, I do not think that the majority has appreciated enough the serious implications
of its decisionto the contrary, in particular, its shrinking coffers. I do not think that we are, after all,
talking here of "simple" billions, but in fact, billions upon billions in lost revenue looming large.

I am also afraid that the majority is not quite aware that it is setting a precedent not only for the oil
companies but in fact, for the National Power Corporation's suppliers, importers, and contractors.
Although I am not, as of this writing, aware of their exact number or the precise amount the National
Power Corporation has spent in payment of supplies and equipment, I can imagine that the
Corporation's assets consisting of those supplies and equipment, machines and machinery, are
worth no fewer than billions.

With this precedent, there is no stopping indeed the NAPOCOR's suppliers, from makers of storage
tanks, steel towers, cables and cable poles, to builders of dikes, to layers of pipelines, and pipes,
from claiming the same privilege.

There is no stopping the NPC's contractors, from suppliers of cement for plant fixtures and lumber
for edifices, to the very engineers and technicians who designed them, from demanding equal rights.

There will be no stopping the Corporation's transporters, from container van and rig owners to
suppliers of service vehicles of NPC executives, from demanding the privilege.

What is to stop, indeed, caterers of food served in board meetings or in NAPOCOR cafeterias from
asking for exemption, since food billed includes sales taxes shifted to a tax-exempt entity and,
following the theory of the majority, taxes that may be refunded?

What is, indeed, to stop all imagined claimants from demanding all imagined claims, since as we are
aware, the rule of taxationand consequently, tax exemptionis uniform and equitable? 23

Of course, we have discussed NAPOCOR alone; we have not touched other tax-exempt entities,
say, the Marinduque Mining Corporation and Nonoc Mining Corporation. Per existing records and
per reliable information, Caltex Philippines, between 1979 and 1986, successfully recovered the total
sum of P49,835,791.00. In 1985, Caltex was said to have been refunded the amount of
P4,217,423.00 arising from the same tax arrangement with the Nonoc Mining Corporation.

Again, what is stoppingby virtue of this decision notonly the oil firms but also Marinduque's and
Nonoc's suppliers, importers, and ridiculously, caterers, from claiming a future refund?

The Decision, to be sure, attempts to allay these apprehensions and "dispel[s] [them] by the fact that
. . . the decision particularly treats of only the exemption of the NPC from all taxes, duties, fees,
imposts and all other charges imposed by the government on the petroleum products it need or uses
for its operation . . . " Firstly, under Presidential Decree No. 938, the supposed tax exemption of the
24

National Power Corporation covers "all forms of taxes. If therefore "all forms of taxes covers as well
25

indirect taxes because Presidential Decree No. 380 supposedly extended the Corporation's
exemption to indirect taxes (and the majority "deems Presidential Decree No. 380 to have been
carried over to Presidential Decree No. 938"), then the conclusion seems in escapablefollowing
the logic of the majoritythat the Corporation is exempt from all indirect taxes, on petroleum and
any and all other products and services.

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

I still would have reason for my fears.

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

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

I am afraid that by this Decision, the majority has ignored the forest (the welfare of the entire nation)
in favor of a tree (the welfare of a government corporation). The issue, in my opinion, is not the
viability of the National Power Corporationas if the fate of the nation depended alone on itbut the
very survival of the Republic. I am not of course to be mistaken as being less concerned with
NAPOCOR's fiscal chart. The picture, as I see it however, is that we are in fact assisting the oil
companies, out of that alleged concern, in evading taxes at the expense, needless to state, of our
coffers. I do not think that that is a question of legal hermeneutics, but rather, of plain love of country.

Grio-Aquino, Davide, Jr. and Gutierrez, Jr., JJ., concur

Footnotes

1
Section 1, Com. Act No. 120 (1936).

2
Section 1, Rep. Act No. 6395 (1971).

3
Section 2, Rep. Act No. 6395 (1971).

4
Section 1, Pres. Decree No. 1931 (1984).

5
Pages 7 to 19, rollo.

6
Pages 49 to 52, rollo.

7
Page 19, rollo.
8
Citing Ex parte Levit 302 U.S. 633; Tileson vs. Ullman, 318 U.S. 446; Lozada vs.
Commission on Elections, 120 SCRA 337 (1983).

9
Citing Meralco Securities Corporation vs. Savellano, 117 SCRA 804 (1982).

10
Ibid., page 812.

11
Citing Strong vs. Castro, 137 SCRA 322 (1985).

12
Citing Fortun vs. Labang, 104 SCRA 607 (1981).

13
51 Am. Jur. Section 21; 61 C.J. Section 6, note 57(e), p. 73.

14
20 SCRA 1056 (1967).

Citing United Garment Co., Inc. vs. Court of Tax Appeals, 4 SCRA 304 (1962); and Butuan
15

Sawmill, Inc. vs. City of Butuan, 16 SCRA 755 (1966).

16
See page 27 of Petition.

17
Annex C, petition, page 123, Rollo.

18
Annex H, petition; page 135, Rollo.

19
Annexes C and I to the Petition.

20
G.R. No. 87479 promulgated on June 4, 1990.

21
Annex 3 to the Petition (tax credit memo).

22
Annex F to the Petition.

23
Section 1, Commonwealth Act No. 120; Sections 2 and 13, Republic Act No. 6395 in
relation to Section 3, Act No. 1495.

24
Section 5, Republic Act No. 6395.

Section 4, Republic Act No. 120; Section 2, Republic Act No. 358; Section 13, Republic Act
25

No. 6395; Section 10, Presidential Decree No. 380.

Section 13, Republic Act No. 6395, as amended by Presidential Decrees Nos. 380 and
26

938.

27
Section 13, P.D. No. 938.

28
2 Cooley on the Law of Taxation, 4th edition, 1414 (1927).

C. Dallas Sands, Statutes and Statutory Construction, Vol. 3, p. 207, citing Crosby vs. U.S.,
29

292 F. Supp. 314; Pasadena vs. Los Angeles Country, 187 P. 418 and other cases.
30
Com. vs. City of Richmond, 116 Va. 69, 81 S.E. 69.

U.S. vs. Palacio, 33 Phil. 208 (1916); Commissioner of Customs vs. Esso Standard
31

Eastern, Inc., 66 SCRA 113 (1975).

32
Larga vs. Ranada, Jr., 164 SCRA 18 (1988).

Aboitiz Shipping Corp. vs. City of Cebu, 12 SCRA 449 (1965); and Aisporna vs. Court of
33

Appeals, 113 SCRA 459 (1982).

34
Statutory Construction by E.T. Crawford, pages 604 to 605, cited in Commissioner of
Internal Revenue vs. Filipinas Compania de Seguros, 107 Phil. 1055 (1960).

35
Luzon Stevedoring Corporation vs. Court of Tax Appeals, 163 SCRA 647 (1988).

36
Pascual vs. Director of Lands, 10 SCRA 354 (1964); Solaria vs. Buenviaje, 81 SCRA 722
(1978); La Suerte Cigar and Cigarette Factory vs. Court of Tax Appeals, 134 SCRA 29
(1985).

37
Annexes 7, 8, T, V, W and 17.

38
Annex N; emphasis supplied.

39
Annex O to the Petition.

40
Annex K to the Petition; page 176, Rollo.

Annex Q to petition, citing University of the East vs. U.E. Faculty Association, 117 SCRA
41

554, 572 (1982).

42
35 SCRA 481 (1970).

43
112 SCRA 294 (1982).

44
68 Phil. 328 (1939).

45
70 Phil. 726 (1940).

46
91 Phil. 359 (1952).

47
Hirabayashi vs. United States, 320 U.S. 99.

Araneta vs. Gatmaitan, 101 Phil. 328 (1957); see also Justice Isagani A. Cruz, Philippine
48

Political Law, 1984 Ed., pages 105 to 106.

49
Annex M to the Petition.

50
Pages 82 to 83, Philippine Political Law, Isagani A. Cruz, 1989 ed.

51
152 SCRA 730 (1987).
52
Victoriano vs. Elizalde Rope Workers Union, 59 SCRA 54, 66 (1974).

53
Supra.

54
Supra.

55
P.D. No. 1955 was issued effective October 15, 1984 providing for the withdrawal of tax
exemptions of private business enterprises and/or persons engaged in any economic activity.
It is not relevant to this case which involves a government corporation.

See March 5, 1991 issue of the Philippine Daily Inquirer and other newspapers of same
56

day as well as the March 10, 1991 issue of the Manila Bulletin.

57
Please see Sec. 5 of P.D. No. 1931 which provide that all other laws, decrees, etc.
inconsistent with the same decree are "thereby repealed, amended or modified accordingly."

58
See letter opinion of Secretary of Finance Vicente Jayme dated May 20, 1988.

NPC Vice-President Cris Herrera said the average rate increase to be passed to
59

consumers is P0.23 per year. (Please see Daily Inquirer of March 5, 1991; "Napocor wants
new power rate increase").

SARMIENTO, J., dissenting:

1
No. L-19707, August 17, 1967, 20 SCRA 1056.

2
G.R. No. 87479, June 4, 1990.

3
Supra, 7.

4
Supra, 5.

5
Under Presidential Decree No. 1931, the Minister of Finance could restore exemptions.

6
Decision, 42.

7
Please note that under the 1987 Constitution, tax exemptions may be granted alone by
Congress (CONST., art. VI, sec. 28, par. 4.) Unless and until Congress, however, repeals
Executive Order No. 93, the President may continue to grant exemptions.

8
At 1063.

9
See Comm. on Accountability of Public Officers and Investigations, S. Rpt. 474, lst Cong.,
2nd Sess. (1989),4-5; also 13; also 25; also 29; emphasis in the original.

10
Id., 4; also 15; also 25; also 39, 40; emphasis in the original.

11
Id., 16; emphasis in the original,

12
Id., 24; also BIR Ruling No. 068-79 (1979), Id., involving specific taxes.
 13
Id., 31.

14
Pres. Decree No. 938, sec. 13: emphasis supplied.

15
At 1064.

16
Supra, fn. 15.

17
Comm. on Accountability of Public Officers and Investigations, S. Rpt 474, Id., 61.

18
Decision, 47,

19
Supra, 51.

20
Supra.

See Maceda vs. Energy Regulatory Board, G.R. Nos. 95203-05 and 95119-21, December
21

18, 1990.

22
DE LEON THE FUNDAMENTALS OF TAXATION 55 (1980 ed.)

23
CONST., art. VI, sec. 28(l).

24
Supra.

25
Pres. Decree No. 938, supra, sec. 10.

14G.R. No. L-31092 February 27, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,

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

YAP, J.:

The question involved in this petition is whether respondent John Gotamco & Sons, Inc. should pay
the 3% contractor's tax under Section 191 of the National Internal Revenue Code on the gross
receipts it realized from the construction of the World Health Organization office building in Manila.

The World Health Organization (WHO for short) is an international organization which has a regional
office in Manila. As an international organization, it enjoys privileges and immunities which are
defined more specifically in the Host Agreement entered into between the Republic of the Philippines
and the said Organization on July 22, 1951. Section 11 of that Agreement provides, inter alia, that
"the Organization, its assets, income and other properties shall be: (a) exempt from all direct and
indirect taxes. It is understood, however, that the Organization will not claim exemption from taxes
which are, in fact, no more than charges for public utility services; . . .
When the WHO decided to construct a building to house its own offices, as well as the other United
Nations offices stationed in Manila, it entered into a further agreement with the Govermment of the
Republic of the Philippines on November 26, 1957. This agreement contained the following provision
(Article III, paragraph 2):

The Organization may import into the country materials and fixtures required for the
construction free from all duties and taxes and agrees not to utilize any portion of the
international reserves of the Government.

Article VIII of the above-mentioned agreement referred to the Host Agreement concluded on July 22,
1951 which granted the Organization exemption from all direct and indirect taxes.

In inviting bids for the construction of the building, the WHO informed the bidders that the building to
be constructed belonged to an international organization with diplomatic status and thus exempt
from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into
account and should not include items for such taxes, licenses and other payments to Government
agencies."

The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for
short) on February 10, 1958 for the stipulated price of P370,000.00, but when the building was
completed the price reached a total of P452,544.00.

Sometime in May 1958, the WHO received an opinion from the Commissioner of the Bureau of
Internal Revenue stating that "as the 3% contractor's tax is an indirect tax on the assets and income
of the Organization, the gross receipts derived by contractors from their contracts with the WHO for
the construction of its new building, are exempt from tax in accordance with . . . the Host
Agreement." Subsequently, however, on June 3, 1958, the Commissioner of Internal Revenue
reversed his opinion and stated that "as the 3% contractor's tax is not a direct nor an indirect tax on
the WHO, but a tax that is primarily due from the contractor, the same is not covered by . . . the Host
Agreement."

On January 2, 1960, the WHO issued a certification state 91 inter alia,:

When the request for bids for the construction of the World Health Organization office
building was called for, contractors were informed that there would be no taxes or
fees levied upon them for their work in connection with the construction of the
building as this will be considered an indirect tax to the Organization caused by the
increase of the contractor's bid in order to cover these taxes. This was upheld by the
Bureau of Internal Revenue and it can be stated that the contractors submitted their
bids in good faith with the exemption in mind.

The undersigned, therefore, certifies that the bid of John Gotamco & Sons, made
under the condition stated above, should be exempted from any taxes in connection
with the construction of the World Health Organization office building.

On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco
demanding payment of P 16,970.40, representing the 3% contractor's tax plus surcharges on the
gross receipts it received from the WHO in the construction of the latter's building.
Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which
after trial rendered a decision, in favor of Gotamco and reversed the Commissioner's decision. The
Court of Tax Appeal's decision is now before us for review on certiorari.

In his first assignment of error, petitioner questions the entitlement of the WHO to tax exemption,
contending that the Host Agreement is null and void, not having been ratified by the Philippine
Senate as required by the Constitution. We find no merit in this contention. While treaties are
required to be ratified by the Senate under the Constitution, less formal types of international
agreements may be entered into by the Chief Executive and become binding without the
concurrence of the legislative body. The Host Agreement comes within the latter category; it is a
1

valid and binding international agreement even without the concurrence of the Philippine Senate.

The privileges and immunities granted to the WHO under the Host Agreement have been recognized
by this Court as legally binding on Philippine authorities.2

Petitioner maintains that even assuming that the Host Agreement granting tax exemption to the
WHO is valid and enforceable, the 3% contractor's tax assessed on Gotamco is not an "indirect tax"
within its purview. Petitioner's position is that the contractor's tax "is in the nature of an excise tax
which is a charge imposed upon the performance of an act, the enjoyment of a privilege or the
engaging in an occupation. . . It is a tax due primarily and directly on the contractor, not on the owner
of the building. Since this tax has no bearing upon the WHO, it cannot be deemed an indirect
taxation upon it."

We agree with the Court of Tax Appeals in rejecting this contention of the petitioner. Said the
respondent court:

In context, direct taxes are those that are demanded from the very person who, it is
intended or desired, should pay them; while indirect taxes are those that are
demanded in the first instance from one person in the expectation and intention that
he can shift the burden to someone else. (Pollock vs. Farmers, L & T Co., 1957 US
429, 15 S. Ct. 673, 39 Law. Ed. 759.) The contractor's tax is of course payable by the
contractor but in the last analysis it is the owner of the building that shoulders the
burden of the tax because the same is shifted by the contractor to the owner as a
matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the
WHO because, although it is payable by the petitioner, the latter can shift its burden
on the WHO. In the last analysis it is the WHO that will pay the tax indirectly through
the contractor and it certainly cannot be said that 'this tax has no bearing upon the
World Health Organization.

Petitioner claims that under the authority of the Philippine Acetylene Company versus Commissioner
of Internal Revenue, et al., the 3% contractor's tax fans directly on Gotamco and cannot be shifted
3

to the WHO. The Court of Tax Appeals, however, held that the said case is not controlling in this
case, since the Host Agreement specifically exempts the WHO from "indirect taxes." We agree.
The Philippine Acetylene case involved a tax on sales of goods which under the law had to be paid
by the manufacturer or producer; the fact that the manufacturer or producer might have added the
amount of the tax to the price of the goods did not make the sales tax "a tax on the purchaser." The
Court held that the sales tax must be paid by the manufacturer or producer even if the sale is made
to tax-exempt entities like the National Power Corporation, an agency of the Philippine Government,
and to the Voice of America, an agency of the United States Government.
The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes
which, although not imposed upon or paid by the Organization directly, form part of the price paid or
to be paid by it. This is made clear in Section 12 of the Host Agreement which provides:

While the Organization will not, as a general rule, in the case of minor purchases,
claim exemption from excise duties, and from taxes on the sale of movable and
immovable property which form part of the price to be paid, nevertheless, when the
Organization is making important purchases for official use of property on which such
duties and taxes have been charged or are chargeable the Government of the
Republic of the Philippines shall make appropriate administrative arrangements for
the remission or return of the amount of duty or tax. (Emphasis supplied).

The above-quoted provision, although referring only to purchases made by the WHO, elucidates the
clear intention of the Agreement to exempt the WHO from "indirect" taxation.

The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor,
Gotamco, from any taxes in connection with the construction of the WHO office building. The 3%
contractor's tax would be within this category and should be viewed as a form of an "indirect tax" On
the Organization, as the payment thereof or its inclusion in the bid price would have meant an
increase in the construction cost of the building.

Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the
appealed decision is hereby affirmed.

SO ORDERED.

Narvasa, Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

Footnotes

1 Usaffe Veterans Association, Inc. vs. Treasurer of the Philippines, et. al., 105 Phil.
1030.

2 World Health Organization and Dr. Leonce Verstuyft v. Hon. Benjamin Aquino, etc.,
et al., 48 SCRA 242.

3 127 Phil. 461.

-----------\

15SECOND DIVISION

SILKAIR (SINGAPORE) PTE, G.R. No. 173594

LTD.,
Petitioner, Present:
 QUISUMBING, J., Chairperson,
CARPIO,
CARPIO MORALES,
- versus - TINGA, and
VELASCO, JR. JJ.

Promulgated:
February 6, 2008
COMMISSIONER OF
INTERNAL REVENUE,
Respondent.
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO MORALES, J.:

Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organized
under the laws of Singapore which has a Philippine representative office, is an
online international air carrier operating the Singapore-Cebu-Davao-Singapore,
Singapore-Davao-Cebu-Singapore, and Singapore-Cebu-Singapore routes.

On December 19, 2001, Silkair filed with the Bureau of Internal Revenue
(BIR) a written application for the refund of P4,567,450.79 excise taxes it claimed
to have paid on its purchases of jet fuel from Petron Corporation from January to
June 2000.[1]

As the BIR had not yet acted on the application as of December 26, 2001,
Silkair filed a Petition for Review[2] before the CTA following Commissioner of
Internal Revenue v. Victorias Milling Co., Inc., et al.[3]

Opposing the petition, respondent Commissioner on Internal Revenue (CIR)

alleged in his Answer that, among other things,

Petitioner failed to prove that the sale of the petroleum products was
directly made from a domestic oil company to the international carrier. The excise
tax on petroleum products is the direct liability of the manufacturer/producer,
and when added to the cost of the goods sold to the buyer, it is no longer a tax
 but part of the price which the buyer has to pay to obtain the article. [4] (Emphasis
and underscoring supplied)

By Decision of May 27, 2005, the Second Division of the CTA denied
Silkairs petition on the ground that as the excise tax was imposed on Petron
Corporation as the manufacturer of petroleum products, any claim for refund
should be filed by the latter; and where the burden of tax is shifted to the purchaser,
the amount passed on to it is no longer a tax but becomes an added cost of the
goods purchased. Thus the CTA discoursed:

The liability for excise tax on petroleum products that are being removed
from its refinery is imposed on the manufacturer/producer (Section 130 of the
NIRC of 1997). x x x

xxxx

While it is true that in the case of excise tax imposed on petroleum

products, the seller thereof may shift the tax burden to the buyer, the latter is the
proper party to claim for the refund in the case of exemption from excise
tax. Since the excise tax was imposed upon Petron Corporation as the
manufacturer of petroleum products, pursuant to Section 130(A)(2), and that
the corresponding excise taxes were indeed, paid by it, . . . any claim for refund
of the subject excise taxes should be filed by Petron Corporation as the
taxpayer contemplated under the law. Petitioner cannot be considered as the
taxpayer because it merely shouldered the burden of the excise tax and not the
excise tax itself.

Therefore, the right to claim for the refund of excise taxes paid on
petroleum products lies with Petron Corporation who paid and remitted the excise
tax to the BIR. Respondent, on the other hand, may only claim from Petron
Corporation the reimbursement of the tax burden shifted to the former by the
latter. The excise tax partaking the nature of an indirect tax, is clearly the liability
of the manufacturer or seller who has the option whether or not to shift the burden
of the tax to the purchaser. Where the burden of the tax is shifted to the
[purchaser], the amount passed on to it is no longer a tax but becomes
an added cost on the goods purchased which constitutes a part of the purchase
price. The incidence of taxation or the person statutorily liable to pay the tax falls
on Petron Corporation though the impact of taxation or the burden of taxation
falls on another person, which in this case is petitioner Silkair. [5] (Italics in the
original;emphasis and underscoring supplied)
 Silkair filed a Motion for Reconsideration[6] during the pendency of which or
on September 12, 2005 the Bengzon Law Firm entered its appearance as counsel,
[7]
without Silkairs then-counsel of record (Jimenez Gonzales Liwanag Bello Valdez
Caluya & Fernandez or JGLaw) having withdrawn as such.

By Resolution[8] of September 22, 2005, the CTA Second Division denied

Silkairs motion for reconsideration. A copy of the Resolution was furnished Silkairs
counsel JGLaw which received it on October 3, 2005.[9]

On October 13, 2005, JGLaw, with the conformity of Silkair, filed its Notice
of Withdrawal of Appearance.[10] On even date, Silkair, through the Bengzon Law
Firm, filed a Manifestation/Motion[11] stating:
Petitioner was formerly represented xxx by JIMENEZ GONZALES LIWANAG BELLO
VALDEZ CALUYA & FERNANDEZ (JGLaw).

1. On 24 August 2005, petitioner served notice to JGLaw of its decision to

cease all legal representation handled by the latter on behalf of the
petitioner. Petitioner also requested JGLaw to make arrangements for the
transfer of all files relating to its legal representation on behalf of petitioner
to the undersigned counsel. x x x

2. The undersigned counsel was engaged to act as counsel for the petitioner in
the above-entitled case; and thus, filed its entry of appearance on 12
September 2005. x x x

3. The undersigned counsel, through petitioner, has received information that

the Honorable Court promulgated a Resolution on petitioners Motion for
Reconsideration. To date, the undersigned counsel has yet to receive an
official copy of the above-mentioned Resolution. In light of the
foregoing, undersigned counsel hereby respectfully requests for an official
copy of the Honorable
Courts Resolution on petitioners Motion for Reconsideration x x x.
[12]
(Underscoring supplied)

On October 14, 2005, the Bengzon Law Firm received its requested copy of
the September 22, 2005[13] CTA Second Division Resolution. Thirty-seven days
later or on October 28, 2005, Silkair, through said counsel, filed a Motion for
Extension of Time to File Petition for Review [14] before the CTA En Banc which
gave it until November 14, 2005 to file a petition for review.
 On November 11, 2005, Silkair filed another Motion for Extension of Time.
[15]
On even date, the Bengzon Law Firm informed the CTA of its withdrawal of
appearance as counsel for Silkair with the information, that Silkair would continue
to be represented by Atty. Teodoro A. Pastrana, who used to be with the firm but
who had become a partner of the Pastrana and Fallar Law Offices.[16]

The CTA En Banc granted Silkairs second Motion for Extension of Time,
giving Silkair until November 24, 2005 to file its petition for review. On November
17, 2005, Silkair filed its Petition for Review[17] before the CTA En Banc.

By Resolution of May 19,2006, the CTA En Banc dismissed [18] Silkairs

petition for review for having been filed out of time in this wise:

A petitioner is given a period of fifteen (15) days from notice of award,

judgment, final order or resolution, or denial of motion for new trial or
reconsideration to appeal to the proper forum, in this case, the CTA En Banc. This
is clear from both Section 11 and Section 9 of Republic Act No. 9282 x x x.

xxxx

The petitioner, through its counsel of record Jimenez, Gonzalez,

L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices, received the
Resolution dated September 22, 2005 on October 3, 2005. At that time, the
petitioner had two counsels of record, namely, Jimenez, Gonzales,
L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices and The Bengzon
Law Firm which filed its Entry of Appearance on September 12, 2005. However,
as of said date, Atty. Mary Jane B. Austria-Delgado of Jimenez, Gonzales,
L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices was still the counsel
of record considering that the Notice of Withdrawal of Appearance signed by
Atty. Mary Jane B. Austria-Delgado was filed only on October 13, 2005 or ten
(10) days after receipt of the September 22, 2005 Resolution of the Courts Second
Division. This notwithstanding, Section 2 of Rule 13 of the Rules of
Court provides that if any party has appeared by counsel, service upon him shall
be made upon his counsel or one of them, unless service upon the party himself is
ordered by the Court. Where a party is represented by more than one counsel of
record, notice to any one of the several counsel on record is equivalent to notice to
all the counsel (Damasco vs. Arrieta, et. al., 7 SCRA 224). Considering that
petitioner, through its counsel of record, had received the September 22,
2005 Resolution as early as October 3, 2005, it had only until October 18,
2005 within which to file its Petition for Review.Petitioner only managed to file
 the Petition for Review with the Court En Banc on November 17, 2005 or [after]
thirty (30) days had lapsed from the final date of October 18, 2005 to appeal.

The argument that it requested Motions for Extension of Time on October

28, 2005 or ten (10) days from the appeal period and the second Motion for
Extension of Time to file its Petition for Review on November 11, 2005 and its
allowance by the CTA En Banc notwithstanding, the questioned Decision is no
longer appealable for failure to timely file the necessary Petition for Review.
[19]
(Emphasis in the original)

In a Separate Concurring Opinion,[20] CTA Associate Justice Juanito C.

Castaeda, Jr. posited that Silkair is not the proper party to claim the tax refund.

Silkair filed a Motion for Reconsideration[21] which the CTA En Banc denied.
[22]
Hence, the present Petition for Review[23] which raises the following issues:

I. WHETHER OR NOT THE PETITION FOR REVIEW FILED WITH THE

HONORABLE COURT OF TAX APPEALS EN BANC
WAS TIMELY FILED.

II. APPEAL BEING AN ESSENTIAL PART OF OUR JUDICIAL SYSTEM,

WHETHER OR NOT PETITIONER SHOULD BE DEPRIVED OF ITS
RIGHT TO APPEAL ON THE BASIS OF TECHNICALITY.

III. ASSUMING THE HONORABLE SUPREME COURT WOULD HOLD

THAT THE FILING OF THE PETITITON FOR REVIEW WITH THE
HONORABLE COURT OF TAX APPEALS EN BANC WAS TIMELY,
WHETHER OR NOT THE PETITIONER IS THE PROPER PARTY TO
CLAIM FOR REFUND OR TAX CREDIT.[24] (Underscoring supplied)

Silkair posits that the instant case does not involve a situation where the
petitioner was represented by two (2) counsels on record, such that notice to the
former counsel would be held binding on the petitioner, as in the case of Damasco
v. Arrieta, etc., et al.[25] x x x heavily relied upon by the respondent; [26] and that the
case of Dolores De Mesa Abad v. Court of Appeals [27] has more appropriate
application to the present case.[28]
In Dolores De Mesa Abad, the trial court issued an order of November 19,
1974 granting the therein private respondents Motion for Annulment of documents
and titles.The order was received by the therein petitioners counsel of record, Atty.
Escolastico R. Viola, on November 22, 1974 prior to which or on July 17, 1974,
Atty. Vicente Millora of the Millora, Tobias and Calimlim Law Office had filed an
Appearance and Manifestation. Atty. Millora received a copy of the trial courts
order on December 9, 1974. On January 4, 1975, the therein petitioners, through
Atty. Ernesto D. Tobias also of the Millora, Tobias and Calimlim Law Office, filed
their Notice of Appeal and Cash Appeal Bond as well as a Motion for Extension of
the period to file a Record on Appeal. They filed the Record on Appeal on January
24, 1975. The trial court dismissed the appeal for having been filed out of time,
which was upheld by the Court of Appeals on the ground that the period within
which to appeal should be counted from November 22, 1974, the date Atty. Viola
received a copy of the November 19, 1974 order. The appellate court held that
Atty. Viola was still the counsel of record, he not having yet withdrawn his
appearance as counsel for the therein petitioners. On petition for certiorari,[29] this
Court held

x x x [R]espondent Court reckoned the period of appeal from the time

petitioners original counsel, Atty. Escolastico R. Viola, received the Order
granting the Motion for Annulment of documents and titles on November 22,
1974. But as petitioners stress, Atty. Vicente Millora of the Millora, Tobias and
Calimlim Law Office had filed an Appearance and Manifestation on July 16,
1974. Where there may have been no specific withdrawal by Atty. Escolastico R.
Viola, for which he should be admonished, by the appearance of a new counsel, it
can be said that Atty. Viola had ceased as counsel for petitioners. In fact, Orders
subsequent to the aforesaid date were already sent by the trial Court to the
Millora, Tobias and Calimlim Law Office and not to Atty. Viola.

Under the circumstances, December 9, 1974 is the controlling date of

receipt by petitioners counsel and from which the period of appeal from the Order
of November 19, 1974 should be reckoned. That being the case, petitioners x x x
appeal filed on January 4, 1975 was timely filed.[30] (Underscoring supplied)

The facts of Dolores De Mesa Abad are not on all fours with those of the
present case. In any event, more recent jurisprudence holds that in case of failure to
comply with the procedure established by Section 26, Rule 138 [31] of the Rules of
Court re the withdrawal of a lawyer as a counsel in a case, the attorney of record is
regarded as the counsel who should be served with copies of the judgments, orders
and pleadings.[32] Thus, where no notice of withdrawal or substitution of counsel
has been shown, notice to counsel of record is, for all purposes, notice to the client.
[33]
The court cannot be expected to itself ascertain whether the counsel of record
has been changed.[34]

In the case at bar, JGLaw filed its Notice of Withdrawal of Appearance

on October 13, 2005[35] after the Bengzon Law Firm had entered its
appearance. While Silkair claims it dismissed JGLaw as its counsel as early
as August 24, 2005, the same was communicated to the CTA only on October 13,
2005.[36] Thus, JGLaw was still Silkairs counsel of record as of October 3,
2005 when a copy of the September 22, 2005 resolution of the CTA Second
Division was served on it. The service upon JGLaw on October 3, 2005 of
the September 22, 2005 resolution of CTA Second Division was, therefore, for all
legal intents and purposes, service to Silkair, and the CTA correctly reckoned the
period of appeal from such date.
TECHNICALITY ASIDE, on the merits, the petition just the same fails.

Silkair bases its claim for refund or tax credit on Section 135 (b) of the
NIRC of 1997 which reads

Sec. 135. Petroleum Products sold to International Carriers and

Exempt Entities of Agencies. Petroleum products sold to the following are
exempt from excise tax:

xxxx

(b) Exempt entities or agencies covered by tax treaties, conventions,

and other international agreements for their use and
consumption: Provided, however, That the country of said foreign
international carrier or exempt entities or agencies exempts from
similar taxes petroleum products sold to Philippine carriers, entities
or agencies; x x x

x x x x,

and Article 4(2) of the Air Transport Agreement between the Government of the
Republic of the Philippines and the Government of the Republic of Singapore (Air
Transport Agreement between RP and Singapore) which reads
 Fuel, lubricants, spare parts, regular equipment and aircraft stores
introduced into, or taken on board aircraft in the territory of one Contracting party
by, or on behalf of, a designated airline of the other Contracting Party and
intended solely for use in the operation of the agreed services shall, with the
exception of charges corresponding to the service performed, be exempt from the
same customs duties, inspection fees and other duties or taxes imposed in the
territories of the first Contracting Party , even when these supplies are to be used
on the parts of the journey performed over the territory of the Contracting Party in
which they are introduced into or taken on board. The materials referred to above
may be required to be kept under customs supervision and control.

The proper party to question, or seek a refund of, an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who paid the
same even if he shifts the burden thereof to another.[37] Section 130 (A) (2) of the
NIRC provides that [u]nless otherwise specifically allowed, the return shall be filed
and the excise tax paid by the manufacturer or producer before removal of domestic
products from place of production. Thus, Petron Corporation, not Silkair, is the
statutory taxpayer which is entitled to claim a refund based on Section 135 of the
NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP
and Singapore.

Even if Petron Corporation passed on to Silkair the burden of the tax, the
additional amount billed to Silkair for jet fuel is not a tax but part of the price which
Silkair had to pay as a purchaser.[38]

Silkair nevertheless argues that it is exempt from indirect taxes because the
Air Transport Agreement between RP and Singapore grants exemption from the
same customs duties, inspection fees and other duties or taxes imposed in the
territory of the first Contracting Party.[39] It invokes Maceda v. Macaraig, Jr.
[40]
which upheld the claim for tax credit or refund by the National Power
Corporation (NPC) on the ground that the NPC is exempt even from the payment of
indirect taxes.

Silkairss argument does not persuade. In Commissioner of Internal Revenue

v. Philippine Long Distance Telephone Company,[41] this Court clarified the ruling
in Maceda v. Macaraig, Jr., viz:
 It may be so that in Maceda vs. Macaraig, Jr., the Court held that an
exemption from all taxes granted to the National Power Corporation (NPC) under
its charter includes both direct and indirect taxes. But far from providing PLDT
comfort, Maceda in fact supports the case of herein petitioner, the correct lesson
of Maceda being that an exemption from all taxes excludes indirect taxes, unless
the exempting statute, like NPCs charter, is so couched as to include indirect tax
from the exemption. Wrote the Court:
x x x However, the amendment under Republic Act No.
6395 enumerated the details covered by the
exemption. Subsequently, P.D. 380, made even more specific the
details of the exemption of NPC to cover, among others, both
direct and indirect taxes on all petroleum products used in its
operation. Presidential Decree No. 938 [NPCs amended charter]
amended the tax exemption by simplifying the same law in general
terms. It succinctly exempts NPC from all forms of taxes, duties[,]
fees

The use of the phrase all forms of taxes demonstrates the

intention of the law to give NPC all the tax exemptions it has been
enjoying before

xxxx

It is evident from the provisions of P.D. No. 938 that its

purpose is to maintain the tax exemption of NPC from all forms of
taxes including indirect taxes as provided under R.A. No. 6395 and
P.D. 380 if it is to attain its goals. (Italics in the original; emphasis
supplied)[42]

The exemption granted under Section 135 (b) of the NIRC of 1997 and
Article 4(2) of the Air Transport Agreement between RP and Singapore cannot,
without a clear showing of legislative intent, be construed as including indirect
taxes. Statutes granting tax exemptions must be construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority, [43] and if an
exemption is found to exist, it must not be enlarged by construction.[44]

WHEREFORE, the petition is DENIED.

Costs against petitioner.

SO ORDERED.
 CONCHITA CARPIO MORALES
Associate Justice
WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

ANTONIO T. CARPIO DANTE O. TINGA

Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson
 CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above decision were
reached in consultation before the case was assigned to the writer of the opinion of
the Court.

REYNATO S. PUNO
Chief Justice
[1]
CTA 2nd Division records, pp. 12-16.
[2]
Id. at 1-6.
[3]
130 Phil. 12, 16 (1968).
x x x [T]he claim for refund with the Bureau of Internal Revenue and the subsequent appeal to the
Court of Tax Appeals must be filed within the two-year period. If, however, the Collector takes
time in deciding the claim, and the period of two years is about to end, the suit or proceeding must
be started in the Court of Tax Appeals before the end of the two-year period without awaiting the
decision of the Collector.
[4]
CTA 2nd Division records, p. 20. Citation omitted.
[5]
Id. at 281-283.
[6]
Id. at 286-293.
[7]
Id. at 312-313.
[8]
Penned by CTA Associate Justice Olga Palanca-Enriquez, with the concurrence of Associate Justices Juanito C.
Castaeda, Jr. and Erlinda P. Uy. Id. at 314-315.
[9]
Id. at 316.
[10]
Id. at 318-319. The records do not show what action the CTA took on the notice.
[11]
Id. at 320-322.
[12]
Id. at 320-321.
[13]
Id. at 317.
[14]
CTA En Banc records, pp. 3-5.
[15]
Id. at 8-9.
[16]
Id. at 11.
[17]
Id. at 14-24.
[18]
Decision penned by CTA Presiding Justice Ernesto D. Acosta, with the concurrence of Associate Justices Juanito
C. Castaeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, and Olga Palanca-Enriquez. Id. at 63-
72.
[19]
Id. at 68-69.
[20]
Id. at 73-83.
[21]
Id. at 84-90.
[22]
Id. at 99-100.
[23]
Rollo, pp. 9-38.
[24]
Id. at 18.
[25]
117 Phil. 246 (1963).
[26]
Rollo, p. 103.
[27]
G.R. No. L-42225, July 9, 1985, 137 SCRA 416.
[28]
Rollo, p. 108.
[29]
Supra note 27.
[30]
Id. at 422.
[31]
RULES OF COURT, Rule 138, Sec. 26:
Change of Attorneys An attorney may retire at any time from any action or special proceeding, by
the written consent of his client filed in court. He may also retire at any time from any action or
special proceeding, without the consent of his client, should the court, on notice to the client and
attorney, and on hearing, determine that he ought to be allowed to retire. In case of substitution,
the name of the attorney newly employed shall be entered on the docket of the court in the place of
the former one, and written notice of the change shall be given to the adverse party.
Vide Arambulo v. Court of Appeals, G.R. No. 105818, September 17, 1993, 226 SCRA 589, 597: Under the first
sentence of [Section 26 of Rule 138 of the Rules of Court], the retirement is complete once the withdrawal is
filed in court.
[32]
Aquino v. Court of Appeals, G.R. No. 109493, July 2, 1999, 309 SCRA 578, 584.
[33]
Vide Arambulo v. Court of Appeals, G.R. No. 105818, September 17, 1993, 226 SCRA 589, 597; Rinconada
Telephone Company, Inc. v. Buenviaje, G.R. Nos. 49241-42, April 27, 1990, 184 SCRA 701, 704-705; UERM
 Employees Union-FFW v. Minister of Labor and Employment, G.R. No. 75838, August 21, 1989, 177 SCRA
165, 177; Tumbagahan v. Court of Appeals, G.R. No. L-32684, September 20, 1988, 165 SCRA 485, 488-
489; Lee v. Romillo, Jr., G.R. No. L-60937, May 28, 1988, 161 SCRA 589, 599-600.
[34]
Vide Lee v. Romillo, Jr., G.R. No. L-60937, May 28, 1988, 161 SCRA 589, 600.
[35]
CTA 2nd Division records, pp. 318-319.
[36]
Id. at 320-322.
[37]
Vide Philippine Geothermal, Inc. v. Commissioner of Internal Revenue, G.R. No. 154028, July 29, 2005, 465
SCRA 308, 317-318.
[38]
Vide Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, 127 Phil. 461, 470 (1967).
[39]
Air Transport Agreement between RP and Singapore, Article 4(2). Vide Rollo, p. 28.
[40]
G.R. No. 88291, May 31, 1991, 197 SCRA 771.
[41]
G.R. No. 140230, December 15, 2005, 478 SCRA 61.
[42]
Id. at 76-77, citing Maceda v. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771, 798, 800-801.
[43]
Id. at 74. Citation omitted.
[44]
Id. at 77.

16G.R. No. 104151 March 10, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION
and COURT OF TAX APPEALS, respondents.

G.R No. 105563 March 10, 1995

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.

REGALADO, J.:

Before us for joint adjudication are two petitions for review on certiorari separately filed by
the Commissioner of Internal Revenue in G.R. No. 104151, and by Atlas Consolidated Mining
and Development Corporation in G.R. No. 105563, which respectively seek the aside of the
judgments of respondent Court of Appeals in CA-G.R. SP No. 25945 promulgated on February
12, 1992 1 and in CA-G.R. SP No. 26087 promulgated on May 22, 1992. 2

Atlas Consolidated Mining and Development Corporation (herein also referred to as ACMDC)
is a domestic corporation which owns and operates a mining concession at Toledo City,
Cebu, the products of which are exported to Japan and other foreign countries. On April 9,
1980, the Commissioner of Internal Revenue (also Commissioner, for brevity), acting on the
basis of the report of the examiners of the Bureau of Internal Revenue (BIR), caused the
service of an assessment notice and demand for payment of the amount of P12,391,070.51
representing deficiency ad valorem percentage and fixed taxes, including increments, for the
taxable year 1975 against ACMDC. 3

Likewise, on the basis. of the BIR examiner's report in another investigation separately
conducted, the Commissioner had another assessment notice, with a demand for payment of
the amount of P13,531,466.80 representing the 1976 deficiency ad valorem and business
taxes with P5,000.00 compromise penalty, served on ACMDC on September 23, 1980. 4

ACMDC protested both assessments but the. same were denied, hence it filed two separate
petitions for review in the Court of Tax Appeals (also, tax court) where they were docketed as
C.T.A. Cases Nos. 3467 and 3825. These two cases, being substantially identical in most
respects except for the taxable periods and the amounts involved, were eventually
consolidated.

On May 31, 1991, the Court of Tax Appeals rendered a consolidated decision holding, inter
alia, that ACMDC was not liable for deficiency ad valorem taxes on copper and silver for 1975
and 1976 in the respective amounts of P11,276,540.79 and P12,882,760.80 thereby effectively
sustaining the theory of ACMDC that in computing the ad valorem tax on copper mineral, the
refining and smelting charges should be deducted, in addition to freight and insurance
charges, from the London Metal Exchange (LME) price of manufactured copper.

However, the tax court held ACMDC liable for the amount of P1,572,637.48, exclusive of
interest, consisting of 25% surcharge for late payment of the ad valorem tax and late filing of
notice of removal of silver, gold and pyrite extracted during certain periods, and for alleged
deficiency manufacturer's sales tax and contractor's tax.

The particulars of the reduced amount of said tax obligation is enumerated in detail in the
dispositive portion of the questioned judgment of the tax court, thus:

WHEREFORE, petitioner should and is hereby ORDERED to pay the total

amount of the following:

a) P297,900.39 as 25% surcharge on silver extracted during the

period November 1, 1974 to December 31, 1975.

b) P161,027.53 as 25% surcharge on silver extracted for the

taxable year 1976.

c) P315,027.30 as 25% surcharge on gold extracted during the

period November 1, 1974 to December 31, 1975.

d) P260,180.55 as 25% surcharge on gold during the taxable year

1976.

e) P53,585.30 as 25% surcharge on pyrite extracted during the

period November 1, 1974 to December 31, 1975.

f) P53,283.69 as 25% surcharge on pyrite extracted during the

taxable year 1976.

g) P316,117.53 as deficiency manufacturer's sales tax and

surcharge during the taxable year 1975; plus 14% interest from
January 21, 1976 until fully paid as provided under Section 183
of P.D. No. 69.
 h) P23,631.44 as deficiency contractor's tax and surcharge on
the lease of personal property during the taxable year 1975; plus
14% interest from January 21, 1976 until fully paid as provided
under Section 183 of P.D. 69.

i) P91,883.75 as deficiency contractor's tax and surcharge on the

lease of personal property during the taxable year 1976, plus
14% interest from April 21, 1976 until fully paid as provided
under. Section 183 of P.D. No. 69.

With costs against petitioner. 5

As a consequence, both parties elevated their respective contentions to respondent Court of

Appeals in two separate petitions for review. The petition filed by the Commissioner, which
was docketed as CA-G.R. SP No. 25945, questioned the portion of the judgment of the tax
court deleting the ad valorem tax on copper and silver, while the appeal filed by ACMDC and
docketed as CA-G.R. SP No. 26087 assailed that part of the decision ordering it to pay
P1,572,637.48 representing alleged deficiency assessment.

On February 12, 1992, judgment was rendered by respondent Court of Appeals in CA-G.R. SP
No. 25945, dismissing the petition and affirming the tax court's decision on the manner of
computing the ad valorem tax. 6 Hence, the Commissioner of Internal Revenue
filed a petition before- us in G.R. No. 104151, raising the sole issue of
whether or not, in computing the ad valorem tax on copper, charges for
smelting and refining should also be deducted, in addition to freight and
insurance costs, from the price of copper concentrates.
On May 22, 1992, judgment was likewise rendered by the same respondent court in CA-G.R.
SP No. 26087, modifying the judgment of the tax court and further reducing the tax liability of
ACMDC by deleting therefrom the following items:

(1) the award under paragraph (a) of P297,900.39 as 25% surcharge on silver
extracted during the period November 1, 1974 to December 31, 1975;

(2) the award under paragraph (c) thereof of P315,027.30 as 25% surcharge on
gold extracted during the period November 1, 1974 to December 31, 1975; and

(3) the award under paragraph (e) thereof of P53,585.30 as 24% (sic, 25%)
surcharge on pyrite extracted during the period November 1, 1974 to December
31, 1975. 7

Still not satisfied with the said judgment which had reduced its tax liability to P906,124.49, as
a final recourse ACMDC came to this Court on a petition for review on certiorari in G.R. No.
105563, claiming that it is not liable at all for any deficiency. tax assessments for 1975 and
1976. In our resolution of September 1, 1993, G.R. No. 104151 was ordered consolidated with
G.R. No. 105563. 8

I. G.R No. 104151

The Commissioner of Internal Revenue claims that the Court of Appeals and the tax court
erred in allowing the deduction of refining and smelting charges from the price of copper
concentrates. It is the contention of the Commissioner that the actual market value of the
mineral products should be the gross sales realized from copper concentrates, deducting
therefrom mining, milling, refining, transporting, handling, marketing or any other expenses.
He submits that the phrase "or any other expenses" includes smelting and refining charges
and that the law allows deductions for actual cost of ocean freight and insurance only in
instances where the minerals or mineral products are sold or consigned abroad by the
lessees or owner of the mine under C.I.F. terms, hence it is error to allow smelting and
refining charges as deductions.

We are not persuaded by his postulation and find the arguments adduced in support thereof
untenable.

The pertinent provisions of the National Internal Revenue Code (tax code, for facility) at the
time material to this controversy, read as follows:

Sec. 243. Ad valorem taxes on output of mineral lands not covered by lease.
There is hereby imposed on the actual market value of the annual gross output
of the minerals mineral products extracted or produced from all mineral lands
not covered by lease, an ad valorem tax in the amount of two per centum of the
value of the output except gold which shall pay one and one-half per centum.

Before the minerals or mineral products are removed from the mines, the
Commissioner of Internal Revenue or his representatives shall first be notified
of such removal on a form prescribed for the purpose. (As amended by Rep.
Act No. 6110.)

Sec. 246. Definitions of the terms "gross output," "minerals" and "mineral
products." Disposition of royalties and ad valorem taxes. The term "gross
output" shall be interpreted as the actual market value of minerals or mineral
products, or of bullion from each mine or mineral lands operated as a separate
entity without any deduction from mining, milling, refining, transporting,
handling, marketing, or any other expenses: Provided, however, That if the
minerals or mineral products are sold or consigned. abroad by the lessee or
owner of the mine under C.I.F. terms, the actual cost of ocean freight and
insurance shall be deducted. The output of any group of contiguous mining
claim shall not be subdivided. The word "minerals" shall mean all inorganic
substances found in nature whether in solid, liquid, gaseous, or any
intermediate state. The term "mineral products" shall mean things produced by
the lessee, concessionaire or owner of mineral lands, at least eighty per cent
of which things must be minerals extracted by such lessee, concessionaire, or
owner of mineral lands. Ten per centum of the royalties and ad valorem taxes
herein provided shall accrue to the municipality and ten per centum to the
province where the-mines are situated, and eighty per centum to the National
Treasury. (As amended by Rep. Acts Nos. 834, 1299, and by Rep. Act No. 1510,
approved June 16, 1956)."

To rephrase, under the aforequoted provisions, the ad valorem tax of 2% is imposed on the
actual market value of the annual gross output of the minerals or mineral products extracted
or produced from all mineral lands not covered by lease. In computing the tax, the term
"gross output" shall be the actual market value of minerals or mineral products, or of bullion
from each mine or mineral lands operated as a separate entity, without any deduction for
mining, milling, refining, transporting, handling, marketing or any other expenses. If the
minerals or mineral products are sold or consigned abroad by the lessee or owner of the
mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted.

In other words, the assessment shall be based, not upon the cost of production or extraction
of said minerals or mineral products, but on the price which the same before or without
undergoing a process of manufacture would command in the ordinary course of
business. 9

In the instant case, the allowance by the tax court of smelting and refining charges as
deductions is not contrary to the above-mentioned provisions of the tax code which
ostensibly prohibit any form of deduction except freight and insurance charges. A review of
the records will show that it was the London Metal Exchange price on wire bar which was
used as tax base by ACMDC for purposes of the 2% ad valorem tax on copper concentrates
since there was no available market price quotation in the commodity exchange or markets
of the world for copper concentrates nor was there any market quotation locally
obtainable. 10 Hence, the charges for smelting and refining were assessed
not on the basis of the price of the copper extracted at the mine site
which is prohibited by law, but on the basis of the actual market value of
the manufactured copper which in this case is the price quoted for
copper wire bar by the London Metal Exchange.
The issue of whether the ad valorem tax should be based upon the value of the finished
product, or the value upon extraction of the raw materials or minerals used in the
manufacture of said finished products, has been passed upon by us in several cases wherein
we held that the ad valorem tax is to be computed on the basis of the market value of the
mineral in its condition at the time of such removal and before it undergoes a chemical
change through manufacturing process, as distinguished from a purely physical process
which does not necessarily involve the change or transformation of the raw material into a
composite distinct product. 11

Thus, in the case of Cebu Portland Cement Co. vs. Commissioner of Internal
Revenue, 12 this Court ruled:

. . . ad valorem tax is a tax not on the minerals, but upon the privilege of
severing or extracting the same from the earth, the government's right to exact
the said impost springing from the Regalian theory of State ownership of its
natural resources.

. . . While cement is composed of 80% minerals, it is not merely an admixture

or blending of raw materials, as lime, silica, shale and others. It is the result of
a definite the crushing of minerals, grinding, mixing, calcining, cooling, adding
of retarder or raw gypsum. In short, before cement reaches its saleable form,
the minerals had already undergone a chemical change through manufacturing
process, This could not have been the state of mineral products' that the law
contemplates for purposes of imposing the ad valorem tax. . . . this tax is
imposed on the privilege of extracting or severing the minerals from the mines.
To our minds, therefore the inclusion of the term mineral products is intended
to comprehend cases where the mined or quarried elements may not be usable
 in its original state without application of simple treatments . . . which process
does not necessarily involve the change or transformation of the raw materials
into a composite, distinct product. . . . While the selling price of cement may
reflect the actual market value of cement, said selling price cannot be taken as
the market value also of the minerals composing the cement. And it was not
the cement that was mined, only the minerals composing the finished product.

This view was subsequently affirmed in the resolution of the Court denying the motion for
reconsideration of its aforesaid decision, 13 reiterated that the pertinent part of
which reiterated that
. . . the ad valorem tax in question should be based on the actual market value
of the quarried minerals used in producing cement, . . . the law intended to
impose the ad valorem tax upon the market value of the component mineral
products in their original state before processing into cement. . . . the law does
not impose a tax on cement qua cement, but on mineral products at least 80%
of which must be minerals extracted by the lessee, concessionaire or owner of
mineral lands.

The Court did not, and could not, rule that cement is a manufactured product
subject to sales tax, for the reason that such liability had never been litigated
by the parties. What it did declare is that, while cement is a mineral product, it
is no longer in the state or condition contemplated by the law; hence the
market value of the cement could not be the basis for computing the ad
valorem tax, since the ad valorem tax is a severance tax i.e., a charge upon the
privilege of severing or extracting minerals from the earth, (Dec. p. 4) and is
due and payable upon removal of the mineral product from its bed or mine (Tax
Code s. 245).

Therefore, the imposable ad valorem tax should be based on the selling price of the quarried
minerals, which is its actual market value, and not on the price of the manufactured product.
If the market value chosen for the reckoning is the value of the manufactured. or finished
product, as in the case at bar, then all expenses of processing or manufacturing should be
deducted in order to approximate as closely as is humanly possible the actual market value
of the raw mineral at the mine site.

It was copper ore that was extracted by ACMDC from its mine site which, through a simple
physical process of removing impurities therefrom, was converted into copper concentrate In
turn, this copper concentrate underwent the process of smelting and refining, and the
finished product is called copper cathode or copper wire bar.

The copper wire bar is the manufactured copper. It is not the mineral extracted from the mine
site nor can it be considered a mineral product since it has undergone a manufacturing
process, to wit:

I. The physical process involved in the production of copper concentrate are

the following (p. 19, BIR records; Exh. H, p. 43, Folder I of Exhibits.)

A Mining Process
 (1) Blasting The ore body is broken up by
blasting.

(2) Loading The ore averaging about 1/2

percent
copper is loaded into ore trucks by electric
shovels.

(3) Hauling The trucks of ore are hauled to the

mill.

B Milling Process

(1) Crushing The ore is crushed to pieces the

size of peanuts.

(2) Grinding The crushed ore is ground to

powder form.

(3) Concentrating The mineral bearing particles

in the powdered ore are concentrated.

The ores or rocks, transported by conveyors, are crushed repeatedly by steel

balls into size of peanuts, when they are ground and pulverized. The powder is
fed into concentrators where it is mixed with water and other reagents. This is
known in the industry as a flotation phase. The copper-bearing materials float
while the non-copper materials in the rock sink. The material that floats is
scooped and dried and piled. This is known as copper concentrate. The
material at the bottom is waste, and is known in the industry as tailings. In
Toledo City, tailings are disposed of through metal pipes from the flotation
mills to the open sea. Copper concentrate of petitioner contains 28-31%
copper. The concentrate is loaded in ocean vessels and shipped to Mitsubishi
Metal Corporation mills in Japan, where the smelting, refining and fabricating
processes are done. (Memorandum of petitioner, p. 71, CTA records.)

II. The chemical or manufacturing process in the production of wire bar is as

follows: (Exh. 'H', p. 43, Folder I of exhibits.)

A. Smelting

(1) Drying The copper concentrates (averaging about 30

percent copper) are dried.

1. Flash Furnace The dried concentrate is smelted autogenously and a

matte containing 65 percent is produced.

2. Converter The matte is converted to blister copper with a purity of

about 99 per cent.

B. Refining
 (1) Casting Wheel Blister copper is treated in an anode
furnace where. copper requiring further treatment is sent to the
casting wheel to produce cathode copper.

(2) Electrolytic Refining Anode copper is further refined by

electrolytic refining to produce cathode copper.

C. Fabricating

(1) Rolling Fire refined or electroly-tic copper-and/or brass (a

mixture Of copper and zinc) is made into tubes, sheets, rods and
wire.

(2) Extruding Sheet tubes, rods and wire are further fabricated
into the copper articles in everyday use.

The records show that cathodes, with purity of 99.985% are cast or fabricated
into various shapes, depending on their industrial destination. Cathodes are
metal sheets of copper 1 meter x 1 meter x 16-16 millimeter thick and 160
kilograms in weight, although this thickness is not uniform for all the sheets.
Cathodes sheets are not suitable for direct fabrication, hence, are further
fabricated into the desired shape, like wire bar, billets and cakes. (p. 1,
deposition, London,) Wire bars are rectangular pieces, 100 millimeter x 100
millimeter x 1.37 meters long and weigh some 125 kilos. They are suited for
copper wires and copper rods. Billets are fabricated into tubes and heavy
electric sections. Cakes are in the form of thick sheets and strips. (pp. 13, 18-
21, deposition, Japan, Exhs. "C" & "G", Japan, pp. 1-2, deposition, London, see
pp. 70-72, CTA records.) 14

Significantly, the finding that copper wire bar is a product of a manufacturing process finds
support in the definition of a "manufacturer" in Section 194 (x) of the aforesaid tax code
which provides:

"Manufacturer" includes every person who by physical or chemical process

alters the exterior texture or form or inner substance of any raw material or
manufactured or partially manufactured product in such a manner as to
prepare it for a special use or uses to which it could not have been put in its
original condition, or who by any such process alters the quality of any such
raw material or manufactured or partially manufactured product so as to
reduce it to marketable shape or prepare it for any of the uses of industry, or
who by any such process combines any such raw material or manufactured or
partially manufactured products with other materials: or products of the same
or different kinds and in such manner that the finished product of such
process or manufacture can be put to a special use or uses to which such raw
material or manufactured or partially manufactured products, or combines the
same to produce such finished products for the purpose of their sale or
distribution to others and not for his own use or consumption.

Moreover, it is also worth noting at this point that the decision of the tax court was based on
its previous ruling in the case of Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue, 15 dated January 23, 1981, which we quote
with approval:
. . . The controlling law is clear and specific; it should therefore be applied as
Since the mineral or mineral product removed from its bed or mine at Toledo
City by petitioner is copper concentrate as admitted by respondent himself,
not copper wire bar, the actual market value of such copper concentrate in its
condition at the time of such removal without any deduction from mining,
milling, refining, transporting, handling, marketing, or any other expenses
should be the basis of the 2% ad valorem tax.

The conclusion reached is rendered clearer when it is taken into consideration

that the ad valorem tax is a severance tax, a charge upon the privilege of
severing or extracting minerals from the earth, and is due and payable upon
removal of the mineral product from its bed or mine, the tax being computed
on the basis of the market value of the mineral in its condition at the time of
such removal and before its being substantially changed by chemical or
manufacturing (as distinguished from purely physical) processing. (Cebu
Portland Cement Co. vs. Commissioner of Internal Revenue, supra.) Copper
wire bars, as discussed above,, have already undergone chemical or
manufacturing processing in Japan, they are not extracted or produced from
the earth by petitioner in its mine site at Toledo City. Since the ad valorem tax
is computed on the basis of the actual market value of the mineral in its
condition at the time of its removal from the earth, which in this case is copper
concentrate, there is no basis therefore for an assertion that such tax should
be measured on the basis of the London Metal Exchange price quotation of the
manufactured wire bars without any deduction of smelting and refining
charges.

In resume:

1. The mineral or mineral product of petitioner the extraction or

severance from the soil. of which the ad valorem tax is directed
is copper concentrate.

2. The ad valorem tax is computed on the basis of the actual

market value of the copper concentrate in its condition at the
time of removal from the earth and before substantially changed
by chemical or manufacturing process without any deduction
milling, refining, from mining, transporting, handling, marketing,
or any other expenses. However, since the copper concentrate is
sold abroad by petitioner under C.I.F. terms, the actual cost of
ocean freight and insurance is deductible.

3. There being no market price quotation of copper concentrate

locally or in the commodity exchanges or markets of the world,
the London Metal Exchange price quotation of copper wire bar,
which is used by petitioner and Mitsubishi Metal Corporation as
reference to determine the selling price of copper concentrate,
may likewise be employed in this case as reference point in
ascertaining the actual market value of copper concentrate
for ad valorem tax purposes. By deducting from the London
 Metal Exchange price quotation of copper wire bar all charges
and costs incurred after the copper concentrate has been
shipped from Toledo City to the time the same has been
manufactured into wire bar, namely, smelting, electrolytic
refining and fabricating, the remainder represents to a
reasonable degree the actual market value of the copper
concentrate in its condition at the time of extraction or removal
from its bed in Toledo City for the purposes of the ad
valorem tax.

The Commissioner of Internal Revenue argues that the ruling in the case above stated is not
binding, considering that the incumbent Commissioner of Internal Revenue is not bound by
decisions or rulings of his predecessor when he finds that a different construction of the law
should be adopted, invoking therefor the doctrine enunciated in Hilado vs. Collector of
internal Revenue, et a1, 16 This trenches on specious reasoning. What was
involved in the Hilado case was a previous ruling of a former
Commissioner of Internal Revenue. In the case at bar, the Commissioner
based his findings on a previous decision rendered by the Court of Tax
Appeals itself.
The Court of Tax Appeals is not a mere superior administrative agency or tribunal but is a
part of the judicial system of the Philippines. 17 It was created by Congress
pursuant to Republic Act No. 1125, effective June 16, 1954, as a
centralized court specializing in tax cases. It is a regular court vested
with exclusive appellate jurisdiction over cases arising under the
National Internal Revenue Code, the Tariff and Customs Code, and the
Assessment Law. 18
Although only the decisions of the Supreme Court establish jurisprudence or doctrines in
this jurisdiction, nonetheless the decisions of subordinate courts have a persuasive effect
and may serve as judicial guides. It is even possible that such a conclusion or
pronouncement can be raised to the status of a doctrine if, after it has been subjected to test
in the crucible of analysis and revision the Supreme Court should find that it has merits and
qualities sufficient for its consecration as a rule of jurisprudence. 19

Furthermore, as a matter of practice and principle, the Supreme Court will not set aside the
conclusion reached by an agency such as the Court of Tax Appeals, which is, by the very
nature of its function, dedicated exclusively to the study and consideration of tax problems
and has necessarily developed an expertise on the subject, unless there has been an abuse
or improvident exercise of authority on its part. 20

II. G.R. No. 105563

The petition herein raises the following issues for resolution:

A. Whether or not petitioner is liable for payment, of the 25%

surcharge for alleged late filing of notice of removal/late
payment of the ad valorem tax on silver, gold and pyrite
extracted during the taxable year 1976.
 B. Whether or not petitioner is liable for payment of the
manufacturer' s sales tax and surcharge during the taxable year
1975, plus interest, on grinding steel balls borrowed by its
competitor; and

C. 'Whether or not petitioner is liable for payment of the

contractor's tax and surcharge on the alleged lease of personal
property during the taxable years 1975 and 1976 plus interest. 21

A. Surcharge on Silver, Gold and Pyrite

ACMDC argues that the Court of Appeals erred in holding it liable to pay 25% surcharge on
silver, gold and pyrite extracted by it during tax year 1976.

Sec. 245 of the then tax code states:

Sec. 245. Time and manner of payment of royalties or ad valorem taxes. The
royalties or ad valorem taxes as the case may be, shall be due and payable
upon the removal of the mineral products from the locality where mined.
However, the output of the mine may be removed from such locality without
the pre-payment of such royalties or ad valorem taxes if the lessee, owner, or
operator shall file a bond in the form and amount and with such sureties as the
Commissioner of Internal Revenue may require,. conditioned upon the
payment of such royalties or ad valorem taxes, in which case it shall be the
duty of every lessee, owner, or operator of a mine to make a true and complete
return in duplicate under oath setting forth the quantity and the actual market
value of the output of his mine removed during each calendar quarter and pay
the royalties or ad valorem taxes due thereon within twenty days after the
close of said quarter.

In case the royalties or ad valorem taxes are not paid within the period
prescribed above, there shall be added thereto a surcharge of twenty-five per
centum. Where a false or fraudulent return is made, there shall be added to the
royalties or ad valorem taxes a surcharge of fifty per centum of their amount.
The surcharge So, added: shall be collected in the same manner and as part of
the royalties or ad valorem taxes, as the case may be.

Under the aforesaid provision, the payment of the ad valorem tax shall be made upon
removal of the mineral products from the mine site or if payment cannot be made, by filing a
bond in the form and amount to be approved by the Commissioner conditioned upon the
payment of the said tax.

In the instant case, the records show that the payment of the ad valorem tax on gold, silver
and pyrite was belatedly made. ACMDC, however, maintains that it should not be required to
pay the 25% surcharge because the correct quantity of gold and silver could be determined
only after the copper concentrates had gone through the process of smelting and refining in
Japan while the amount of pyrite cannot be determined until after the flotation process
separating the copper mineral from the waste material was finished.

Prefatorily, it must not be lost sight of that bad faith is ; not essential for the imposition of the
25% surcharge for late payment of the ad valorem tax. Hence,
MISSING PAGE 19

Q. Now, what do you do with the result of your analysis?

A. These are tabulated and then averaged out to represent one

shipment.

Q. Will you tell this Honorable Court whether in that laboratory

testing you physically separate the gold, you physically separate
the silver and you physically separate the copper content of that
40 to 50 kilos?

A. No, no, we analyze this in one sample. This sample is

analyzed for gold, silver, and copper, but there is no recovery
made.

Q. You mean there is no physical separation?

A. No, no physical separation.

Q. So these three minerals copper, gold and silver are in

that same powder that you have tested?

A Yes, it is in the same powder.

Q. Now how do you reflect the results of the testing?

A. You mean in analysis?

Q. In the analysis, yes.

A. Copper is reported in percent.

Q. Percentage?

A. Yes.

Q. How about gold?

A. Gold and silver part is represented as grams per dmt or parts

per million.

Q. Based on the results of your data gathered in the laboratory?

A. Yes.

Q. Now where do you submit the results of the laboratory

testing?
 A When a shipment is made we prepare a certificate of analysis
signed by me and then which (sic) is sent to Manila.

Q. Now, as far as you know in connection with your duty do you

know what Manila what do you say, Manila, ACMDC?

A. Makati.

Q. Makati. What does Makati ACMDC do with your assay report?

A. As far as I know it is used as the basis for the payment of ad

valorem tax. 24

The above-quoted testimony accordingly supports these findings of the tax court in its
decision in this case:

We see it (sic) that even if the silver and gold cannot as yet be physically
separated from the copper concentrate until the process of smelting and
refining was completed, the estimated commercial quantity of the silver and
gold could have been determined in much the same way that petitioner is able
to estimate the commercial quantity of copper during the assay. If, as stated by
petitioner, it is able to estimate the grade of the copper ore, and it has
determined the grade not only of the copper but also those of the gold and
silver during the assay (Petitioner's Memorandum, p. 207, Record), ergo, the
estimated commercial quantity of the silver and gold subject to ad valorem tax
could have also been determined and provisionally paid as for copper. 25

The other allegation of ACMDC is that there was no removal of pyrite from the mine site
because the pyrite was delivered to its sister company, Atlas Fertilizer Corporation, whose
plant is located inside the mineral concession of ACMDC in Sangi, Toledo City. ACMDC,
however, is already barred by estoppel in pais from putting that matter in issue.

An ad valorem tax on pyrite for the same tax year was already declared and paid by ACMDC.
In fact, that payment was used as the basis for computing the 25% surcharge. It was only
when ACMDC was assessed for the 25% surcharge that said issue was raised by it. Also, the
evidence shows that deliveries of pyrite were not exclusively made to its sister company,
Atlas Fertilizer Corporation. There were shipments of pyrite to other companies located
outside of its mine site, in addition to those delivered to its aforesaid sister company. 26

B. Manufacturer's Tax and Contractor's Tax

The manufacturer's tax is imposed under Section 186 of the tax code then in force which
provides:

Sec. 186. Percentage tax on sales of other articles. There shall be levied,
assessed and collected once only on every original sale, barter, exchange, or
similar transaction either for nominal or valuable consideration, intended to
transfer ownership of, or title to, the articles not enumerated in sections one
hundred and eighty-four-A, one hundred and eighty five, one hundred and
eighty-five-A, one hundred eighty-five-B, and one hundred eighty-six-B, a tax
equivalent to seven per centum of the gross selling price or gross value in
 money of the articles so sold, bartered, exchanged, or transferred, such tax to
be paid by the manufacturer or producer: Provided, That where the articles
subject to tax under this Section are manufactured out of materials likewise
subject to tax under this section and section one hundred eighty-nine, the total
cost of such materials, as duly established, shall be deductible from the gross
selling price or gross value in money of such manufactured articles. (As
amended by Rep. Act No. 6110 and by Pres. Decree No. 69.)

On the other hand, the contractor's tax is provided for under Section 191 of the same code,
paragraph 17 of which declares that lessors of personal property shall be subject to a
contractor's tax of 3% of the gross receipts.

Sections 186 and 191 fall under Title V of the tax code, entitled "Privilege Taxes on Business
and Occupation." These "privilege taxes on business" are taxes imposed upon the privilege
of engaging in business. They are essentially excise taxes. 27 To be held liable for the
payment of a privilege tax, the person or entity must be engaged in
business, as shown by the fact that the drafters of the tax code had
purposely grouped said provisions under the general heading adverted
to above.
"To engage" is to embark on a business or to employ oneself therein. The word "engaged"
connotes more than a single act or a single transaction; it involves some continuity of action.
"To engage in business" is uniformly construed as signifying an employment or occupation
which occupies one's time, attention, and labor for the purpose of a livelihood or profit. The
expressions "engage in business," "carrying on business" or "doing business" do not have
different meanings, but separately or connectedly convey the idea of progression, continuity,
or sustained activity. "Engaged in business" means occupied or employed in business;
carrying on business" does not mean the performance of a single disconnected act, but
means conducting, prosecuting, and continuing business by performing progressively all the
acts normally incident thereto; while "doing business" conveys the idea of business being
done, not from time to time, but all the time. 28

The foregoing notwithstanding, it has likewise been ruled that one act may be sufficient to
constitute carrying on a business according to the intent with which the act is done. A single
sale of liquor by one who intends to continue selling is sufficient to render him liable for
"engaging in or carrying on" the business of a liquor dealer. 29

There may be a business without any sequence of acts, for if an isolated transaction, which if
repeated would be a transaction in a business, is proved to have been undertaken with the
intent that it should be the first of several transactions, that is, with the intent of carrying on a
business, then it is a first transaction in an existing business. 30

Thus, where the end sought is to make a profit, the act constitutes "doing- business." This is
not without basis. The term "business," as used in the law imposing a license tax on
business, trades, and so forth, ordinarily means business in the trade or commercial sense
only, carried on with a view to profit or livelihood; 31 It is thus restricted to activities
or affairs where profit is the purpose, or livelihood is the motive. Since
the term "business" is being used without any qualification in our
aforesaid tax code, it should therefore be therefore be construed in its
plain and ordinary meaning, restricted to activities for profit or
livelihood. 32
In the case at bar, ACMDC claims exemptions from the payment of manufacturer's tax. It
asserts that it is not engaged in the business of selling grinding steel balls, but it only
produces grinding steel balls solely for its own use or consumption, However, it admits
having lent its grinding steel balls to other entities but only in very isolated cases.

After a careful review of the records and on the basis of the legal concept of "engaging in
business" hereinbefore discussed, we are inclined to agree with ACMDC that it should not
and cannot be held liable for the payment of the manufacturer's tax.

First, under the tax code then in force, the 7% manufacturer's sales tax is imposed on the
manufacturer for every original sale, barter, exchange and other similar transaction intended
to transfer ownership of articles. As hereinbefore quoted, and we repeat the same for facility
of reference, the term "manufacturer" is defined in the tax code as including "every person
who by physical or chemical process alters the exterior texture or form or inner substance of
any raw material or manufactured or partially manufactured product in such manner as to
prepare it for a special use or uses to which it could not have been put in its original
condition, or who by any such process alters the quality of any such raw material or
manufactured or partially manufactured product so as to reduce it to marketable shape or
prepare it for any of the uses of industry, or who by any such process combines any such
raw material or manufactured or partially manufactured products with other materials or
products of the same or of different kinds and in such manner that the finished product of
such process or manufacture can be put to a special use or uses to which such raw materials
or manufactured or partially manufactured products in their original condition could not have
been put, and who in addition alters such raw material or manufactured or partially
manufactured products, or combines the same to produce such finished products for the
purpose of their sale or distribution to others and not for his own use or consumption. 33

Thus, a manufacturer, in order to be subjected to the necessity of paying the percentage tax
imposed by Section 186 of the tax code, must be 'engaged' in the sale, barter or exchange of;
personal property. Under a statute which imposes a tax on persons engaged in the sale,
barter or exchange of merchandise, a person must be occupied or employed in the sale,
barter or exchange of personal property. A person can hardly be considered as occupied or
employed in the sale, barter or exchange of personal property when he has made one
purchase and sale only. 34

Second, it cannot be legally asserted, for purposes of this particular assessment only, that
ACMDC was engaged in the business of selling grinding steel balls on the basis of the
isolated transaction entered into by it in 1975. There is no showing that said transaction was
undertaken by ACMDC with a view to gaining profit. therefrom and with the intent of carrying
on a business therein. On the contrary, what is clear for us is that the sale was more of an
accommodation to the other mining companies, and that ACMDC was subsequently replaced
by other suppliers shortly thereafter.

This finding is strengthened by the investigation report, dated March 11, 1980, of the B.I.R.
Investigation Team itself which found that

ACMDC has a foundry shop located at Sangi, Toledo City, and manufactures
grinding steel balls for use in its ball mills in pulverizing the minerals before
 they go to the concentrators, For the grinding steel balls manufactured by
ACMDC and used in its operation, we found it not subject to any business tax.
But there were times in 1975 when other mining companies were short of
grinding steel balls and ACMDC supplied them with these materials
manufactured in its foundry shop. According to the informant, these were
merely accommodations and they were replaced by the other suppliers. 35

At most, whatever profit ACMDC may have realized from that single transaction was just
incidental to its primordial purpose of accommodating other mining companies. Well-settled
is the rule that anything done as a mere incident to, or as a necessary consequence of, the
principal business is not ordinarily taxed as an independent business in itself. 36 Where a
person or corporation is engaged in a distinct business and, as a feature
thereof, in an activity merely incidental which serves no other person or
business, the incidental and restricted activity is not considered as
intended to be separately taxed. 37
In fine, on this particular aspect, we are consequently of the considered opinion and so hold
that ACMDC was not a manufacturer subject to the percentage tax imposed by Section 186 of
the tax code.

The same conclusion; however, cannot be made with respect to the contractor's tax being
imposed on ACMDC. It cannot validly claim that the leasing out of its personal properties was
merely an isolated transaction. Its book of accounts shows that several distinct payments
were made for the use of its personal properties such as its plane, motor boat and dump
truck. 38 The series of transactions engaged in by ACMDC for the lease of
its aforesaid properties could also be deduced from the fact that for the
tax years 1975 and 1976 there were profits earned and reported therefor.
It received a rental income of P630,171.56 for tax year 39 and
P2,450,218.62 for tax year 1976. 40
Considering that there was a series of transactions involved, plus the fact that there was an
apparent and protracted intention to profit from such activities, it can be safely concluded
that ACMDC was habitually engaged in the leasing out of its plane, motor boat and dump
truck, and is perforce subject to the contractor's tax.

The allegation of ACMDC that it did not realize any profit from the leasing out of its said
personal properties, since its income therefrom covered only the costs of operation such as
salaries and fuel, is not supported by any documentary or substantial evidence. We are not,
therefore, convinced by such disavowal.

Assessments are prima facie presumed correct and made in good faith. Contrary to the
theory of ACMDC, it is the taxpayer and not the Bureau of Internal Revenue who has the duty
of proving otherwise. It is an elementary rule that in the absence of proof of any irregularities
in the performance of official duties, an assessment will not be disturbed. All presumptions
are in favor of tax assessments. 41 Verily, failure to present proof of error in
assessments will justify judicial affirmance of said assessment. 42
Finally, we deem it opportune to emphasize the oft-repeated rule that tax statutes are to
receive a reasonable construction with a view to carrying out their purposes and
 They should not be construed as to permit the taxpayer to easily
intent. 43
evade the payment of the tax. 44 On this note, and under the confluence
of the weighty. considerations and authorities earlier discussed, the
challenged assessment against ACMDC for contractor's tax must be
upheld.
WHEREFORE, the impugned judgment of respondent Court of Appeals in CA-G.R. SP No.
25945, subject of the present petition in G.R. No. 104151 is hereby AFFIRMED; and its
assailed judgment in CA-G.R SP No. 26087 is hereby MODIFIED by exempting Atlas
Consolidated Mining and Development Corporation, petitioner in G.R. No. 105563 of this
Court, from the payment of manufacturer's sales tax, surcharge and interest during the
taxable year 1975.

SO ORDERED.

Narvasa, C.J., Bidin, Puno and Mendoza, JJ., concur.

Footnotes

1 Penned by Justice Luis C. Victor, with Justices Santiago M. Kapunan and

Segundino G. Chua concurring (Third Division).

2 Per Justice Nathanael P. de Pano, Jr., with the concurrence of Justices Jesus
M. Elbinias and Angelina S. Gutierrez (Eleventh Division).

3 Original Record, C.T.A. Case No. 3465, 21-22.

4 Id., C.T.A. Case No. 3828, 222.

5 Rollo, G.R. No. 105563, 80-82.

6 Id., G.R. No. 104151, 46-50,

7 Id., G.R. No. 105563 57-58.

8 Id., Id., 163.

9 Republic Cement Corporation vs. Commissioner of Internal Revenue, et al.,

L-20660, June 13, 1968, 23 SCRA 967.

10 Memorandum dated April 11, 1978 of Renato L. Manalili, Supervising

Revenue Examiner II; Original Record, C.T.A. No. 3467, Folder IV, 117-118.

11 See Cebu Portland Cement Co. vs. Commissioner of Internal Revenue

(Resolution on Motion for Reconsideration), L-18649, December 29, 1967, 21
SCRA 1425; Republic Cement Corporation vs. Commissioner of Internal
Revenue, supra, Fn. 9.

12 L-18649, February 27,.1965, 13 SCRA 333.

13 Supra, Fn. 11.

14 Decision, C.T.A. Case No. 2842, citing p. 19, BIR Records; Exh. "H" p. 43,
Folder I of Exhibits, Original Record, C.T.A. Case No. 3467, 99-102.

15 C.T.A. Case No. 2842, ante.

16 100 Phil. 288 (1956).

17 See Ursal, etc. vs. Court of Tax Appeals, et a1., 101 Phil. 209 (1957).

18 Collector of Internal Revenue vs. Yuseco, et al., L-12518, October 28, 1961, 3
SCRA 313; Auyong Hian vs. Court of Tax Appeals, et al, L-25181, January 11,
1967, 19 SCRA 10.

19 Paras, E., Civil Code of the Philippines Annotated Vol. 1, Twelfth Edition, 58-
59, citing Vda. de Miranda, et al. vs. Imperial, et 77 Phil. 1066 (1947).

20 Luzon Stevedoring Corporation vs. Court of Tax Appeals, et al., L-30232,

July 29, 1988, 163 SCRA 647.

21 Rollo, G.R. No. 105563, 16.

24 TSN, November 26, 1985, Direct Examination of Francisco Antonio, 16-18.

25 Rollo, G.R. No. 105563, 70.

26 Folder I, BIR Record, as cited in the decision in C.T.A Cases Nos. 3467 and
3825, 14; Rollo, G.R. No. 105563, 73.

27 Matic, T., Taxation in the Philippines, 1973 ed., 332.

28 Alejandro, J., The Law on Taxation, 1966, 489-490, citing Imperial vs.
Collector of Internal Revenue, L-7924, September 30, 1955.

29 Abel vs. State, 8 So. 760, 80 Ala. 631, 633.

30 In re Griffin, 60 L.J.Q.B. 235, 237, cited in 9 C.J., Business, 1103.

31 Cuzner vs. California Club, 155 Gal. 303.

32 Collector of Internal Revenue vs. Manila Lodge No. 761 of the Benevolent
and Protective Order of Elks, et al., 105 Phil. 983 (1959); Collector of Internal
Revenue vs. Sweeney, et al., 106 Phil. 59 (1959); see also Collector of Internal
Revenue vs. Club Filipino, Inc. de Cebu, L-12719, May 31, 1962, 5 SCRA 321,
and cases cited therein.

33 Sec. 194 (x), National Internal Revenue Code.

 34 Whitaker vs. Rafferty, etc., 38 Phil. 08 (1918); Boada vs. Posadas, etc., 58
Phil. 184 (1933); Imperial vs. Collector of Internal Revenue, 97 Phil. 992, 1002,
unpub., (1955).

35 BIR Records, Folder III, 306.

36 Smith, Bell & Co. vs. Municipality of Zamboanga, et al., 55 Phil. 466 (1930);
Standard-Vacuum Oil Co. vs. M.D. Antigua, etc., at al., 96 Phil. 909 (1955); City
of Manila vs. Fortune Enterprises, Inc., 108 Phil. 1058 (1960).

37 Standard-Vacuum Oil Company vs. M.D. Antigua, etc., et al., supra, citing
Craig vs. Ballard & Ballard Co., 196 So. 238.

38 BIR Records, Folder III, 295.

39 BIR Records, Folder III, 306.

40 Original Record, C.T.A. Case No. 3825, 213.

41 Interprovincial Autobus Co., Inc. vs. Collector of Internal Revenue, 98 Phil.

290 (1956); Sy Po vs. Court of Tax Appeals, et al., G.R. No. 81446, August 18,
1988, 164 SCRA 524; Dayrit, et al. vs. Crui, et al., L-39910, September 26, 1988,
165 SCRA 571.

42 Aban, 1B., Law of Basic Taxation in the Philippines, 1994 ed., 109, citing
Delta Motors Co. vs. Commissioner of Internal Revenue, C.T.A; Case No. 3782,
May 21, 1986.

43 51 Am. Jur., Legislative Intention, 361.

44 Carbon Steel Co. vs. Lewellyn, 251 U.S. 501.

17G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,

vs.
CITY OF ILOILO, defendants-appellants.

Pelaez, Jalandoni and Jamir for plaintiff-appellees.

Assistant City Fiscal Vicente P. Gengos for defendant-appellant.

CASTRO, J.:

Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo
declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License
Tax On Persons Engaged In The Business Of Operating Tenement Houses," and ordering the City to
refund to the plaintiffs-appellees the sums of collected from them under the said ordinance.

On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license
tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house,
partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer,
P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other
streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by
the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses
containing 34 apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio
Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not appearing that the
power to tax owners of tenement houses is one among those clearly and expressly granted to the
City of Iloilo by its Charter."

On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of
Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or
power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted
Ordinance 11, series of 1960, hereunder quoted in full:

AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE

BUSINESS OF OPERATING TENEMENT HOUSES

Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of
Republic Act No. 2264, otherwise known as the Autonomy Law of Local Government, that:

Section 1. A municipal license tax is hereby imposed on tenement houses in accordance

with the schedule of payment herein provided.

Section 2. Tenement house as contemplated in this ordinance shall mean any building or
dwelling for renting space divided into separate apartments or accessorias.

Section 3. The municipal license tax provided in Section 1 hereof shall be as follows:

I. Tenement houses:

(a) Apartment house made of strong materials P20.00 per door p.a.

(b) Apartment house made of mixed materials P10.00 per door p.a.

II Rooming house of strong materials P10.00 per door p.a.

Rooming house of mixed materials P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or dedicated to P30.00 per door p.a.
 business in the following streets: J.M. Basa, Iznart, Aldeguer,
Guanco and Ledesma from Plazoleto Gay to Valeria. St.

IV. Tenement house partly or wholly engaged in or dedicated to

business in any other street P12.00 per door p.a.

V. Tenement houses at the streets surrounding the super market

as soon as said place is declared commercial P24.00 per door p.a.

Section 4. All ordinances or parts thereof inconsistent herewith are hereby amended.

Section 5. Any person found violating this ordinance shall be punished with a fine note
exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6)
months or both at the discretion of the Court.

Section 6 This ordinance shall take effect upon approval.

ENACTED, January 15, 1960.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five
tenement houses, aggregately containing 43 apartments, while the other appellees and the same
Remedios S. Villanueva are owners of ten apartments. Each of the appellees' apartments has a door
leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as
a store, while the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva
owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon
City, which cities, according to him, do not impose tenement or apartment taxes.

By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva
and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees
Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum
of P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property.

On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended
complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance
11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the
City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation
and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City
be ordered to refund the amounts collected from them under the said ordinance.

On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the
grounds that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the
same is "oppressive and unreasonable," for the reason that it penalizes owners of tenement houses
who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates
the rule of uniformity of taxation.
The issues posed in this appeal are:

1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double
taxation?

2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?

3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal
clause?

4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?

1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:

SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities,
municipalities and municipal districts shall have authority to impose municipal license taxes
or fees upon persons engaged in any occupation or business, or exercising privileges in
chartered cities, municipalities or municipal districts by requiring them to secure licences at
rates fixed by the municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to collect fees and
charges for services rendered by the city, municipality or municipal district; to regulate and
impose reasonable fees for services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or municipal district and otherwise to
levy for public purposes, just and uniform taxes, licenses or fees; Provided, That
municipalities and municipal districts shall, in no case, impose any percentage tax on sales
or other taxes in any form based thereon nor impose taxes on articles subject to specific tax,
except gasoline, under the provisions of the National Internal Revenue Code; Provided,
however, That no city, municipality or municipal district may levy or impose any of the
following:

(a) Residence tax;

(b) Documentary stamp tax;

(c) Taxes on the business of persons engaged in the printing and publication of any
newspaper, magazine, review or bulletin appearing at regular intervals and having fixed
prices for for subscription and sale, and which is not published primarily for the purpose of
publishing advertisements;

(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric
light, heat and power;

(e) Taxes on forest products and forest concessions;

(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;

(g) Taxes on income of any kind whatsoever;

(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof;
 (i) Customs duties registration, wharfage dues on wharves owned by the national
government, tonnage, and all other kinds of customs fees, charges and duties;

(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and

(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign
insurance companies.

A tax ordinance shall go into effect on the fifteenth day after its passage, unless the
ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall
have authority to suspend the effectivity of any ordinance within one hundred and twenty
days after its passage, if, in his opinion, the tax or fee therein levied or imposed is unjust,
excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority
the effectivity of such ordinance shall be suspended.

In such event, the municipal board or city council in the case of cities and the municipal
council or municipal district council in the case of municipalities or municipal districts may
appeal the decision of the Secretary of Finance to the court during the pendency of which
case the tax levied shall be considered as paid under protest.

It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments
broad taxing authority which extends to almost "everything, excepting those which are mentioned
therein," provided that the tax so levied is "for public purposes, just and uniform," and does not
transgress any constitutional provision or is not repugnant to a controlling statute. 2 Thus, when a tax,
levied under the authority of a city or municipal ordinance, is not within the exceptions and limitations
aforementioned, the same comes within the ambit of the general rule, pursuant to the rules
of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti.

Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in
section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature of
the tax. The appellees strongly maintain that it is a "property tax" or "real estate tax," 3 and not a "tax
on persons engaged in any occupation or business or exercising privileges," or a license tax, or a
privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license
tax on persons engaged in the business of operating tenement houses," while section 1 thereof
states that a "municipal license tax is hereby imposed on tenement houses." It is the phraseology of
section 1 on which the appellees base their contention that the tax involved is a real estate tax
which, according to them, makes the ordinance ultra vires as it imposes a levy "in excess of the one
per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158." 5.

It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax.
Obviously, the appellees confuse the tax with the real estate tax within the meaning of the
Assessment Law,6 which, although not applicable to the City of Iloilo, has counterpart provisions in
the Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or
other improvements thereon, not specially exempted, 8 and is payable regardless of whether the
property is used or not, although the value may vary in accordance with such factor. 9 The tax is
usually single or indivisible, although the land and building or improvements erected thereon are
assessed separately, except when the land and building or improvements belong to separate
owners.10 It is a fixed proportion11 of the assessed value of the property taxed, and requires,
therefore, the intervention of assessors.12 It is collected or payable at appointed times,13 and it
constitutes a superior lien on and is enforceable against the property 14 subject to such taxation, and
not by imprisonment of the owner.
The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a
tax on the land on which the tenement houses are erected, although both land and tenement houses
may belong to the same owner. The tax is not a fixed proportion of the assessed value of the
tenement houses, and does not require the intervention of assessors or appraisers. It is not payable
at a designated time or date, and is not enforceable against the tenement houses either by sale or
distraint. Clearly, therefore, the tax in question is not a real estate tax.

"The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court
looks less to its words and more to the context, subject-matter, consequence and effect. Accordingly,
what is within the spirit is within the ordinance although it is not within the letter thereof, while that
which is in the letter, although not within the spirit, is not within the ordinance." 15 It is within neither
the letter nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise
the subject-matter would have been not merely tenement houses. On the contrary, it is plain from the
context of the ordinance that the intention is to impose a license tax on the operation of tenement
houses, which is a form of business or calling. The ordinance, in both its title and body, particularly
sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself,
means an "imposition or exaction on the right to use or dispose of property, to pursue a business,
occupation, or calling, or to exercise a privilege."16.

"The character of a tax is not to be fixed by any isolated words that may beemployed in the
statute creating it, but such words must be taken in the connection in which they are used
and the true character is to be deduced from the nature and essence of the subject." 17 The
subject-matter of the ordinance is tenement houses whose nature and essence are
expressly set forth in section 2 which defines a tenement house as "any building or
dwelling for renting space divided into separate apartments or accessorias." The Supreme
Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959,
adopted the definition of a tenement house18 as "any house or building, or portion thereof,
which is rented, leased, or hired out to be occupied, or is occupied, as the home or residence
of three families or more living independently of each other and doing their cooking in the
premises or by more than two families upon any floor, so living and cooking, but having a
common right in the halls, stairways, yards, water-closets, or privies, or some of them."
Tenement houses, being necessarily offered for rent or lease by their very nature and
essence, therefore constitute a distinct form of business or calling, similar to the hotel or
motel business, or the operation of lodging houses or boarding houses. This is precisely one
of the reasons why this Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva,
et al., supra, declared Ordinance 86 ultra vires, because, although the municipal board of
Iloilo City is empowered, under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and
regulate hotels, restaurants, refreshment parlors, cafes, lodging houses, boarding
houses, livery garages, public warehouses, pawnshops, theaters, cinematographs,"
tenement houses, which constitute a different business enterprise,19 are not mentioned in the
aforestated section of the City Charter of Iloilo. Thus, in the aforesaid case, this Court
explicitly said:.

"And it not appearing that the power to tax owners of tenement houses is one among those
clearly and expressly granted to the City of Iloilo by its Charter, the exercise of such power
cannot be assumed and hence the ordinance in question is ultra vires insofar as it taxes a
tenement house such as those belonging to defendants." .

The lower court has interchangeably denominated the tax in question as a tenement tax or an
apartment tax. Called by either name, it is not among the exceptions listed in section 2 of the Local
Autonomy Act. On the other hand, the imposition by the ordinance of a license tax on persons
engaged in the business of operating tenement houses finds authority in section 2 of the Local
Autonomy Act which provides that chartered cities have the authority to impose municipal license
taxes or fees upon persons engaged in any occupation or business, or exercising privileges within
their respective territories, and "otherwise to levy for public purposes, just and uniform taxes,
licenses, or fees." .

2. The trial court condemned the ordinance as constituting "not only double taxation but treble at
that," because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A)
(3) (s) of the National Internal Revenue Code, besides the tenement tax under the said ordinance."
Obviously, what the trial court refers to as "income taxes" are the fixed taxes on business and
occupation provided for in section 182, Title V, of the National Internal Revenue Code, by virtue of
which persons engaged in "leasing or renting property, whether on their account as principals or as
owners of rental property or properties," are considered "real estate dealers" and are taxed
according to the amount of their annual income.20.

While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National
Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the
argument against double taxation may not be invoked. The same tax may be imposed by the
national government as well as by the local government. There is nothing inherently obnoxious in the
exaction of license fees or taxes with respect to the same occupation, calling or activity by both the
State and a political subdivision thereof.21.

The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate
taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-
settled rule that a license tax may be levied upon a business or occupation although the land or
property used in connection therewith is subject to property tax. The State may collect an ad valorem
tax on property used in a calling, and at the same time impose a license tax on that calling, the
imposition of the latter kind of tax being in no sensea double tax.22.

"In order to constitute double taxation in the objectionable or prohibited sense the same
property must be taxed twice when it should be taxed but once; both taxes must be imposed
on the same property or subject-matter, for the same purpose, by the same State,
Government, or taxing authority, within the same jurisdiction or taxing district, during the
same taxing period, and they must be the same kind or character of tax." 23 It has been shown
that a real estate tax and the tenement tax imposed by the ordinance, although imposed by
the sametaxing authority, are not of the same kind or character.

At all events, there is no constitutional prohibition against double taxation in the Philippines. 24 It is
something not favored, but is permissible, provided some other constitutional requirement is not
thereby violated, such as the requirement that taxes must be uniform."25.

3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not
only oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months
or both, if the owner or owners of the tenement buildings divided into apartments do not pay the
tenement or apartment tax fixed in said ordinance," but also unconstitutional as it subjects the
owners of tenement houses to criminal prosecution for non-payment of an obligation which is purely
sum of money." The lower court apparently had in mind, when it made the above ruling, the provision
of the Constitution that "no person shall be imprisoned for a debt or non-payment of a poll tax." 26 It is
elementary, however, that "a tax is not a debt in the sense of an obligation incurred by contract,
express or implied, and therefore is not within the meaning of constitutional or statutory provisions
abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the non-
payment thereof by fine or imprisonment is not, in conflict with that prohibition." 27 Nor is the tax in
question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a
certain class, resident within a specified territory, without regard to their property or the occupations
in which they may be engaged.28 Therefore, the tax in question is not oppressive in the manner the
lower court puts it. On the other hand, the charter of Iloilo City 29 empowers its municipal board to "fix
penalties for violations of ordinances, which shall not exceed a fine of two hundred pesos or six
months' imprisonment, or both such fine and imprisonment for each offense." In Punsalan, et al. vs.
Mun. Board of Manila, supra, this Court overruled the pronouncement of the lower court declaring
illegal and void an ordinance imposing an occupation tax on persons exercising various professions
in the City of Manilabecause it imposed a penalty of fine and imprisonment for its violation. 30.

4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.

"... because while the owners of the other buildings only pay real estate tax and income
taxes the ordinance imposes aside from these two taxes an apartment or tenement tax. It
should be noted that in the assessment of real estate tax all parts of the building or buildings
are included so that the corresponding real estate tax could be properly imposed. If aside
from the real estate tax the owner or owners of the tenement buildings should pay apartment
taxes as required in the ordinance then it will violate the rule of uniformity of taxation.".

Complementing the above ruling of the lower court, the appellees argue that there is "lack of
uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out to
pay taxes on their tenement houses, while citizens of other cities, where their councils do not enact a
similar tax ordinance, are permitted to escape such imposition." .

It is our view that both assertions are undeserving of extended attention. This Court has already
ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are
uniform and equal when imposed upon all property of the same class or character within the taxing
authority."31 The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do
not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and
equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that
tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the
same purpose should be imposed in different territorial subdivisions at the same time. 32So long as
the burden of the tax falls equally and impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity of taxation is accomplished. 33 The plaintiffs-
appellees, as owners of tenement houses in the City of Iloilo, have not shown that the tax burden is
not equally or uniformly distributed among them, to overthrow the presumption that tax statutes are
intended to operate uniformly and equally.34.

5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a
mere reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L-
12695, supra, as ultra vires, the decision in that case should be accorded the effect of res judicata in
the present case or should constitute estoppel by judgment. To dispose of this contention, it suffices
to say that there is no identity of subject-matter in that case andthis case because the subject-matter
in L-12695 was an ordinance which dealt not only with tenement houses but also warehouses, and
the said ordinance was enacted pursuant to the provisions of the City charter, while the ordinance in
the case at bar was enacted pursuant to the provisions of the Local Autonomy Act. There is likewise
no identity of cause of action in the two cases because the main issue in L-12695 was whether the
City of Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of
1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore was not
available for consideration in the decision in L-12695 which was promulgated on March 23, 1959.
Moreover, under the provisions of section 2 of the Local Autonomy Act, local governments may now
tax any taxable subject-matter or object not included in the enumeration of matters removed from the
taxing power of local governments.Prior to the enactment of the Local Autonomy Act the taxes that
could be legally levied by local governments were only those specifically authorized by law, and their
power to tax was construed in strictissimi juris. 35.

ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the
complaint is hereby dismissed. No pronouncement as to costs..

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,Fernando and Capistrano,
JJ., concur..

Footnotes

1
The record discloses that the delay caused in the lower court was due to the loss of the
original record while the same was in the possession of the late Judge Perfecto Querubin.
The record was later reconstituted under Judge Ramon Blanco..

2
Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, L-20125, July 20, 1965, per
Concepcion, J.: .

"Neither the plaintiff nor the lower court maintains that the subject matter of the
ordinance in question comes under any of the foregoing exceptions. Hence, under
the rule - "expressio unius est exclusio alterius", the ordinance should be deemed to
come within the purview of the general rule. Indeed, the sponsor of the bill, which
upon its passage became Republic Act No. 2264, explicitly informed the House of
Representatives when he urged the same to approve it, that, under its provisions,
local governments would be "able to do everything, excepting those things which are
mentioned therein." ..." .

C.N. Hodges vs. The Mun. Board of the City of Iloilo, et al., L-18276, Jan. 12, 1967,
per Castro, J.: .

"... Heretofore, we have announced the doctrine that the grant of the power to tax to
chartered cities under section 2 of the Local Autonomy Act is sufficiently plenary to
cover "everything, excepting those which are mentioned therein," subject only to the
limitation that the tax so levied is for "public purposes, just and uniform" (Nin Bay
Mining Co. vs. Mun. of Roxas, Prov. of Palawan, G.R. No. L-20125, July 20, 1965).
There is no showing, and we do not believe it is possible to show, that the tax levied,
called by any name - percentage tax or sales tax - comes under any of the specific
exceptions listed in Section 2 of the Local Autonomy Act. Not being excepted, it must
be regarded as coming within the purview of the general rule. As the maxim goes,
"Exceptio firmat regulum in casibus non excepti." Since its public purpose, justness
and uniformity of application are not disputed, the tax so levied must be sustained as
valid." (Re: Ordinance imposing a tax on sales or real estate property situated in the
City of Iloilo, of 1/2% of 1% of the contract price or consideration.).

Ormoc Sugar Co., Inc. vs. Mun. Board of Ormoc City, et al., L-24322, July 21, 1967,
per Fernando, J.: .
 "In a number of decisions starting from City of Bacolod v. Gruet, L-18290, Jan. 31,
1963, to Hodges vs. Mun. Board, L-18276, Jan. 12, 1967, such broad taxing
authority has been implemented and vitalized by this Court.

"... The question before this Court is one of power. From and after June 19, 1959,
when the Local Autonomy Act was enacted, the sphere of autonomy of a chartered
city in the enactment of taxing measures has been considerably enlarged.

"... In the absence of a clear and specific showing that there was a transgression of a
constitutional provision or repugnancy to a controlling statute, an objection of such a
generalized character deserves but scant sympathy from this Court. Considering the
indubitable policy expressly set forth in the Local Autonomy Act, the invocation of
such a talismanic formula as "restraint of trade" without more no longer suffices,
assuming it ever did, to nullify a taxing ordinance, otherwise valid." [Re: Ordinance
imposing tax on all productions of centrifugal sugar (B-sugar) locally sold or sold
within the Phil., at P.20 per picul, etc.].

3
"Taxes on property are taxes assessed on all property or on all property of a certain class
located within a certain territory on a specified date in proportion to its value, or in
accordance with some other reasonable method of apportionment, the obligation to pay
which is absolute and unavoidable and it is not based upon any voluntary action of the
person assessed. A property tax is ordinarily measured by the amount of property owned by
the taxpayer on a given day, and not on the total amount owned by him during the year. It is
ordinarily assessed at stated periods determined in advance, and collected at appointed
times, and its payment is usually enforced by sale of the property taxed, and, occassionally,
by imprisonment of the person assessed." (51 Am. Jur. 57) .

"A "real estate tax" is a tax in rem against realty without personal liability therefor on
part of owner thereof, and a judgment recovered in proceedings for enforcement of
real estate tax is one in rem against the realty without personal liability against the
owner." (36 Words and Phrases, 286, citing Land O'Lakes Dairy Co. vs. Wadena
County, 39 N. W. 2d. 164, 171, 229 Minn. 263).

4
"The term "license tax" or "license fee" implies an imposition or exaction on the right to use
or dispose of a property, to pursue a business, occupation, or calling, or to exercise a
privilege." (33 Am. Jur. 325-v26) .

"The term "excise tax" is synonymous with "privilege tax", and the two are often used
interchangeably, and whether a tax is characterized in the statute imposing it as a
privilege tax or an excise tax is merely a choice of synonymous words, for an excise
tax is a privilege tax." (51 Am. Jur. 62, citing Bank of Commerce & T. Co. vs. Senter,
149 Tenn. 569, 260 SW 144) .

"Thus, it is said that an excise tax is a charge imposed upon the performance of an
act, the enjoyment of a privilege, or the engaging in an occupation." (51 Am. Jur.
61) .

5
"SEC. 38. Annual tax and penalties. Extension and remission of the tax. -- An annual tax of
one per centum on the assessed value of all real estate in the city subject to taxation shall be
levied by the city treasurer..." .
6
Commonwealth Act No. 470 -- "SECTION 1. Title of this Act. - This Act shall be known as
the Assessment Law. `.

`SEC. 2. Incidence of real property tax. -- Except in chartered cities, there shall be
levied, assessed, and collected an annual ad valorem tax on real property, including
land, buildings, machinery and other improvements not hereinafter specially
exempted.".

7
Com. Act 158, sections 28 to 53.

8
Com. Act 158, sec. 29.

9
51 Am. Jur. 53: "An ad valorem property tax is invariably based upon ownership of property,
and is payable regardless of whether the property is used or not, although of course the
value may vary in accordance with such factor." .

10
"Real estate, for purposes of taxation, includes all land within the district by which the tax is
levied, and all rights and interests in such land, and all buildings and other structures affixed
to the land, even though as between the landlord and the tenant they are the property of the
tenant and may be removed by him at the termination of the lease." (51 Am. Jur. 438) Sec.
31 of Com. Act 158 provides: "When it shall appear that there are separate owners of the
land and the improvements thereon, a separate assessment of the property of each shall be
made." .

11
Sec. 38 of Com. Act 158 provides: "An annual tax of one per centum on the assessed
value of all real estate in the city subject to taxation shall be levied by the city treasurer." .

12
Secs. 28 to 34, Com. Act 158.

13
Sec. 38 of Com. Act 158 provides: "All taxes on real estate for any year shall be due and
payable on the first day of January and from this date such taxes together with all penalties
accruing thereto shall constitute a lien on the property subject to such taxation." .

14
Sec. 38 of Com. Act 158 provides: "Such lien shall be superior to all other liens, mortgages
or incumbrances of any kind whatsoever, and shall be enforceable against the property
whether in the possession of the delinquent or any subsequent owner, and can only be
removed by the payment of the tax and penalty.".

62 C.J.S. 845; Manila Race Horse Trainers Assn. vs. De la Fuente, L-2947, Jan. 11, 1951,
15

88 Phil. 60.

16
51 Am. Jur. 59-60; 33 Am. Jur. 325-326..

17
51 Am. Jur. 56, citing Eyre v. Jacob, 14 Gratt (Va.) 422; 73 Am. Dec. 367.

18
Webster's New International Dictionary, 2nd Ed., p. 2601.

19
City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959: "As may be
seen from the definition of each establishment hereunder quoted, a tenement house is
different from hotel, lodging house, or boarding house. These are different business
enterprises. They have been established for different purposes.
20
National Internal Revenue Code: .

"SEC. 182. Fixed taxes. -- On business ...; (3) Other fixed taxes. -- The following
fixed taxes shall be collected as follows, the amount stated being for the whole year,
when not otherwise specified: .

XXX XXX XXX

"(s) Stockbrokers, dealers in securities, real estate brokers, real estate dealers,
commercial brokers, customs brokers, and immigration brokers, one hundred and
fifty pesos: Provided, however, That in the case of real estate dealers, the annual
fixed tax to be collected shall be as follows: .

"One hundred and fifty pesos, if the annual income from buying, selling, exchanging,
leasing, or renting property (whether on their own account as principals or as owners
of rental property or properties) is four thousand pesos or more but not exceeding ten
thousand pesos; .

"Three hundred pesos, if such annual income exceeds ten thousand pesos but does
not exceed thirty thousand pesos; and .

"Five hundred pesos, if such annual income exceeds thirty thousand pesos."

21
Punsalan, et al. vs. Mun. Board of the City of Manila, et al., L-4817, May 26, 1954, 95 Phil.
46, per Reyes, J.: In this case the Supreme Court upheld the validity of Ordinance 3398 of
the City of Manila, approved on July 25, 1950, imposing a municipal occupation tax on
persons exercising various professions (lawyers, medical practitioners, public accountants,
dental surgeons, pharmacists, etc.), in the city and penalizes non-payment of the tax by a
fine of not more than P200.00 or by imprisonment of not more than 6 months, or by both
such fine and imprisonment in the discretion of the court, although section 201 [now sec.
182(B)] of the National Internal Revenue Code requires the payment of taxes on occupation
or professional taxes. Said Justice Reyes: "The argument against double taxation may not
be invoked where one tax is imposed by the state and the other is imposed by the city (1
Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing
obnoxious in the requirement thatlicense fees or taxes be exacted with respect to the same
occupation, calling or activity by both the state and the political subdivision thereof. (51 Am.
Jur., 341.)" .

A month after the promulgation of the above decision, Congress passed Rep. Act
1166, approved on June 18, 1954, providing as follows: "Any provisions of existing
laws, city charters and ordinances, executive orders and regulations, or parts thereof,
to the contrary notwithstanding, every professional legally authorized to practice his
profession, who has paid the corresponding annual privilege tax on professions
required by Sec. 182 of the NIRC, Com. Act No. 466,shall be entitled to practice the
profession for which he has been duly qualified under the law, in all parts of the
Philippines without being subject to any other tax, charge, license or fee for the
practice of such profession; Provided, however, That they have paid to the office
concerned the registration fees required in their respective professions." .

People vs. Santiago Mendaros, et al., L-6975, May 27, 1955, 97 Phil. 958-959, per
22

Bautista Angelo, J. Appeal from the decision of the CFI of Zambales. Defendants-appellees
were convicted by the JP Court of Palauig, Zambales, and sentenced to pay a fine of P5.00,
for failure to pay the occupation tax imposed by a municipal ordinance on owners of
fishponds on lands of private ownership. The Supreme Court, in sustaining the validity of the
ordinance, held:.

"The ground on which the trial court declared the municipal ordinance invalid would
seem to be that, since the land on which the fishpond is situated is already subject to
land tax, it would be unfair and discriminatory to levy another tax on the owner of the
fishpond because that would amount to double taxation. This view is erroneous
because it is a well-settled rule that a license tax may be levied upon a business or
occupation although the land or property used therein is subject to property tax. It
was also held that "the state may collect an ad valorem tax on property used in a
calling, and at the same time impose a license tax on the pursuit of that calling." The
imposition of this kind of tax is in no sense called a double tax." .

Veronica Sanchez vs. The Collector of Internal Revenue, L-7521, Oct. 18, 1955, 97
Phil. 687, per Reyes, J.B.L., J.

"Considering that appellant constructed her four-door "accessoria" purposely for rent
or profit; that she has been continuously leasing the same to third persons since its
construction in 1947; that she manages her property herself; and that said leased
holding appears to be her main source of livelihood, she is engaged in the leasing of
real estate, and is a real estate dealer as defined in section 194(s) [now, Sec. 182(A)
(3)(s)] of the Internal Revenue Code, as amended by Rep. Act No. 42.

"Appellant argues that she is already paying real estate taxes on her property, as well
as income tax on the income derived therefrom, so that to further subject its rentals
to the "real estate dealers" tax amounts to double taxation. This argument has
already been rejected by this Court in the case of People vs. Mendaros et al., L-
6975, promulgated May 27, 1955, wherein we held that it is a well-settled rule that
license tax may be levied upon a business or occupation although the land or
property used therein is subject to property tax, and that"the state may collect an ad
valorem tax on property used in a calling, and at the same time impose a license tax
on the pursuit of that calling", the imposition of the latter kind of tax being in no sense
a double tax." ".

23
84 C.J.S. 131-132.

24
Manufacturers' Life Insurance Co. vs. Meer, L-2910, June 29, 1951; City of Manila vs.
Interisland Gas Service, L-8799, Aug 31, 1956; Commissioner of Internal Revenue vs.
Hawaiian-Philippine Co., L-16315, May 30, 1964; Pepsi-Cola Bottling Co. of the Philippines
vs. City of Butuan, et al., L-22814, Aug. 28, 1968.

Pepsi-Cola Bottling Co. vs. City of Butuan, supra: .

"The second and last objections are manifestly devoid of merit. Indeed --
independently of whether or not the tax in question, when considered in relation to
the sales tax prescribed by Acts of Congress, amounts to double taxation, on which
we need not and do not express any opinion -- double taxation, in general, is not
forbidden by our fundamental law. We have not adopted, as part thereof, the
injunction against double taxation found in the Constitution of the United States and
some States of the Union. Then, again, the general principle against delegation of
legislative powers, in consequence of the theory of separation of powers is subject to
 one well-established exception, namely; legislative powers may be delegated to local
governments - to which said theory does not apply - in respect of matters of local
concern." .

25
84 C.J.S. 133-134; "Double taxation, although not favored, is permissible in the absence of
express or implied constitutional prohibition.

"Double taxation should not be permitted unless the legislature has authority to
impose it. However, since the taxing power is exclusively a legislative function, and
since, except as it is limited or restrained by constitutional provisions, it is absolute
and unlimited, it is generally held that there is nothing, in the abscence of any
express or implied constitutional prohibition against double taxation, to prevent the
imposition of more than one tax on property within the jurisdiction, as the power to
tax twice is as ample as the power to tax once. In such case whether or not there
should be double taxation is a matter within the discretion of the legislature.

"In some states where double taxation is not expressly prohibited, it is held that
double taxation is permissible, or not invalid or unconstitutional, or necessarily
unlawful, provided some other constitutional requirement is not thereby violated, as a
requirement that taxes must be equal and uniform." .

The Constitution of the Philippines, Art. VI, sec. 22 (1) provides: "The rule of taxation
shall be uniform." .

26
Art. III, sec. 1, par. 12, Constitution.

27
51 Am. Jur. 860-861, citing Cousins v. State, 50 Ala. 113, 20 Am. Rep. 290; Rosenbloom v.
State, 64 Neb. 342, 89 NW 1053, 57 LRA 922; Voelkel v. Cincinnati, 112 Ohio St. 374, 147
NE 754, 40 ALR 73 (holding the provisions of an ordinance making the non-payment of an
excise tax levied in pursuance of such ordinance a misdemeanor punishable by fine not in
violation of the constitutional prohibition against the imprisonment of any person for "debt in
a civil action, or mesne or final process"); Ex parte Mann, 39 Tex. Crim. Rep. 491, 46 SW
828,73 Am. St. Rep. 961.

26 R.C.L. 25-26: "It is generally considered that a tax is not a debt, and that the
municipality to which the tax is payable is not a creditor of the person assessed. A
debt is a sum of money due by certain and express agreement. It originates in, and is
founded upon, contract express or implied. Taxes, on the other hand, do not rest
upon contract, express or implied. They are obligations imposed upon citizens to pay
the expenses of government. They are forced contributions, and in no way
dependent upon the will or contract, express or implied, of the persons taxed." .

28
51 Am. Jur. 66-67; "Capitation or poll taxes are taxes of a fixed amount upon all persons,
or upon all the persons of a certain class, resident within a specified territory, without regard
to their property or the occupations in which they may be engaged. Taxes of a specified
amount upon each person performing a certain act or engaging in a certain business or
profession are not, however, poll taxes." .

29
Com. Act No. 158 (An Act Establishing a Form of Government for the City of Iloilo), section
21: "Except as otherwise provided by law, and subject to the conditions and limitations
thereof, the Municipal Board shall have the following legislative powers: .
 "(aa) ... and to fix penalties for the violation of ordinances which shall not exceed a
fine of two hundred pesos or six months' imprisonment, or both such fine and
imprisonment, for each offense." .

30
"To begin with the defendants' appeal, we find that the lower court was in error in saying
that the imposition of the penalty provided for in the ordinance was without the authority of
law. The last paragraph (kk) of the very section that authorizes the enactment of the
ordinance (section 18 of the Manila Charter) in express terms also empowers the Municipal
Board to "fix penalties for the violation of ordinances which not exceed to [sic] two hundred
pesos fine or six months' imprisonment, or both such fine and imprisonment, for a single
offense." Hence, the pronouncement below that the ordinance in question is illegal and void
because it imposes a penalty not authorized by law is clearly without legal basis." .

31
51 Am. Jur. 203, citing Re Page, 60 Kan. 842, 59 P 478, 47 LRA 68: "Taxes are uniform
and equal when imposed upon all property of the same character within the taxing authority."
Manila Race Horse Trainers Assn., Inc. vs. De la Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60:
"In the case of Eastern Theatrical Co., Inc. vs. Alfonso, [L-1104, May 31, 1949], 46 O.G.
Supp. to No. 11, p. 303, it was said that there is equality and uniformity in taxation if all
articles or kinds of property of the same class are taxed at the same rate. Thus, it was held in
that case, that "the fact that some places of amusement are not taxed while others, such as
cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions
and other kinds of amusements or places of amusement are taxed, is no argument at all
against equality and uniformity of the tax imposition." Applying this criterion to the present
case, there would be discrimination if some boarding stables of the class used for the same
number of horses were not taxed or were made to pay less or more than others." Tan Kim
Kee vs. Court of Tax Appeals, et al., L-18080, April 22, 1963, per Reyes, J.B.L., J.: "The rule
of uniform taxation does not deprive Congress of the power to classify subjects of taxation,
and only demands uniformity within the particular class.".

32
Am. Jur. 203: "153. Uniformity of Operation Throughout Tax Unit. One requirement with
respect to taxation imposed by provisions relating to equality and uniformity, which has been
introduced into some state constitutions in express language, is that taxation must be
uniform throughout the political unit by or with respect to which the tax is levied. This means,
for example, that a tax for a state purpose must be uniform and equal throughout the state, a
tax for a county purpose must be uniform and equal throughout the county, anda tax for a
city, village, or township purpose must be uniform and equal throughout the city, village, or
township. It does not mean, however, that the taxes levied by or with respect to the various
political subdivisions or taxing districts of the state must be at the same rate, or, as one court
has graphically put it, that a man in one county shall pay the same rate of taxation for all
purposes that is paid by a man in an adjoining county. Nor does the rule require that taxes
for the same purposes shall be imposed in different territorial subdivisions at the same time.
It has also been said in this connection that the omission to tax any particular individual who
may be liable does not render the whole tax illegal or void."

33
84 C.J.S. 77: "Equality in taxation is accomplished when the burden of the tax falls equally
and impartially on all the persons and property subject to it [State ex rel. Haggart v. Nichols,
265 N.W. 859, 66 N.D. 355], so that no higher rate or greater levy in proportion to value is
imposed on one person or species of property than on others similarly situated or of like
character."

84 C.J.S. 79: "The rule of uniformity in taxation applies to property of like kind and
character and similarly situated, and a tax, in order to be uniform, must operate alike
 on all persons, things, or property, similarly situated. So the requirement is complied
with when the tax is levied equally and uniformly on all subjects of the same class
and kind and is violated if particular kinds, species or items of property are selected
to bear the whole burden of the tax, while others, which should be equally subjected
to it, are left untaxed."

34
84 C.J.S. 81: "There is a presumption the at tax statutes are intended to operate uniformly
and equally [Alaska Consol. Canneries v. Territory of Alaska, C.C.A. Alaska, 16 F. 2d. 256],
and a liberal construction will be indulged in order to accomplish fair and equal taxation of all
property within the state."

Medina vs. City of Baguio, L-4060, Aug. 29, 1952; Wa Wa Yu vs. City of Lipa, L-9167,
35

Sept. 27, 1956; Saldana vs. City of Iloilo, 55 O.G. 10267, and the cases cited therein.

18

ALLIED BANKING G.R. No. 154126

CORPORATION AS TRUSTEE
FOR THE TRUST FUND OF Present:
COLLEGE ASSURANCE
PLAN PHILIPPINES, INC. DAVIDE, JR., C.J.,
(CAP), PUNO,
Petitioner, PANGANIBAN,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL- GUTIERREZ,
-versus- CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
THE QUEZON CITY CALLEJO, SR.,
GOVERNMENT, THE AZCUNA,
QUEZON CITY TREASURER, TINGA,
THE QUEZON CITY CHICO-NAZARIO, and
ASSESSOR AND THE CITY GARCIA, JJ.
MAYOR OF QUEZON CITY,
Respondents.
Promulgated:

October 11, 2005

x-----------------------------------------------------------------x

DECISION
CARPIO MORALES, J.:

From the Resolution[1] of April 10, 2002 issued by Branch 225 of the Regional
Trial Court (RTC) of Quezon City dismissing the petition for prohibition and
declaratory relief[2]of Allied Banking Corporation (petitioner), the present appeal
by certiorari was lodged.
On December 19, 1995, the Quezon City government enacted City
Ordinance No. 357, Series of 1995 (the ordinance),[3] Section 3 of which reads:

Section 3. The City Assessor shall undertake a general revision of real property
assessments using as basis the newly approved schedule specified in Sections 1
and 2 hereof. He shall apply the new assessment level of 15% for residential and
40% for commercial and industrial classification, respectively as prescribed in
Section 8 (a) of the 1993 Quezon City Revenue Code to determine the assessed
value of the land. Provided; however, that parcels of land sold, ceded,
transferred and conveyed for remuneratory consideration after the
effectivity of this revision shall be subject to real estate tax based on the
actual amount reflected in the deed of conveyance or the current approved
zonal valuation of the Bureau of Internal Revenue prevailing at the time of
sale, cession, transfer and conveyance, whichever is higher, as evidenced by
the certificate of payment of the capital gains tax issued therefor. [4] (Emphasis
and underscoring supplied)

On July 1, 1998, petitioner, as trustee for College Assurance Plan of the

Philippines, Inc., purchased from Liwanag C. Natividad et al. a 1,000 square meter
parcel of land located along Aurora Boulevard, Quezon City in the amount
of P38,000,000.00.[5]

Prior to the sale, Natividad et al. had been paying the total amount
of P85,050.00[6] as annual real property tax based on the propertys fair market
value of P4,500,000.00 and assessed value of P1,800,000.00 under Tax Declaration
No. D-102-03778.[7]
After its acquisition of the property, petitioner was, in accordance with
Section 3 of the ordinance, required to pay P102,600.00 as quarterly real estate tax
(or P410,400.00 annually) under Tax Declaration No. D-102-03780 which pegged
the market value of the property at P38,000,000.00 the consideration appearing in
the Deed of Absolute Sale, and its assessed value at P15,200,000.00.[8]

Petitioner paid the quarterly real estate tax for the property from the
1st quarter of 1999 up to the 3rd quarter of 2000. Its tax payments for the 2nd, 3rd, and
4th quarter of 1999, and 1st and 2nd quarter of 2000 were, however, made under
protest.[9]

In its written protest[10] with the City Treasurer, petitioner assailed Section 3
of the ordinance as null and void, it contending that it is violative of the equal
protection and uniformity of taxation clauses of the Constitution. [11] Petitioner,
moreover, contended that the proviso is unjust, excessive, oppressive,
unreasonable, confiscatory and contrary to Section 130 of the Local Government
Code which provides:

SECTION 130. Fundamental Principles. The following fundamental

principles shall govern the exercise of the taxing and revenue-raising powers of
local government units:

(a) Taxation shall be uniform in each local government unit;

(b) Taxes, fees, charges and other impositions shall:

(1) be equitable and based as far as practicable on the taxpayers ability to

pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national economic policy, or in
restraint of trade;

xxx

Petitioner, through its counsel, later sent a March 24, 2000 demand letter to
the Quezon City Treasurers Office seeking a refund of the real estate taxes it
erroneously collected from it.[12] The letter was referred for appropriate action [13] to
the City Assessor who, by letter dated May 7, 2000, denied the demand for refund
on the ground that the ordinance is presumed valid and legal unless otherwise
declared by a court of competent jurisdiction.[14]

Petitioner thereupon filed on August 11, 2000 a petition for prohibition and
declaratory relief before the Quezon City RTC for the declaration of nullity of
Section 3 of the ordinance; the enjoining of respondents Quezon City Treasurer,
Quezon City Assessor, and City Mayor of Quezon City from further implementing
the ordinance; for the Quezon City Treasurer to be ordered to refund the amount
of P633,150.00 representing the real property tax erroneously collected and paid
under protest; and for respondents to pay attorneys fees in the amount
of P1,000,000.00 and costs of the suit.[15]

In support of its thesis, petitioner contended that the re-assessment under the
third sentence of Section 3 of the ordinance for purposes of real estate taxation of a
propertys fair market value where it is sold, ceded, transferred or conveyed for
remuneratory consideration is null and void as it is an invalid classification of real
properties which are transferred, ceded or conveyed and those which are not, the
latter remaining to be valued and assessed in accordance with the general revisions
of assessments of real properties under the first sentence of Section 3.[16]

Petitioner additionally contended that the proviso of Section 3 of the

ordinance which allows re-assessment every time the property is transferred, ceded
or conveyed violates Sections 219[17] and 220[18] of the Local Government Code
which provide that the assessment of real property shall not be increased oftener
than once every three (3) years except in case of new improvements substantially
increasing the value of said property or of any change in its actual use.[19]

Before respondents could file any responsive pleading or on March 6, 2001,

respondent Quezon City Government enacted Ordinance No. SP-1032, S-
2001[20] which repealed the assailed proviso in Section 3 of the 1995 Ordinance.
The repealing ordinance which took effect upon its approval on March 28, 2001
reads in part:
WHEREAS, the implementation of the second (2 nd) sentence of Section 3 of the
Ordinance creates a situation whereby owners of newly acquired land for remuneratory
consideration beginning January 1, 1996 and forward will have to pay higher taxes than its
adjoining/adjacent lot or lots in the adjoining blocks, or nearby lots within its immediate
vicinity which have remained undisturbed, not having been sold, ceded, transferred, and/or
conveyed;

WHEREAS, the owners of the newly acquired property are

complaining/protesting the validity/legality of the second (2 nd) sentence of Section 3 of the
ordinance for being either arbitrary, unjust, excessive, oppressive, and/or contrary to law;

WHEREAS, Section 5 Article X of the Philippine Constitution provides that: Each

local government unit shall have the power to create its own sources of revenue and to
levy taxes, fees and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges
shall accrue exclusively to the local government (Underscoring supplied);

WHEREAS, the guidelines and limitations imposed on the local government units
in the exercise of their taxing powers have been expressly stipulated by Congress when it
enacted Section 130 of Republic Act No. 7160, otherwise known as the Local Government
Code of 1991 xxx;

WHEREAS, these fundamental principles of taxation find support and affirmation

in the following applicable cases decided by the Court of Tax Appeals (sic), on similar
cases which held that:

1. An increase in the valuation of land due to sale and transfer of such property was
arbitrary. Uniformity in taxation means that all kinds of property of the same class
shall be taxed at the same rate. (Churchhill vs. Concepcion, 34 Phi. 969; Eastern
Theatrical Co. vs. Alfonso, 83 Phil. 852) xxx.

2. The law requires the real property shall be assessed at its true and full value, or cash
value, or fair market value. But in determining or fixing the fair market value of
property for tax purposes it is essential that the rules of uniformity be observed. More
important tha[n] the obligation to seek the fair market value of property is the
obligation of the assessor to see to it that the rule of taxation shall be uniform, for this
a (sic) rule which is guaranteed by the Constitution. A taxpayer should not be made to
pay more taxes on his property while owners of surrounding properties, under the
same circumstance pay less.

WHEREAS, it is clear from the foregoing premises that the second (2 nd) sentence
of the Ordinance, fixing the realty tax based on the actual amount reflected in the deed of
conveyance or the current approved zonal valuation x x x is violative of, and repugnant to,
the uniformity rule of taxation;
 WHEREAS, in view of the above considerations there appear to be merit and
validity to the complaints/protests of tax payers, a re-examination and repeal of the entire
second sentence of Section 3 of the Ordinance is in order.

Petitioner subsequently moved to declare respondents in default[21] for failure to

file a responsive pleading within the period, as extended. Before the motion could
be heard,[22]however, respondents moved to dismiss the petition,[23] averring that the
passage of the repealing ordinance had rendered the petition moot and academic.

Petitioner opposed the motion, it alleging that while its action for the
declaration of nullity of the proviso was rendered moot and academic by its repeal,
its claim for refund and attorneys fees had not been mooted, and the trial court still
had to determine if Section 3 of the ordinance is null and void ab initio and
perforce, may not be enforced during the intervening period from the time of its
enactment until the time of its repeal.[24]

Respondents maintained, however, that the assailed proviso remained in full

force and effect until the date of its repeal, based on the rule that a statute is
construed prospectively unless the legislative intent was to give it retrospective
application.[25] And they called attention to the provision in Section 2 of the
repealing ordinance that [it] shall take effect upon its approval, hence, clearly
showing that the local legislative body was to grant it prospective application.[26]

As to the claim for refund, respondents averred that it was premature for the
trial court to take cognizance thereof as petitioner had an administrative remedy.[27]

By Resolution of April 10, 2002, the trial court granted respondents motion
to dismiss in this wise:

There is no need for this Court to resolve whether the subject Ordinance is
null and void as the same was already declared to be violative of, and repugnant
 to the uniformity rule on taxation by the Quezon City Council itself thru its
pronouncements in Quezon City Ordinance No. 1032, Series of 2001. x x x

xxx

As to petitioners claim for refund, since an administrative remedy is

available for refund of taxes illegally and erroneously collected and petitioner has
not yet availed of it, the Court shall not take cognizance of this issue considering
the rule on Exhaustion of Administrative Remedy.[28] (Underscoring supplied)

Its Motion for Reconsideration[29] having been denied,[30] petitioner comes

before this Court on appeal by certiorari under Rule 45 on the following issues:

WHETHER OR NOT THE TRIAL COURT ERRED IN DISMISSING THE

INSTANT CASE FOR FAILURE OF THE PETITIONER TO EXHAUST
ADMINISTRATIVE REMEDIES.

WHETHER OR NOT SECTION 3, QUEZON CITY ORDINANCE NO. 357,

SERIES OF 1995, WHICH WAS ABROGATED FOR BEING
UNCONSTITUTIONAL CAN BE THE BASIS OF COLLECTING REAL
ESTATE TAXES PRIOR TO ITS REPEAL.[31]

Although as a rule, administrative remedies must first be exhausted before

resort to judicial action can prosper, there is a well-settled exception in cases
where the controversy does not involve questions of fact but only of law.[32]

Nevertheless, while cases raising purely legal questions are excepted from
the rule requiring exhaustion of administrative remedies before a party may resort
to the courts, petitioner, in the case at bar, does not raise just pure questions of law.
Its cause of action requires the determination of the amount of real property tax
paid under protest and the amount of attorneys fees. These issues are essentially
questions of fact which preclude this Court from reviewing the same.[33]
 Since the procedure for obtaining a refund of real property taxes is provided
under Sections 252,[34] 226,[35] 229,[36] 230[37] and 231[38] of the Local Government
Code, petitioners action for prohibition in the RTC was premature as it had a plain,
speedy and adequate remedy of appeal in the ordinary course of law. [39] As such,
the trial court correctly dismissed its action on the ground that it failed to exhaust
the administrative remedies stated above.[40]

Raising questions of fact is moreover inappropriate in an appeal by certiorari under

Rule 45 of the Rules of Court where only questions of law may be reviewed. [41] It
is axiomatic that the Supreme Court is not a trier of facts[42] and the factual findings
of the court a quo are conclusive upon it, except: (1) where the conclusion is a
finding grounded entirely on speculation, surmise and conjectures; (2) where the
inference made is manifestly mistaken; (3) where there is grave abuse of
discretion; and (4) where the judgment is based on a misapprehension of facts, and
the findings of fact of the trial court are premised on the absence of evidence and
are contradicted by evidence on record.[43]

From a considered scrutiny of the records of the case, this Court finds that
petitioner has shown no cause for this Court to apply any of the foregoing
exceptions.

Petitioner has not put squarely in issue the constitutionality of the proviso in
Section 3 of the ordinance. It merely alleges that the said proviso can not be the
basis for collecting real estate taxes at any given time, the Sangguniang
Panlungsod of Quezon City not having intended to impose such taxes in the first
place. As such the repealing ordinance should be given retroactive effect.

As a rule, the courts will not resolve the constitutionality of a law, if the
controversy can be settled on other grounds.[44]
 Where questions of constitutional significance are raised, the Court can
exercise its power of judicial review only if the following requisites are
complied: First, there must be before the Court an actual case calling for the
exercise of judicial review. Second, the question before the Court must be ripe for
adjudication. Third, the person challenging the validity of the act must have
standing to challenge. Fourth, the question of constitutionality must have been
raised at the earliest opportunity, and lastly, the issue of constitutionality must be
the very lis mota of the case.[45]

Considering that there are factual issues still waiting to be threshed out at the level
of the administrative agency, there is no actual case calling for the exercise of
judicial review. In addition, the requisite that the constitutionality of the assailed
proviso in question be the very lis mota of the case is absent. Thus, this Court
refrains from passing on the constitutionality of the proviso in Section 3 of the
1995 Ordinance.

The factual issues which petitioner interjected in its petition aside, the only crucial
legal query in this case is the validity of the proviso fixing the appraised value of
property at the stated consideration at which the property was last sold.

This Court holds that the proviso in question is invalid as it adopts a method of
assessment or appraisal of real property contrary to the Local Government Code,
its Implementing Rules and Regulations and the Local Assessment Regulations No.
1-92[46] issued by the Department of Finance.[47]

Under these immediately stated authorities, real properties shall be appraised at the
current and fair market value prevailing in the locality where the property is
situated[48] and classified for assessment purposes on the basis of its actual use.[49]
Fair market value is the price at which a property may be sold by a seller who is
not compelled to sell and bought by a buyer who is not compelled to buy, [50] taking
into consideration all uses to which the property is adapted and might in reason be
applied. The criterion established by the statute contemplates a hypothetical sale.
Hence, the buyers need not be actual and existing purchasers.[51]

As this Court stressed in Reyes v. Almanzor,[52] assessors, in fixing the value of real
property, have to consider all the circumstances and elements of value, and must
exercise prudent discretion in reaching conclusions.[53] In this regard, Local
Assessment Regulations No. 1-92[54] establishes the guidelines to assist assessors in
classifying, appraising and assessing real property.

Local Assessment Regulations No. 1-92 suggests three approaches in estimating

the fair market value, namely: (1) the sales analysis or market data approach; (2)
the income capitalization approach; and (3) the replacement or reproduction cost
approach.[55]
Under the sales analysis approach, the price paid in actual market transactions is
considered by taking into account valid sales data accumulated from among the
various sources stated in Sections 202, 203, 208, 209, 210, 211 and 213 of the
Code.[56]
In the income capitalization approach, the value of an income-producing property
is no more than the return derived from it. An analysis of the income produced is
necessary in order to estimate the sum which might be invested in the purchase of
the property.

The reproduction cost approach, on the other hand, is a factual approach used
exclusively in appraising man-made improvements such as buildings and other
structures, based on such data as materials and labor costs to reproduce a new
replica of the improvement.
The assessor uses any or all of these approaches in analyzing the data gathered to
arrive at the estimated fair market value to be included in the ordinance containing
the schedule of fair market values.

Given these different approaches to guide the assessor, it can readily be seen that
the Code did not intend to have a rigid rule for the valuation of property, which is
affected by a multitude of circumstances which no rule could foresee or provide
for. Thus, what a thing has cost is no singular and infallible criterion of its market
value.[57]

Accordingly, this Court holds that the proviso directing that the real property tax be
based on the actual amount reflected in the deed of conveyance or the prevailing
BIR zonal value is invalid not only because it mandates an exclusive rule in
determining the fair market value but more so because it departs from the
established procedures stated in the Local Assessment Regulations No. 1-92 and
unduly interferes with the duties statutorily placed upon the
local assessor[58] by completely dispensing with his analysis and discretion which
the Code and the regulations require to be exercised. An ordinance that contravenes
any statute is ultra vires and void.[59]

Further, it is noted that there is nothing in the Charter of Quezon City [60] and the
Quezon City Revenue Code of 1993[61] that authorize public respondents to
appraise property at the consideration stated in the deed of conveyance.

Using the consideration appearing in the deed of conveyance to assess or

appraise real properties is not only illegal since the appraisal, assessment, levy and
collection of real property tax shall not be let to any private person, [62] but it will
completely destroy the fundamental principle in real property taxation that real
property shall be classified, valued and assessed on the basis of its actual
use regardless of where located, whoever owns it, and whoever uses it.
[63]
Necessarily, allowing the parties to a private sale to dictate the fair market value
of the property will dispense with the distinctions of actual use stated in the Code
and in the regulations.

The invalidity of the assessment or appraisal system adopted by the proviso

is not cured even if the proviso mandates the comparison of the stated
consideration as against the prevailing BIR zonal value, whichever is higher,
because an integral part of that system still permits valuing real property in
disregard of its actual use.

In the same vein, there is also nothing in the Code or the regulations
showing the congressional intent to require an immediate adjustment of taxes on
the basis of the latest market developments as, in fact, real property assessments
may be revised and/or increased only once every three (3) years. [64] Consequently,
the real property tax burden should not be interpreted to include those beyond what
the Code or the regulations expressly and clearly state.

Still another consequence of the proviso is to provide a chilling effect on real

property owners or administrators to enter freely into contracts reflecting the
increasing value of real properties in accordance with prevailing market conditions.
While the Local Government Code provides that the assessment of real property
shall not be increased oftener than once every three (3) years, [65] the questioned part
of the proviso subjects the real property to a tax based on the actual amount
appearing on the deed of conveyance or the current approved zonal valuation of the
Bureau of Internal Revenue prevailing at the time of sale, cession, transfer and
conveyance, whichever is higher. As such, any subsequent sale during the three-
year period will result in a real property tax higher than the tax assessed at the last
prior conveyance within the same period. To save on taxes, real property owners or
administrators are forced to hold on to the property until after the said three-year
period has lapsed. Should they nonetheless decide to sell within the said three-year
period, they are compelled to dispose the property at a price not exceeding that
obtained from the last prior conveyance in order to avoid a higher tax assessment.
In these two scenarios, real property owners are effectively prevented from
obtaining the best price possible for their properties and unduly hampers the
equitable distribution of wealth.

While the state may legitimately decide to structure its tax system to
discourage rapid turnover in ownership of real properties, such state interest must
be expressly stated in the executing statute or it can at least be gleaned from its
provisions.
 In the case at bar, there is nothing in the Local Government Code, the
implementing rules and regulations, the local assessment regulations, the Quezon
City Charter, the Quezon City Revenue Code of 1993 and the Whereas clauses of
the 1995 Ordinance from which this Court can draw, at the very least, an
intimation of this state interest. As such, the proviso must be stricken down for
being contrary to public policy and for restraining trade.[66]

In fine, public respondent Quezon City Government exceeded its statutory

authority when it enacted the proviso in question. The provision is thus null and
void ab initio for being ultra vires and for contravening the provisions of the Local
Government Code, its implementing regulations and the Local Assessment
Regulations No. 1-92. As such, it acquired no legal effect and conferred no rights
from its inception.

A word on the applicability of the doctrine in this decision. It applies only in the
determination of real estate tax payable by owners or administrators of real
property.

In light of the foregoing disquisitions, addressing the issue of retroactivity of the

repealing ordinance is rendered unnecessary.

WHEREFORE, the petition is hereby GRANTED. The assailed portion of the

provisions of Section 3 of Quezon City Ordinance No. 357, Series of 1995 is
hereby declared invalid.

Petitioners claim for refund, however, must be lodged with the Local Board of
Assessment Appeals, if it is not barred by the statute of limitations.

SO ORDERED.
 CONCHITA CARPIO MORALES
Associate Justice

WE CONCUR:

HILARIO G. DAVIDE, JR.

Chief Justice

REYNATO S. PUNO ARTEMIO V. PANGANIBAN

Associate Justice Associate Justice

LEONARDO A. QUISUMBING CONSUELO YNARES-

Associate Justice SANTIAGO
Associate Justice

ANGELINA SANDOVAL- ANTONIO T. CARPIO

GUTIERREZ Associate Justice
Associate Justice

MA. ALICIA AUSTRIA- RENATO C. CORONA

 MARTINEZ Associate Justice
Associate Justice

ROMEO J. CALLEJO, SR. ADOLFO S. AZCUNA

Associate Justice Associate Justice

DANTE O. TINGA MINITA CHICO-NAZARIO

Associate Justice Associate Justice

CANCIO C. GARCIA
Associate Justice

C E RT I FI CAT I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified

that the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court.

HILARIO G. DAVIDE, JR.

Chief Justice
[1]
Rollo at 35-39.
[2]
Id. at 42-60.
[3]
Entitled An Ordinance Approving the Schedule of Fair Market Values for Land, Buildings and Other Structures
Situated in Quezon City Jointly Prepared by the City Assessors of the Four (4) Local Treasury and Assessment
Districts Pursuant to Section 9 of P.D. 921 in Relation to the Provisions of the Local Government Code, R.A.
7160, as Basis for the General Revision of Real Property Assessment.
[4]
Rollo at 7. Petitioner failed to attach a certified true copy of the ordinance.
[5]
Id. at 64-66.
[6]
Id. at 46.
[7]
Id. at 63.
[8]
Id. at 67.
[9]
Id. at 68-73.
[10]
Id. at 74-85.
[11]
CONST. art. VI, sec. 28 (1), viz:
Section 28. (1). The rule of taxation shall be uniform and equitable. xxx
[12]
Rollo at 86-87.
[13]
Id. at 88-89.
[14]
Id. at 92.
[15]
Id. at 42 - 60.
[16]
Id. at 50.
[17]
SECTION 219. General Revision of Assessments and Property Classification. The provincial, city or municipal
assessor shall undertake a general revision of real property assessments within two (2) years after the
effectivity of this Code and every three (3) years thereafter.
[18]
Section 220. Valuation of Real Property. In cases where (a) real property is declared and listed for taxation
purposes for the first time; (b) there is an ongoing general revision of property classification and assessment; or
(c) a request is made by the person in whose name the property is declared, the provincial, city or municipal
assessor or his duly authorized deputy shall, in accordance with the provisions of this Chapter, make a
classification, appraisal and assessment of the real property listed and described in the declaration irrespective
of any previous assessment or taxpayers valuation thereon: Provided, however, That the assessment of real
property shall not be increased oftener than once every three (3) years except in case of new improvements
substantially increasing the value of said property or of any change in its actual use.
[19]
Rollo at 54.
[20]
Id. at 103.
[21]
Records at 68-70.
[22]
Id. at 71.
[23]
Id. at 72-75.
[24]
Id. at 107-108.
[25]
CIVIL CODE, ART. 4. Laws shall have no retroactive effect, unless the contrary is provided.
[26]
Rollo at 114-115. Vide Rollo 105.
[27]
Id. at 116.
[28]
Id. at 37-38.
[29]
Id. at 124-133.
[30]
Id. at 40-41.
[31]
Id. at 15.
[32]
Ty v. Trampe, 250 SCRA 500, 518 (1995).
[33]
Ibid.; Vide also PNB v. Romillo, 139 SCRA 320, (1985) where we held that the determination of whether an
appeal involves only questions of law or both questions of law and fact is best left to the appellate court.
[34]
SECTION 252. Payment Under Protest. (a) No protest shall be entertained unless the taxpayer first pays the tax.
There shall be annotated on the tax receipts the words "paid under protest". The protest in writing must be filed
within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the
 case of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days
from receipt.
(b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer concerned.
(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax
protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax
liability.
(d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in subparagraph
(a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of this Code.
[35]
SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the property
who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his
property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the
Board of Assessment Appeals of the provincial or city by filing a petition under oath in the form prescribed for
the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support
of the appeal.
[36]
SECTION 229. Action by the Local Board of Assessment Appeals. (a) The Board shall decide the appeal within
one hundred twenty (120) days from the date of receipt of such appeal. The Board, after hearing, shall render
its decision based on substantial evidence or such relevant evidence on record as a reasonable mind might
accept as adequate to support the conclusion.
(b) In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer
oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum. The
proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts without
necessarily adhering to technical rules applicable in judicial proceedings.
(c) The secretary of the Board shall furnish the owner of the property or the person having legal interest therein
and the provincial or city assessor with a copy of the decision of the Board. In case the provincial or city
assessor concurs in the revision or the assessment, it shall be his duty to notify the owner of the property
or the person having legal interest therein of such fact using the form prescribed for the purpose. The
owner of the property or the person having legal interest therein or the assessor who is not satisfied with
the decision of the Board, may, within thirty (30) days after receipt of the decision of said Board, appeal
to the Central Board of Assessment Appeals, as herein provided. The decision of the Central Board shall
be final and executory.
[37]
SECTION 230. Central Board of Assessment Appeals. The Central Board of Assessment Appeals shall be
composed of a chairman, and two (2) members to be appointed by the President, who shall serve for a term of
seven (7) years, without reappointment. Of those first appointed, the chairman shall hold office for seven (7)
years, one member for five (5) years, and the other member for three (3) years. Appointment to any vacancy
shall be only for the unexpired portion of the term of the predecessor. In no case shall any member be
appointed or designated in a temporary or acting capacity. The chairman and the members of the Board shall be
Filipino citizens, at least forty (40) years old at the time of their appointment, and members of the Bar or
Certified Public Accountants for at least ten (10) years immediately preceding their appointment. The chairman
of the Board of Assessment Appeals shall have the salary grade equivalent to the rank of Director III under the
Salary Standardization Law exclusive of allowances and other emoluments. The members of the Board shall
have the salary grade equivalent to the rank of Director II under the Salary Standardization Law exclusive of
allowances and other emoluments. The Board shall have appellate jurisdiction over all assessment cases
decided by the Local Board of Assessment Appeals.
There shall be Hearing Officers to be appointed by the Central Board of Assessment Appeals pursuant
to civil service laws, rules and regulations, one each for Luzon, Visayas and Mindanao, who shall hold office in
Manila, Cebu City and Cagayan de Oro City, respectively, and who shall serve for a term of six (6) years,
without reappointment until their successors have been appointed and qualified. The Hearing Officers shall
have the same qualifications as that of the Judges of the Municipal Trial Courts.
The Central Board Assessment Appeals, in the performance of its powers and duties, may establish
and organize staffs, offices, units, prescribe the titles, functions and duties of their members and adopt its own
rules and regulations.
Unless otherwise provided by law, the annual appropriations for the Central Board of Assessment Appeals shall
be included in the budget of the Department of Finance in the corresponding General Appropriations Act.
[38]
SECTION 231. Effect of Appeal on the Payment of Real Property Tax. Appeal on assessments of real property
made under the provisions of this Code shall, in no case, suspend the collection of the corresponding realty
taxes on the property involved as assessed by the provincial or city assessor, without prejudice to subsequent
adjustment depending upon the final outcome of the appeal.
[39]
Rule 65, Section 1, Rules of Court.
[40]
Manila Electric Company v. Barlis, 357 SCRA 832, 843 (2001).
[41]
Rule 45, Section 1, Rules of Court.
[42]
Macapagal v. Court of Appeals, et al.,/Silverio v. Court of Appeals, et al., 297 SCRA 429 (1998).
[43]
Pareo v. Sandiganbayan, 256 SCRA 242, 265 (1996).
[44]
Ty v. Trampe, supra, note 32 at 520.
[45]
Board of Optometry v. Colet, 260 SCRA 88, 103 (1996) citing Garcia v. Executive Secretary, 204 SCRA 516, 522
(1991); Santos v. Northwest Orient Airlines, 210 SCRA 256, 261 (1992).
[46]
Dated October 6, 1992.
[47]
Pursuant to the authority granted by Rep. Act No. 7160 (1991), Section 201.
[48]
Rep. Act No. 7160 (1991), Sec. 201.
[49]
Rep. Act No. 7160 (1991), Sec. 198 (b).
[50]
Rep. Act No. 7160 (1991), Sec. 198 (l).
[51]
Army and Navy Club, Manila v. Trinidad, 44 Phil. 383 at 387.
[52]
196 SCRA 322, 327 (1991).
[53]
Army and Navy Club, Manila v. Trinidad, supra, note 51.
[54]
Dated October 6, 1992.
[55]
Section 21. Approaches Used to Estimate Values As discussed in Section 34 hereof, to estimate value, three
approaches may be used in the construction of the schedule of fair market values. Sales Analysis Approach
(also called Market Data Approach), the Income Capitalization Approach, and the Replacement or
Reproduction Cost Approach.
A. Under the Sales Analysis Approach, the price pain in actual market transactions is
considered. It requires the accumulation of valid sales data. Such data can be secured from the office of the
Registrar of Deeds and notaries public, who are required under Section 278 of the Code to furnish the
provincial, city or municipal assessors with copies of all contracts, conveying, leasing, or mortgaging of
real property, received or acknowledged before them. Other evidences of market values to augment sales
data re: bids, offers to sell, opinions of informed real estate appraisers, brokers, salesmen, dealers or bank
officials. Values declared by property owners or administrators embodied in sworn statements filed
pursuant to Section 202 of the Code fully evaluated, may also be considered as additional source of
information of Market Data Analysis.
In the absence or unavailability of valid sales, data, price indices of real property situated in the different
provinces, cities and municipalities, compiled in the National Statistics Office and the Economic Research
Division of the Central Bank of the Philippines, may be used as primary basis in computing the fair market
value that will be incorporated in the schedule of market values.
1. Analysis of Sales Transactions The elements that enter into sales transactions should be
analyzed thoroughly, to determine the relationship between the amount of consideration contained therein
and the current value of subject property. Only sales transactions which meet more or less the following
criteria shall be considered for the sales analysis:
(a) The date of the transaction must be reasonably near the general assessment date. Sales
transactions for the current year or preceding year, if adequate, would also serve as a good basis
for studies on trends of market values.
If the data derived therefrom are inadequate, studies may extend to preceding year, but in no case shall
it be for more than three (3) years from the general re-assessment date.
(b) Type of conveyance representing a normal transaction is one which envisions willing, able and
well-informed, buyers and sellers. Quitclaims, transfers between relatives, inter-related
corporations and the like, should not be considered.
(c) The amount of consideration reflects a strong presumption of the fair market value of the
property involved.
 2. Abstraction Method Where sales cover land and improvements, a method called abstraction
method is used to estimate value of land. The value of the improvement is first estimated pursuant to
Section 210 of the Code and later deducted from the total sales of the property to derive the land price
which, when divided by the area of the land, result in the estimated price per hectare or per square meter.
For this process to have validity, as in other techniques for estimating value, it has to be applied to sales of
similar real properties so that a range of value may be prepared as basis for studying fair market value for
purposes of construction of the schedule of market values.
B. Income Capitalization Approach Is a direct approach to estimate the value of property. It is
based on the theory that the value of an income producing property is no more than the return derived from
it. It requires an analysis of the income produced by a property in order to estimate the sum which might be
invested in the purchase of the property. A detailed financial study must be made of the property. Gross
annual income is either determined from actual figures or is estimated. Annual expense figures are obtained
from the owner. The income, operating expenses and fixed charges of the subject property are analyzed and
the expenses derived thereof are then subtracted from the gross income. The resultant net income
capitalized at a rate which the investor of the property can expect as reasonable return or interest prevailing
in the locality. The capitalized value of the income represents the present value of the property.
Income method may be utilized to check results derived from sales analysis approach in the case of rental
or income producing property.
C. Reproduction Cost (New) Approach This is a factual approach used exclusively in appraising
man-made improvements such as buildings and other structures. This method depends on guides and
standards, based on such data as materials and labor costs.
The reproduction or replacement cost approach makes use of a value estimate of reproducing a new replica
property within the same or closely similar materials and labor costs. Unit base construction cost is
developed on a per square meter or per cubic meter basis for typical buildings or structures. The unit cost is
multiplied by the ground area or volume, as the case may be, of the subject structure to derive its total
reproduction or replacement cost, allowance for depreciation is deducted to arrive at the depreciated cost of
subject property.
(1) Quantitative Analysis Method The schedule of unit base construction cost for
buildings shall be established by the quantitative analysis method of the reproduction cost (new)
approach. A base unit cost for each type and sub-type of typical buildings in the province or city or
municipality shall be established.
By this method, a detailed inventory of all materials and labor that went into the finished building
is made.
The first step in this method is collection or preparation of plans and specifications for adopted
typical (sample) buildings, representing each type. Data on cost of construction materials
prevailing in the city or province or municipality shall then be gathered and listed. Labor cost and
others that contribute to the construction cost may be estimated by proper consultation with
building contractors, engineers, architects and labor agencies.
From the plans and specifications, materials and labor quantities are then computed for all parts of the
structures. The materials cost shall be determined by applying the price for building materials computed from
the material quantities that went with finished buildings. The amount added to the estimated labor cost and
miscellaneous expenses, results in the total cost of the subject building. The base unit cost shall be then
determined by dividing this total cost by average area in square meters of the subject structure.
[56]
SECTION 202. Declaration of real Property by the Owner or Administrator. It shall be the duty of all persons,
natural or juridical, owning or administering real property, including the improvements therein, within a city or
municipality, or their duly authorized representative, to prepare, or cause to be prepared, and file with the
provincial, city or municipal assessor, a sworn statement declaring the true value of their property, whether
previously declared or undeclared, taxable or exempt, which shall be the current and fair market value of the
property, as determined by the declarant. Such declaration shall contain a description of the property sufficient
in detail to enable the assessor or his deputy to identify the same for assessment purposes. The sworn
declaration of real property herein referred to shall be filed with the assessor concerned once every three (3)
 years during the period from January first (1st) to June thirtieth (30th) commencing with the calendar year
1992.

SECTION 203. Duty of Person Acquiring Real Property or Making Improvement Thereon. It shall also be the
duty of any person, or his authorized representative, acquiring at any time real property in any municipality or
city or making any improvement on real property, to prepare, or cause to be prepared, and file with the
provincial, city or municipal assessor, a sworn statement declaring the true value of subject property, within
sixty (60) days after the acquisition of such property or upon completion or occupancy of the improvement,
whichever comes earlier.

SECTION 208. Notification of Transfer of Real Property Ownership. Any person who shall transfer real
property ownership to another shall notify the provincial, city or municipal assessor concerned within sixty
(60) days from the date of such transfer. The notification shall include the mode of transfer, the description of
the property alienated, the name and address of the transferee.

SECTION 209. Duty of Registrar of Deeds to Appraise Assessor of Real Property Listed in Registry. (a) To
ascertain whether or not any real property entered in the Registry of Property has escaped discovery and listing
for the purpose of taxation, the Registrar of Deeds shall prepare and submit to the provincial, city or municipal
assessor, within six (6) months from the date of effectivity of this Code and every year thereafter, an abstract of
his registry, which shall include brief but sufficient description of the real properties entered therein, their
present owners, and the dates of their most recent transfer or alienation accompanied by copies of
corresponding deeds of sale, donation, or partition or other forms of alienation.
(b) It shall also be the duty of the Registrar of Deeds to require every person who shall present for registration a
document of transfer, alienation, or encumbrance of real property to accompany the same with a certificate to
the effect that the real property subject of the transfer, alienation, or encumbrance, as the case may be, has been
fully paid of all real property taxes due thereon. Failure to provide such certificate shall be a valid cause for the
Registrar of Deeds to refuse the registration of the document.

SECTION 210. Duty of Official Issuing Building Permit or Certificate of Registration of Machinery to
Transmit Copy to Assessor. Any public official or employee who may now or hereafter be required by law or
regulation to issue to any person a permit for the construction, addition, repair, or renovation of a building, or
permanent improvement on land, or a certificate of registration for any machinery, including machines,
mechanical contrivances, and apparatus attached or affixed on land or to another real property, shall transmit a
copy of such permit or certificate within thirty (30) days of its issuance, to the assessor of the province, city or
municipality where the property is situated.
SECTION 211. Duty of Geodetic Engineers to Furnish Copy of Plans to Assessor. It shall be the duty of all
geodetic engineers, public or private, to furnish free of charge to the assessor of the province, city or
municipality where the land is located with a white or blue print copy of each of all approved original or
subdivision plans or maps of surveys executed by them within thirty (30) days from receipt of such plans from
the Lands Management Bureau, the Land Registration Authority, or the Housing and Land Use Regulatory
Board, as the case may be.

SECTION 213. Authority of Assessor to Take Evidence. For the purpose of obtaining information on which to
base the market value of any real property, the assessor of the province, city or municipality or his deputy may
summon the owners of the properties to be affected or persons having legal interest therein and witnesses,
administer oaths, and take deposition concerning the property, its ownership, amount, nature, and value.
[57]
Vide Army and Navy Club, Manila v. Trinidad, supra, note 51 at 385.
[58]
Vide also Local Assessment Regulations No. 1-92 (1992), Section 19. Duty of the Provincial/City/Municipal
Assessor It is the duty of all provincial and city assessors, and municipal assessors of the municipalities within
the Metropolitan Manila Area to prepare of cause to be prepared a schedule of market values as the basis for
the appraisal and assessment of lands, buildings and other improvements situated in their respective
jurisdictions within one (1) year after the effectivity of the Code and every three (3) years thereafter; and
Market values for real property situated within the province shall be prepared by the provincial assessors who
shall be assisted by the municipal assessors of municipalities within his jurisdiction.
[59]
Vide Magtajas v. Pryce Properties Corp., Inc., 234 SCRA 255, at 268 and 274.
[60]
Rep. Act No. 537 (1950), as amended.
[61]
City Ordinance No. SP-91, S-93.
[62]
Rep. Act. No. 7160, Sec. 198 (d).
[63]
Id., Secs. 198 (b) and 217.
[64]
Id., Secs. 219 and 220, supra, notes 17 & 18.
[65]
Id., Sec. 220.
[66]
Id., Sec. 130 (4).

19

CHEVRON PHILIPPINES, INC. G.R. No. 173863

(Formerly CALTEX PHILIPPINES,
INC.), Present:
Petitioner,
CARPIO MORALES, J.,
Chairperson,
PERALTA,*
- versus - BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

BASES CONVERSION Promulgated:

DEVELOPMENT AUTHORITY
and CLARK DEVELOPMENT September 15, 2010
CORPORATION,
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
VILLARAMA, JR., J.:

This petition for review on certiorari assails the Decision[1] dated November
30, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 87117, which affirmed
the Resolution[2] dated August 2, 2004 and the Order[3] dated September 30, 2004 of
the Office of the President in O.P. Case No. 04-D-170.

The facts follow.

On June 28, 2002, the Board of Directors of respondent Clark Development

Corporation (CDC) issued and approved Policy Guidelines on the Movement of
Petroleum Fuel to and from the Clark Special Economic Zone (CSEZ) [4] which
provided, among others, for the following fees and charges:
1. Accreditation Fee
xxxx
2. Annual Inspection Fee
xxxx
3. Royalty Fees
Suppliers delivering fuel from outside sources shall be assessed the following
royalty fees:
- Php0.50 per liter those delivering Coastal petroleum fuel to
CSEZ locators not sanctioned by CDC
- Php1.00 per liter those bringing-in petroleum fuel (except Jet
A-1) from outside sources
xxxx
4. Gate Pass Fee

x x x x[5]

The above policy guidelines were implemented effective July 27, 2002. On
October 1, 2002, CDC sent a letter[6] to herein petitioner Chevron Philippines, Inc.
(formerly Caltex Philippines, Inc.), a domestic corporation which has been
supplying fuel to Nanox Philippines, a locator inside the CSEZ since 2001,
informing the petitioner that a royalty fee of P0.50 per liter shall be assessed on its
deliveries to Nanox Philippines effective August 1, 2002. Thereafter, on October
21, 2002 a Statement of Account[7] was sent by CDC billing the petitioner for
royalty fees in the amount of P115,000.00 for its fuel sales from Coastal depot to
Nanox Philippines from August 1-31 to September 3-21, 2002.

Claiming that nothing in the law authorizes CDC to impose royalty fees or
any fees based on a per unit measurement of any commodity sold within the
special economic zone, petitioner sent a letter[8] dated October 30, 2002 to the
President and Chief Executive Officer of CDC, Mr. Emmanuel Y. Angeles, to
protest the assessment for royalty fees.Petitioner nevertheless paid the said fees
under protest on November 4, 2002.
 On August 18, 2003, CDC again wrote a letter [9] to petitioner regarding the
latters unsettled royalty fees covering the period of December 2002 to July
2003. Petitioner responded through a letter[10] dated September 8, 2003 reiterating
its continuing objection over the assessed royalty fees and requested a refund of the
amount paid under protest on November 4, 2002. The letter also asked CDC to
revoke the imposition of such royalty fees. The request was denied by CDC in a
letter[11] dated September 29, 2003.

Petitioner elevated its protest before respondent Bases Conversion

Development Authority (BCDA) arguing that the royalty fees imposed had no
reasonable relation to the probable expenses of regulation and that the imposition
on a per unit measurement of fuel sales was for a revenue generating purpose, thus,
akin to a tax. The protest was however denied by BCDA in a letter [12] dated March
3, 2004.

Petitioner appealed to the Office of the President which dismissed [13] the
appeal for lack of merit on August 2, 2004 and denied[14] petitioners motion for
reconsideration thereof on September 30, 2004.

Aggrieved, petitioner elevated the case to the CA which likewise

dismissed[15] the appeal for lack of merit on November 30, 2005 and denied[16] the
motion for reconsideration on July 26, 2006.

The CA held that in imposing the challenged royalty fees, respondent CDC
was exercising its right to regulate the flow of fuel into CSEZ, which is bolstered
by the fact that it possesses exclusive right to distribute fuel within CSEZ pursuant
to its Joint Venture Agreement (JVA) [17] with Subic Bay Metropolitan Authority
(SBMA) and Coastal Subic Bay Terminal, Inc. (CSBTI) dated April 11, 1996. The
appellate court also found that royalty fees were assessed on fuel delivered, not on
the sale, by petitioner and that the basis of such imposition was petitioners delivery
receipts to Nanox Philippines. The fact that revenue is incidentally also obtained
does not make the imposition a tax as long as the primary purpose of such
imposition is regulation.[18]

Petitioner filed a motion for reconsideration but the CA denied the same in
its Resolution[19] dated July 26, 2006.
 Hence, this petition raising the following grounds:

I. THE ISSUE RAISED BEFORE THE COURT A QUO IS A QUESTION OF

SUBSTANCE NOT HERETOFORE DETERMINED BY THE
HONORABLE SUPREME COURT.

II. THE RULING OF THE COURT OF APPEALS THAT THE CDC HAS THE
POWER TO IMPOSE THE QUESTIONED ROYALTY FEES IS
CONTRARY TO LAW.

III. THE COURT OF APPEALS WAS MANIFESTLY MISTAKEN AND

COMMITTED GRAVE ABUSE OF DISCRETION AND A CLEAR
MISUNDERSTANDING OF FACTS WHEN IT RULED CONTRARY TO
THE EVIDENCE THAT: (i) THE QUESTIONED ROYALTY FEE IS
PRIMARILY FOR REGULATION; AND (ii) ANY REVENUE EARNED
THEREFROM IS MERELY INCIDENTAL TO THE PURPOSE OF
REGULATION.

IV. THE COURT OF APPEALS FAILED TO GIVE DUE WEIGHT AND

CONSIDERATION TO THE EVIDENCE PRESENTED BY CPI SUCH AS
THE LETTERS COMING FROM RESPONDENT CDC ITSELF PROVING
THAT THE QUESTIONED ROYALTY FEES ARE IMPOSED ON THE
BASIS OF FUEL SALES (NOT DELIVERY OF FUEL) AND NOT FOR
REGULATION BUT PURELY FOR INCOME GENERATION, I.E. AS
PRICE OR CONSIDERATION FOR THE RIGHT TO MARKET AND
DISTRIBUTE FUEL INSIDE THE CSEZ.[20]

Petitioner argues that CDC does not have any power to impose royalty fees on
sale of fuel inside the CSEZ on the basis of purely income generating functions and
its exclusive right to market and distribute goods inside the CSEZ. Such imposition
of royalty fees for revenue generating purposes would amount to a tax, which the
respondents have no power to impose. Petitioner stresses that the royalty fee
imposed by CDC is not regulatory in nature but a revenue generating measure to
increase its profits and to further enhance its exclusive right to market and distribute
fuel in CSEZ.[21]

Petitioner would also like this Court to note that the fees imposed,
assuming arguendo they are regulatory in nature, are unreasonable and are grossly
in excess of regulation costs. It adds that the amount of the fees should be
presumed to be unreasonable and that the burden of proving that the fees are not
unreasonable lies with the respondents.[22]
 On the part of the respondents, they argue that the purpose of the royalty
fees is to regulate the flow of fuel to and from the CSEZ. Such being its main
purpose, and revenue (if any) just an incidental product, the imposition cannot be
considered a tax. It is their position that the regulation is a valid exercise of police
power since it is aimed at promoting the general welfare of the public. They claim
that being the administrator of the CSEZ, CDC is responsible for the safe
distribution of fuel products inside the CSEZ.[23]

The petition has no merit.

In distinguishing tax and regulation as a form of police power, the

determining factor is the purpose of the implemented measure. If the purpose is
primarily to raise revenue, then it will be deemed a tax even though the measure
results in some form of regulation. On the other hand, if the purpose is primarily to
regulate, then it is deemed a regulation and an exercise of the police power of the
state, even though incidentally, revenue is generated. Thus, in Gerochi v.
Department of Energy,[24] the Court stated:

The conservative and pivotal distinction between these two (2) powers
rests in the purpose for which the charge is made. If generation of revenue is the
primary purpose and regulation is merely incidental, the imposition is a tax; but if
regulation is the primary purpose, the fact that revenue is incidentally raised does
not make the imposition a tax.

In the case at bar, we hold that the subject royalty fee was imposed primarily
for regulatory purposes, and not for the generation of income or profits as
petitioner claims. The Policy Guidelines on the Movement of Petroleum Fuel to
and from the Clark Special Economic Zone[25] provides:
DECLARATION OF POLICY

It is hereby declared the policy of CDC to develop and maintain the Clark
Special Economic Zone (CSEZ) as a highly secured zone free from threats of
any kind, which could possibly endanger the lives and properties of locators,
would-be investors, visitors, and employees.
It is also declared the policy of CDC to operate and manage the CSEZ as a
separate customs territory ensuring free flow or movement of goods and capital
within, into and exported out of the CSEZ.[26] (Emphasis supplied.)
From the foregoing, it can be gleaned that the Policy Guidelines was issued, first
and foremost, to ensure the safety, security, and good condition of the petroleum
fuel industry within the CSEZ. The questioned royalty fees form part of the
regulatory framework to ensure free flow or movement of petroleum fuel to and
from the CSEZ. The fact that respondents have the exclusive right to distribute and
market petroleum products within CSEZ pursuant to its JVA with SBMA and
CSBTI does not diminish the regulatory purpose of the royalty fee for fuel
products supplied by petitioner to its client at the CSEZ.

As pointed out by the respondents in their Comment, from the time the JVA took
effect up to the time CDC implemented its Policy Guidelines on the Movement of
Petroleum Fuel to and from the CSEZ, suppliers/distributors were allowed to bring
in petroleum products inside CSEZ without any charge at all. But this arrangement
clearly negates CDCs mandate under the JVA as exclusive distributor of CSBTIs
fuel products within CSEZ and respondents ownership of the Subic-Clark Pipeline.
[27]
On this score, respondents were justified in charging royalty fees on fuel
delivered by outside suppliers.

However, it was erroneous for petitioner to argue that such exclusive right of
respondent CDC to market and distribute fuel inside CSEZ is the sole basis of the
royalty fees imposed under the Policy Guidelines. Being the administrator of
CSEZ, the responsibility of ensuring the safe, efficient and orderly distribution of
fuel products within the Zone falls on CDC. Addressing specific concerns
demanded by the nature of goods or products involved is encompassed in the range
of services which respondent CDC is expected to provide under the law, in
pursuance of its general power of supervision and control over the movement of all
supplies and equipment into the CSEZ.

Section 2 of Executive Order No. 80[28] provides:

SEC. 2. Powers and Functions of the Clark Development Corporation. The

BCDA, as the incorporator and holding company of its Clark subsidiary, shall
determine the powers and functions of the CDC. Pursuant to Section 15 of RA
7227, the CDC shall have the specific powers of the Export Processing Zone
Authority as provided for in Section 4 of Presidential Decree No. 66 (1972) as
amended.
Among those specific powers granted to CDC under Section 4 of Presidential
Decree No. 66 are:
(a) To operate, administer and manage the export processing zone
established in the Port of Mariveles, Bataan, and such other export processing
zones as may be established under this Decree; to construct, acquire, own, lease,
operate and maintain infrastructure facilities, factory building, warehouses, dams,
reservoir, water distribution, electric light and power system, telecommunications
and transportation, or such other facilities and services necessary or useful in the
conduct of commerce or in the attainment of the purposes and objectives of this
Decree;

xxxx

(g) To fix, assess and collect storage charges and fees, including rentals for
the lease, use or occupancy of lands, buildings, structure, warehouses, facilities
and other properties owned and administered by the Authority; and to fix and
collect the fees and charges for the issuance of permits, licenses and the
rendering of services not enumerated herein, the provisions of law to the
contrary notwithstanding;

(h) For the due and effective exercise of the powers conferred by law and
to the extend (sic) [extent] requisite therefor, to exercise exclusive jurisdiction and
sole police authority over all areas owned or administered by the Authority. For
this purpose, the Authority shall have supervision and control over the bringing
in or taking out of the Zone, including the movement therein, of all cargoes,
wares, articles, machineries, equipment, supplies or merchandise of every type
and description;

x x x x (Emphasis supplied.)

In relation to the regulatory purpose of the imposed fees, this Court in Progressive
Development Corporation v. Quezon City,[29] stated that x x x the imposition
questioned must relate to an occupation or activity that so engages the public
interest in health, morals, safety and development as to require regulation for the
protection and promotion of such public interest; the imposition must also bear a
reasonable relation to the probable expenses of regulation, taking into account not
only the costs of direct regulation but also its incidental consequences as well.

In the case at bar, there can be no doubt that the oil industry is greatly imbued with
public interest as it vitally affects the general welfare. [30] In addition, fuel is a
highly combustible product which, if left unchecked, poses a serious threat to life
and property. Also, the reasonable relation between the royalty fees imposed on a
per liter basis and the regulation sought to be attained is that the higher the volume
of fuel entering CSEZ, the greater the extent and frequency of supervision and
inspection required to ensure safety, security, and order within the Zone.

Respondents submit that increased administrative costs were triggered by security

risks that have recently emerged, such as terrorist strikes in airlines and
military/government facilities. Explaining the regulatory feature of the charges
imposed under the Policy Guidelines, then BCDA President Rufo Colayco in his
letter dated March 3, 2004 addressed to petitioners Chief Corporate Counsel,
stressed:

The need for regulation is more evident in the light of the 9/11 tragedy
considering that what is being moved from one location to another are highly
combustible fuel products that could cause loss of lives and damage to properties,
hence, a set of guidelines was promulgated on 28 June 2002. It must be
emphasized also that greater security measure must be observed in the CSEZ
because of the presence of the airport which is a vital public infrastructure.

We are therefore constrained to sustain the imposition of the royalty fees on

deliveries of CPIs fuel products to Nanox Philippines.[31]

As to the issue of reasonableness of the amount of the fees, we hold that no

evidence was adduced by the petitioner to show that the fees imposed are
unreasonable.

Administrative issuances have the force and effect of law. [32] They benefit from the
same presumption of validity and constitutionality enjoyed by statutes. These two
precepts place a heavy burden upon any party assailing governmental regulations.
[33]
Petitioners plain allegations are simply not enough to overcome the
presumption of validity and reasonableness of the subject imposition.

WHEREFORE, the petition is DENIED for lack of merit and the Decision of the
Court of Appeals dated November 30, 2005 in CA-G.R. SP No. 87117 is
hereby AFFIRMED.

With costs against the petitioner.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

DIOSDADO M. PERALTA LUCAS P. BERSAMIN

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATT E S TAT I O N

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONCHITA CARPIO MORALES

Associate Justice
Chairperson, Third Division

C E RT I FI CAT I O N
Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

*
Designated additional member per Special Order No. 885 dated September 1, 2010.
[1]
Rollo, pp. 33-40. Penned by Associate Justice Aurora Santiago-Lagman, with Associate Justices Ruben T. Reyes
(now a retired member of this Court) and Rebecca De Guia-Salvador, concurring.
[2]
CA rollo, pp. 35-37.
[3]
Id. at 38-40.
[4]
Id. at 41-50.
[5]
Id. at 45-46.
[6]
Id. at 51.
[7]
Id. at 52.
[8]
Id. at 53.
[9]
Id. at 54.
[10]
Id. at 55.
[11]
Id. at 56-57.
[12]
Id. at 61-62.
[13]
Id. at 35-37.
[14]
Id. at 38-40.
[15]
Rollo, p. 40.
[16]
Id. at 41.
[17]
Id. at 154-167.
[18]
Id. at 39.
[19]
Id. at 41.
[20]
Id. at 13-14.
[21]
Id. at 220-229.
[22]
Id. at 230-234.
[23]
Id. at 255-256.
[24]
G.R. No. 159796, July 17, 2007, 527 SCRA 696, 715, citing Progressive Development Corporation v. Quezon
City, G.R. No. 36081, April 24, 1989, 172 SCRA 629, 635.
[25]
Rollo, pp. 43-51.
[26]
Id. at 43.
[27]
Id. at 139-140.
[28]
AUTHORIZING THE ESTABLISHMENT OF THE CLARK DEVELOPMENT CORPORATION AS THE
IMPLEMENTING ARM OF THE BASES CONVERSION AND DEVELOPMENT AUTHORITY FOR
THE CLARK SPECIAL ECONOMIC ZONE, AND DIRECTING ALL HEADS OF DEPARTMENTS,
 BUREAUS, OFFICES, AGENCIES AND INSTRUMENTALITIES OF GOVERNMENT TO SUPPORT THE
PROGRAM.
[29]
Supra note 24, at 636.
[30]
Caltex Philippines, Inc. v. Commission on Audit, G.R. No. 92585, May 8, 1992, 208 SCRA 726, 756.
[31]
CA rollo, p. 61.
[32]
Mirasol v. Department of Public Works and Highways, G.R. No. 158793, June 8, 2006, 490 SCRA 318, 347,
citing Eslao v. Commission on Audit, G.R. No. 108310, September 1, 1994, 236 SCRA 161, 175.
[33]
Id. at 347-348, citing JMM Promotion and Management, Inc. v. Court of Appeals, G.R. No. 120095, August 5,
1996, 260 SCRA 319.
20SECOND DIVISION

COMMISSIONER OF INTERNAL G.R. No. 178087

REVENUE,
Petitioner, Present:

CARPIO, J., Chairperson,

BRION,
- versus - DEL CASTILLO,
ABAD, and
PEREZ, JJ.

KUDOS METAL CORPORATION, Promulgated:

Respondent. May 5, 2010
x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

The prescriptive period on when to assess taxes benefits both the government and the
taxpayer.[1] Exceptions extending the period to assess must, therefore, be strictly
construed.

This Petition for Review on Certiorari seeks to set aside the

Decision[2] dated March 30, 2007 of the Court of Tax Appeals (CTA) affirming the
cancellation of the assessment notices for having been issued beyond the prescriptive
period and the Resolution[3] dated May 18, 2007 denying the motion for reconsideration.
Factual Antecedents
 On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income
Tax Return (ITR) for the taxable year 1998.

Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal

Revenue (BIR) served upon respondent three Notices of Presentation of
Records. Respondent failed to comply with these notices, hence, the BIR issued
a Subpeona Duces Tecum dated September 21, 2006, receipt of which was
acknowledged by respondents President, Mr. Chan Ching Bio, in a letter dated October
20, 2000.

A review and audit of respondents records then ensued.

On December 10, 2001, Nelia Pasco (Pasco), respondents accountant, executed a

Waiver of the Defense of Prescription,[4] which was notarized on January 22, 2002,
received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud
Division on February 4, 2002, and accepted by the Assistant Commissioner of the
Enforcement Service, Percival T. Salazar (Salazar).
This was followed by a second Waiver of Defense of Prescription [5] executed
by Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR
Tax Fraud Division on February 28, 2003 and accepted by Assistant Commissioner
Salazar.

On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the
taxable year 1998 against the respondent. This was followed by a Formal Letter of
Demand with Assessment Notices for taxable year 1998, dated September 26,
2003 which was received by respondent on November 12, 2003.
Respondent challenged the assessments by filing its Protest on Various Tax
Assessments on December 3, 2003 and its Legal Arguments and Documents in Support
of Protests against Various Assessments on February 2, 2004.

On June 22, 2004, the BIR rendered a final Decision[6] on the matter, requesting
the immediate payment of the following tax liabilities:

Kind of Tax Amount

Income Tax P 9,693,897.85
 VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
Total P25,624,048.76

Ruling of the Court of Tax Appeals, Second Division

Believing that the governments right to assess taxes had prescribed, respondent
filed on August 27, 2004 a Petition for Review[7] with the CTA. Petitioner in turn filed
his Answer.[8]
On April 11, 2005, respondent filed an Urgent Motion for Preferential Resolution
of the Issue on Prescription.[9]

On October 4, 2005, the CTA Second Division issued a Resolution [10] canceling
the assessment notices issued against respondent for having been issued beyond the
prescriptive period. It found the first Waiver of the Statute of Limitations incomplete and
defective for failure to comply with the provisions of Revenue Memorandum Order
(RMO) No. 20-90. Thus:
First, the Assistant Commissioner is not the revenue official authorized to sign
the waiver, as the tax case involves more than P1,000,000.00. In this regard, only the
Commissioner is authorized to enter into agreement with the petitioner in extending the
period of assessment;

Secondly, the waiver failed to indicate the date of acceptance. Such date of
acceptance is necessary to determine whether the acceptance was made within the
prescriptive period;

Third, the fact of receipt by the taxpayer of his file copy was not indicated on the
original copy. The requirement to furnish the taxpayer with a copy of the waiver is not
only to give notice of the existence of the document but also of the acceptance by the BIR
and the perfection of the agreement.

The subject waiver is therefore incomplete and defective. As such, the three-year
prescriptive period was not tolled or extended and continued to run. x x x[11]

Petitioner moved for reconsideration but the CTA Second Division denied the motion in
a Resolution[12] dated April 18, 2006.
Ruling of the Court of Tax Appeals, En Banc

On appeal, the CTA En Banc affirmed the cancellation of the assessment

notices. Although it ruled that the Assistant Commissioner was authorized to sign the
waiver pursuant to Revenue Delegation Authority Order (RDAO) No. 05-01, it found
that the first waiver was still invalid based on the second and third grounds stated by the
CTA Second Division. Pertinent portions of the Decision read as follows:

While the Court En Banc agrees with the second and third grounds for
invalidating the first waiver, it finds that the Assistant Commissioner of the Enforcement
Service is authorized to sign the waiver pursuant to RDAO No. 05-01, which provides in
part as follows:

A. For National Office cases

Designated Revenue Official

1. Assistant Commissioner (ACIR), For tax fraud and policy

Enforcement Service cases

2. ACIR, Large Taxpayers Service For large taxpayers cases

other than those cases falling under
Subsection B hereof

3. ACIR, Legal Service For cases pending

verification and awaiting
resolution of certain legal issues prior to
prescription and for
issuance/compliance of Subpoena
Duces Tecum

4. ACIR, Assessment Service (AS) For cases which are

pending in or subject to
review or approval by the
ACIR, AS

Based on the foregoing, the Assistant Commissioner, Enforcement Service is

authorized to sign waivers in tax fraud cases. A perusal of the records reveals that the
investigation of the subject deficiency taxes in this case was conducted by the National
Investigation Division of the BIR, which was formerly named the Tax Fraud
Division. Thus, the subject assessment is a tax fraud case.
 Nevertheless, the first waiver is still invalid based on the second and third
grounds stated by the Court in Division. Hence, it did not extend the prescriptive period
to assess.

Moreover, assuming arguendo that the first waiver is valid, the second waiver is
invalid for violating Section 222(b) of the 1997 Tax Code which mandates that the period
agreed upon in a waiver of the statute can still be extended by subsequent written
agreement, provided that it is executed prior to the expiration of the first period agreed
upon. As previously discussed, the exceptions to the law on prescription must be strictly
construed.

In the case at bar, the period agreed upon in the subject first waiver expired
on December 31, 2002. The second waiver in the instant case which was supposed to
extend the period to assess to December 31, 2003 was executed on February 18,
2003 and was notarized on February 19, 2003. Clearly, the second waiver was executed
after the expiration of the first period agreed upon. Consequently, the same could not
have tolled the 3-year prescriptive period to assess.[13]

Petitioner sought reconsideration but the same was unavailing.

Issue

Hence, the present recourse where petitioner interposes that:

THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE

GOVERNMENTS RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT
PRESCRIBED.[14]

Petitioners Arguments

Petitioner argues that the governments right to assess taxes is not barred by
prescription as the two waivers executed by respondent, through its accountant,
effectively tolled or extended the period within which the assessment can be made. In
disputing the conclusion of the CTA that the waivers are invalid, petitioner claims that
respondent is estopped from adopting a position contrary to what it has previously
taken. Petitioner insists that by acquiescing to the audit during the period specified in the
waivers, respondent led the government to believe that the delay in the process would not
be utilized against it. Thus, respondent may no longer repudiate the validity of the
waivers and raise the issue of prescription.
Respondents Arguments

Respondent maintains that prescription had set in due to the invalidity of the waivers
executed by Pasco, who executed the same without any written authority from it, in clear
violation of RDAO No. 5-01. As to the doctrine of estoppel by acquiescence relied upon
by petitioner, respondent counters that the principle of equity comes into play only when
the law is doubtful, which is not present in the instant case.

Our Ruling

The petition is bereft of merit.

Section 203[15] of the National Internal Revenue Code of 1997 (NIRC) mandates
the government to assess internal revenue taxes within three years from the last day
prescribed by law for the filing of the tax return or the actual date of filing of such return,
whichever comes later. Hence, an assessment notice issued after the three-year
prescriptive period is no longer valid and effective. Exceptions however are provided
under Section 222[16] of the NIRC.

The waivers executed by respondents

accountant did not extend the period within
which the assessment can be made

Petitioner does not deny that the assessment notices were issued beyond the three-
year prescriptive period, but claims that the period was extended by the two waivers
executed by respondents accountant.

We do not agree.

Section 222 (b) of the NIRC provides that the period to assess and collect taxes
may only be extended upon a written agreement between the CIR and the taxpayer
executed before the expiration of the three-year period. RMO 20-90[17] issued on April 4,
1990 and RDAO 05-01[18] issued on August 2, 2001 lay down the procedure for the
proper execution of the waiver, to wit:
 1. The waiver must be in the proper form prescribed by RMO 20-90. The
phrase but not after ______ 19 ___, which indicates the expiry date of
the period agreed upon to assess/collect the tax after the regular three-
year period of prescription, should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly

authorized representative. In the case of a corporation, the waiver must
be signed by any of its responsible officials. In case the authority is
delegated by the taxpayer to a representative, such delegation should be
in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver
indicating that the BIR has accepted and agreed to the waiver. The date
of such acceptance by the BIR should be indicated. However, before
signing the waiver, the CIR or the revenue official authorized by him
must make sure that the waiver is in the prescribed form, duly notarized,
and executed by the taxpayer or his duly authorized representative.

5. Both the date of execution by the taxpayer and date of acceptance by the
Bureau should be before the expiration of the period of prescription or
before the lapse of the period agreed upon in case a subsequent
agreement is executed.

6. The waiver must be executed in three copies, the original copy to be

attached to the docket of the case, the second copy for the taxpayer and
the third copy for the Office accepting the waiver. The fact of receipt by
the taxpayer of his/her file copy must be indicated in the original copy
to show that the taxpayer was notified of the acceptance of the BIR and
the perfection of the agreement.[19]

A perusal of the waivers executed by respondents accountant reveals the following

infirmities:
 1. The waivers were executed without the notarized written authority
of Pasco to sign the waiver in behalf of respondent.

2. The waivers failed to indicate the date of acceptance.

3. The fact of receipt by the respondent of its file copy was not indicated
in the original copies of the waivers.

Due to the defects in the waivers, the period to assess or collect taxes was not
extended. Consequently, the assessments were issued by the BIR beyond the three-year
period and are void.

Estoppel does not apply in this case

We find no merit in petitioners claim that respondent is now estopped from

claiming prescription since by executing the waivers, it was the one which asked for
additional time to submit the required documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,[20] the
doctrine of estoppel prevented the taxpayer from raising the defense of prescription
against the efforts of the government to collect the assessed tax. However, it must be
stressed that in the said case, estoppel was applied as an exception to the statute of
limitations on collection of taxes and not on the assessment of taxes, as the BIR was able
to make an assessment within the prescribed period. More important, there was a finding
that the taxpayer made several requests or positive acts to convince the government to
postpone the collection of taxes, viz:

It appears that the first assessment made against respondent based on its second
final return filed on November 28, 1946 was made on February 11, 1947. Upon receipt
of this assessment respondent requested for at least one year within which to pay the
amount assessed although it reserved its right to question the correctness of the
assessment before actual payment. Petitioner granted an extension of only three months.
When it failed to pay the tax within the period extended, petitioner sent respondent a
letter on November 28, 1950 demanding payment of the tax as assessed, and upon
receipt of the letter respondent asked for a reinvestigation and reconsideration of the
assessment. When this request was denied, respondent again requested for a
reconsideration on April 25, 1952, which was denied on May 6, 1953, which denial was
appealed to the Conference Staff. The appeal was heard by the Conference Staff
from September 2, 1953 to July 16, 1955, and as a result of these various negotiations,
the assessment was finally reduced on July 26, 1955. This is the ruling which is now
 being questioned after a protracted negotiation on the ground that the collection of the tax
has already prescribed.

It is obvious from the foregoing that petitioner refrained from collecting the tax
by distraint or levy or by proceeding in court within the 5-year period from the filing of
the second amended final return due to the several requests of respondent for extension to
which petitioner yielded to give it every opportunity to prove its claim regarding the
correctness of the assessment. Because of such requests, several reinvestigations were
made and a hearing was even held by the Conference Staff organized in the collection
office to consider claims of such nature which, as the record shows, lasted for several
months. After inducing petitioner to delay collection as he in fact did, it is most unfair for
respondent to now take advantage of such desistance to elude his deficiency income tax
liability to the prejudice of the Government invoking the technical ground of prescription.

While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the running of the
period of limitation for in such case there is need of a written agreement to extend the
period between the Collector and the taxpayer, there are cases however where a taxpayer
may be prevented from setting up the defense of prescription even if he has not
previously waived it in writing as when by his repeated requests or positive acts the
Government has been, for good reasons, persuaded to postpone collection to make him
feel that the demand was not unreasonable or that no harassment or injustice is meant by
the Government. And when such situation comes to pass there are authorities that hold,
based on weighty reasons, that such an attitude or behavior should not be countenanced if
only to protect the interest of the Government.

This case has no precedent in this jurisdiction for it is the first time that such has
risen, but there are several precedents that may be invoked in American jurisprudence. As
Mr. Justice Cardozo has said: The applicable principle is fundamental and unquestioned.
He who prevents a thing from being done may not avail himself of the nonperformance
which he has himself occasioned, for the law says to him in effect this is your own act,
and therefore you are not damnified. (R. H. Stearns Co. vs. U.S., 78 L. ed., 647). Or, as
was aptly said, The tax could have been collected, but the government withheld action at
the specific request of the plaintiff. The plaintiff is now estopped and should not be
permitted to raise the defense of the Statute of Limitations. [Newport Co. vs. U.S., (DC-
WIS), 34 F. Supp. 588].[21]

Conversely, in this case, the assessments were issued beyond the prescribed
period. Also, there is no showing that respondent made any request to persuade the BIR
to postpone the issuance of the assessments.

The doctrine of estoppel cannot be applied in this case as an exception to the

statute of limitations on the assessment of taxes considering that there is a detailed
procedure for the proper execution of the waiver, which the BIR must strictly follow. As
we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity
which, broadly defined, is justice according to natural law and right. [22] As such, the
doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is
against public policy.[23] It should be resorted to solely as a means of preventing injustice
and should not be permitted to defeat the administration of the law, or to accomplish a
wrong or secure an undue advantage, or to extend beyond them requirements of the
transactions in which they originate.[24] Simply put, the doctrine of estoppel must be
sparingly applied.

Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure
to comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated
earlier, the BIR failed to verify whether a notarized written authority was given by the
respondent to its accountant, and to indicate the date of acceptance and the receipt by the
respondent of the waivers. Having caused the defects in the waivers, the BIR must bear
the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the
statute of limitations, being a derogation of the taxpayers right to security against
prolonged and unscrupulous investigations, must be carefully and strictly construed.[25]

As to the alleged delay of the respondent to furnish the BIR of the required
documents, this cannot be taken against respondent. Neither can the BIR use this as an
excuse for issuing the assessments beyond the three-year period because with or without
the required documents, the CIR has the power to make assessments based on the best
evidence obtainable.[26]

WHEREFORE, the petition is DENIED. The assailed Decision dated March

30, 2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are
hereby AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice
WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

C E R T I FI CAT I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
attestation, it is hereby certified that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the
Courts Division.

REYNATO S. PUNO
Chief Justice

[1]
Republic of the Phils. v. Ablaza, 108 Phil. 1105, 1108 (1960).
[2]
Rollo, pp. 31-45; penned by Associate Justice Lovell R. Bautista and concurred in by Associate Justices Juanito C. Castaeda,
Jr., Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez. Presiding Justice Ernesto D. Acosta was on leave.
[3]
Id., at 46-50; penned by Associate Justice Lovell R. Bautista and concurred in by Presiding Justice Ernesto D. Acosta and
Associate Justices Juanito C. Castaeda, Jr., Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez.
[4]
Records, pp. 227-228.
[5]
Id. at 229-230.
[6]
Id. at 18-21.
[7]
Id. at 1-17.
[8]
Id. at 161-165.
[9]
Id. at 219-226.
[10]
Id. at 259-266.
[11]
Id. at 265.
[12]
Id. at 294-296.
[13]
Rollo, pp. 42-43.
[14]
Id. at 17.
[15]
SEC. 203. Period of Limitation Upon Assessment and Collection. Except as provided in Section 222, internal
revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the
expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law,
the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section, a
return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last
day.
[16]
SEC. 222. Exceptions as to period of limitation of assessment and collection of taxes.
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time
within ten (10) years after the discovery of the falsity, fraud, or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both
the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a)
hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the
assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b)
hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in
writing before the expiration of the five (5)-year period. The period so agreed upon may be extended by
subsequent written agreements made before the expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding Section and paragraph (a) hereof shall be
construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with
the provisions of any tax amnesty law or decree.
[17]
In the execution of said waiver, the following procedures should be followed:
1. The waiver must be in the form identified hereof. This form may be reproduced by the Office concerned but there
should be no deviation from such form. The phrase but not after ______ 19 ___ should be filled up. This
indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription. The period agreed upon shall constitute the time within which to effect the assessment/collection
of the tax in addition to the ordinary prescriptive period.
2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials.
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official
authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and
agreed to the waiver. The date of such acceptance by the Bureau should be indicated. Both the date of execution
by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of
prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.
3. The following revenue officials are authorized to sign the waiver.
A. In the National Office
1. ACIRs for Collection, Special Operations For tax cases involving
National Assessment, Excise and Legal on tax not more than P500,000.00
cases pending before their respective offices. In
the absence of the ACIR, the Head Executive
Assistant may sign the waiver.
3. Commissioner For tax cases involving more than P1M
xxxx
4. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the case, the
second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the
taxpayer of his/her file copy shall be indicated in the original copy.
5. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with this
Order resulting in prescription of the right to assess/collect shall be administratively dealt with.
[18]
I. Revenue Officials Authorized to Sign the Waiver
The following revenue officials are authorized to sign and accept the Waiver of the Defense of Prescription
Under the Statute of Limitations (Annex A) prescribed in Sections 203, 222 and other related provisions of the
National Internal Revenue Code of 1997:
A. For National Office cases
Designated Revenue Official
1. Assistant Commissioner (ACIR), For tax fraud and policy
Enforcement Service cases
xxxx
In order to prevent undue delay in the execution and acceptance of the waiver, the assistant heads of the
concerned offices are likewise authorized to sign the same under meritorious circumstances in the absence of
the abovementioned officials.
The authorized revenue official shall ensure that the waiver is duly accomplished and signed by the
taxpayer or his authorized representative before affixing his signature to signify acceptance of the same. In case
the authority is delegated by the taxpayer to a representative, the concerned revenue official shall see to it that
such delegation is in writing and duly notarized. The WAIVER should not be accepted by the concerned BIR
office and official unless duly notarized.
II. Repealing Clause
All other issuances and/or portions thereof inconsistent herewith are hereby repealed and amended
accordingly.
[19]
Philippine Journalist, Inc. v. Commissioner of Internal Revenue, 488 Phil. 218, 235 (2004).
[20]
104 Phil 819 (1958).
[21]
Id. at 822-824.
[22]
La Naval Drug Corporation v. Court of Appeals, G.R. No. 103200, August 31, 1994, 236 SCRA 78, 87.
[23]
Ouano v. Court of Appeals, 446 Phil. 690, 708 (2003).
[24]
C & S Fishfarm Corporation v. Court of Appeals, 442 Phil. 279, 290 (2002).
[25]
Philippine Journalist, Inc. v. Commissioner of Internal Revenue, supra note 19 at 231-232.
[26]
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement
xxxx
(b) Failure to Submit Required Returns, Statements, Reports and other Documents. When a report required by law
as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed
by law or rules and regulation or when there is reason to believe that any such report is false, incomplete or
erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.
In case a person fails to file a required return or other document at the time prescribed by law, or willfully or
otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return
from his own knowledge and from such information as he can obtain through testimony or otherwise, which
shall be prima facie correct and sufficient for all legal purposes.

21 same as 12

22SECOND DIVISION

COMMISSIONER OF INTERNAL G.R. No. 178087

REVENUE,
Petitioner, Present:

CARPIO, J., Chairperson,

BRION,
- versus - DEL CASTILLO,
ABAD, and
PEREZ, JJ.

KUDOS METAL CORPORATION, Promulgated:

Respondent. May 5, 2010
x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

The prescriptive period on when to assess taxes benefits both the government and the
taxpayer.[1] Exceptions extending the period to assess must, therefore, be strictly
construed.
 This Petition for Review on Certiorari seeks to set aside the
Decision[2] dated March 30, 2007 of the Court of Tax Appeals (CTA) affirming the
cancellation of the assessment notices for having been issued beyond the prescriptive
period and the Resolution[3] dated May 18, 2007 denying the motion for reconsideration.
Factual Antecedents

On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income
Tax Return (ITR) for the taxable year 1998.

Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal

Revenue (BIR) served upon respondent three Notices of Presentation of
Records. Respondent failed to comply with these notices, hence, the BIR issued
a Subpeona Duces Tecum dated September 21, 2006, receipt of which was
acknowledged by respondents President, Mr. Chan Ching Bio, in a letter dated October
20, 2000.

A review and audit of respondents records then ensued.

On December 10, 2001, Nelia Pasco (Pasco), respondents accountant, executed a

Waiver of the Defense of Prescription,[4] which was notarized on January 22, 2002,
received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud
Division on February 4, 2002, and accepted by the Assistant Commissioner of the
Enforcement Service, Percival T. Salazar (Salazar).
This was followed by a second Waiver of Defense of Prescription [5] executed
by Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR
Tax Fraud Division on February 28, 2003 and accepted by Assistant Commissioner
Salazar.

On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the
taxable year 1998 against the respondent. This was followed by a Formal Letter of
Demand with Assessment Notices for taxable year 1998, dated September 26,
2003 which was received by respondent on November 12, 2003.
Respondent challenged the assessments by filing its Protest on Various Tax
Assessments on December 3, 2003 and its Legal Arguments and Documents in Support
of Protests against Various Assessments on February 2, 2004.
 On June 22, 2004, the BIR rendered a final Decision[6] on the matter, requesting
the immediate payment of the following tax liabilities:

Kind of Tax Amount

Income Tax P 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
Total P25,624,048.76

Ruling of the Court of Tax Appeals, Second Division

Believing that the governments right to assess taxes had prescribed, respondent
filed on August 27, 2004 a Petition for Review[7] with the CTA. Petitioner in turn filed
his Answer.[8]
On April 11, 2005, respondent filed an Urgent Motion for Preferential Resolution
of the Issue on Prescription.[9]

On October 4, 2005, the CTA Second Division issued a Resolution [10] canceling
the assessment notices issued against respondent for having been issued beyond the
prescriptive period. It found the first Waiver of the Statute of Limitations incomplete and
defective for failure to comply with the provisions of Revenue Memorandum Order
(RMO) No. 20-90. Thus:
First, the Assistant Commissioner is not the revenue official authorized to sign
the waiver, as the tax case involves more than P1,000,000.00. In this regard, only the
Commissioner is authorized to enter into agreement with the petitioner in extending the
period of assessment;

Secondly, the waiver failed to indicate the date of acceptance. Such date of
acceptance is necessary to determine whether the acceptance was made within the
prescriptive period;

Third, the fact of receipt by the taxpayer of his file copy was not indicated on the
original copy. The requirement to furnish the taxpayer with a copy of the waiver is not
only to give notice of the existence of the document but also of the acceptance by the BIR
and the perfection of the agreement.

The subject waiver is therefore incomplete and defective. As such, the three-year
prescriptive period was not tolled or extended and continued to run. x x x[11]
Petitioner moved for reconsideration but the CTA Second Division denied the motion in
a Resolution[12] dated April 18, 2006.

Ruling of the Court of Tax Appeals, En Banc

On appeal, the CTA En Banc affirmed the cancellation of the assessment

notices. Although it ruled that the Assistant Commissioner was authorized to sign the
waiver pursuant to Revenue Delegation Authority Order (RDAO) No. 05-01, it found
that the first waiver was still invalid based on the second and third grounds stated by the
CTA Second Division. Pertinent portions of the Decision read as follows:

While the Court En Banc agrees with the second and third grounds for
invalidating the first waiver, it finds that the Assistant Commissioner of the Enforcement
Service is authorized to sign the waiver pursuant to RDAO No. 05-01, which provides in
part as follows:

A. For National Office cases

Designated Revenue Official

1. Assistant Commissioner (ACIR), For tax fraud and policy

Enforcement Service cases

2. ACIR, Large Taxpayers Service For large taxpayers cases

other than those cases falling under
Subsection B hereof

3. ACIR, Legal Service For cases pending

verification and awaiting
resolution of certain legal issues prior to
prescription and for
issuance/compliance of Subpoena
Duces Tecum

4. ACIR, Assessment Service (AS) For cases which are

pending in or subject to
review or approval by the
ACIR, AS

Based on the foregoing, the Assistant Commissioner, Enforcement Service is

authorized to sign waivers in tax fraud cases. A perusal of the records reveals that the
 investigation of the subject deficiency taxes in this case was conducted by the National
Investigation Division of the BIR, which was formerly named the Tax Fraud
Division. Thus, the subject assessment is a tax fraud case.

Nevertheless, the first waiver is still invalid based on the second and third
grounds stated by the Court in Division. Hence, it did not extend the prescriptive period
to assess.

Moreover, assuming arguendo that the first waiver is valid, the second waiver is
invalid for violating Section 222(b) of the 1997 Tax Code which mandates that the period
agreed upon in a waiver of the statute can still be extended by subsequent written
agreement, provided that it is executed prior to the expiration of the first period agreed
upon. As previously discussed, the exceptions to the law on prescription must be strictly
construed.

In the case at bar, the period agreed upon in the subject first waiver expired
on December 31, 2002. The second waiver in the instant case which was supposed to
extend the period to assess to December 31, 2003 was executed on February 18,
2003 and was notarized on February 19, 2003. Clearly, the second waiver was executed
after the expiration of the first period agreed upon. Consequently, the same could not
have tolled the 3-year prescriptive period to assess.[13]

Petitioner sought reconsideration but the same was unavailing.

Issue

Hence, the present recourse where petitioner interposes that:

THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE

GOVERNMENTS RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT
PRESCRIBED.[14]

Petitioners Arguments

Petitioner argues that the governments right to assess taxes is not barred by
prescription as the two waivers executed by respondent, through its accountant,
effectively tolled or extended the period within which the assessment can be made. In
disputing the conclusion of the CTA that the waivers are invalid, petitioner claims that
respondent is estopped from adopting a position contrary to what it has previously
taken. Petitioner insists that by acquiescing to the audit during the period specified in the
waivers, respondent led the government to believe that the delay in the process would not
be utilized against it. Thus, respondent may no longer repudiate the validity of the
waivers and raise the issue of prescription.

Respondents Arguments

Respondent maintains that prescription had set in due to the invalidity of the waivers
executed by Pasco, who executed the same without any written authority from it, in clear
violation of RDAO No. 5-01. As to the doctrine of estoppel by acquiescence relied upon
by petitioner, respondent counters that the principle of equity comes into play only when
the law is doubtful, which is not present in the instant case.

Our Ruling

The petition is bereft of merit.

Section 203[15] of the National Internal Revenue Code of 1997 (NIRC) mandates
the government to assess internal revenue taxes within three years from the last day
prescribed by law for the filing of the tax return or the actual date of filing of such return,
whichever comes later. Hence, an assessment notice issued after the three-year
prescriptive period is no longer valid and effective. Exceptions however are provided
under Section 222[16] of the NIRC.

The waivers executed by respondents

accountant did not extend the period within
which the assessment can be made

Petitioner does not deny that the assessment notices were issued beyond the three-
year prescriptive period, but claims that the period was extended by the two waivers
executed by respondents accountant.

We do not agree.

Section 222 (b) of the NIRC provides that the period to assess and collect taxes
may only be extended upon a written agreement between the CIR and the taxpayer
executed before the expiration of the three-year period. RMO 20-90[17] issued on April 4,
1990 and RDAO 05-01[18] issued on August 2, 2001 lay down the procedure for the
proper execution of the waiver, to wit:

1. The waiver must be in the proper form prescribed by RMO 20-90. The
phrase but not after ______ 19 ___, which indicates the expiry date of
the period agreed upon to assess/collect the tax after the regular three-
year period of prescription, should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly

authorized representative. In the case of a corporation, the waiver must
be signed by any of its responsible officials. In case the authority is
delegated by the taxpayer to a representative, such delegation should be
in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver
indicating that the BIR has accepted and agreed to the waiver. The date
of such acceptance by the BIR should be indicated. However, before
signing the waiver, the CIR or the revenue official authorized by him
must make sure that the waiver is in the prescribed form, duly notarized,
and executed by the taxpayer or his duly authorized representative.

5. Both the date of execution by the taxpayer and date of acceptance by the
Bureau should be before the expiration of the period of prescription or
before the lapse of the period agreed upon in case a subsequent
agreement is executed.

6. The waiver must be executed in three copies, the original copy to be

attached to the docket of the case, the second copy for the taxpayer and
the third copy for the Office accepting the waiver. The fact of receipt by
the taxpayer of his/her file copy must be indicated in the original copy
to show that the taxpayer was notified of the acceptance of the BIR and
the perfection of the agreement.[19]
 A perusal of the waivers executed by respondents accountant reveals the following
infirmities:

1. The waivers were executed without the notarized written authority

of Pasco to sign the waiver in behalf of respondent.

2. The waivers failed to indicate the date of acceptance.

3. The fact of receipt by the respondent of its file copy was not indicated
in the original copies of the waivers.

Due to the defects in the waivers, the period to assess or collect taxes was not
extended. Consequently, the assessments were issued by the BIR beyond the three-year
period and are void.

Estoppel does not apply in this case

We find no merit in petitioners claim that respondent is now estopped from

claiming prescription since by executing the waivers, it was the one which asked for
additional time to submit the required documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,[20] the
doctrine of estoppel prevented the taxpayer from raising the defense of prescription
against the efforts of the government to collect the assessed tax. However, it must be
stressed that in the said case, estoppel was applied as an exception to the statute of
limitations on collection of taxes and not on the assessment of taxes, as the BIR was able
to make an assessment within the prescribed period. More important, there was a finding
that the taxpayer made several requests or positive acts to convince the government to
postpone the collection of taxes, viz:

It appears that the first assessment made against respondent based on its second
final return filed on November 28, 1946 was made on February 11, 1947. Upon receipt
of this assessment respondent requested for at least one year within which to pay the
amount assessed although it reserved its right to question the correctness of the
assessment before actual payment. Petitioner granted an extension of only three months.
When it failed to pay the tax within the period extended, petitioner sent respondent a
letter on November 28, 1950 demanding payment of the tax as assessed, and upon
receipt of the letter respondent asked for a reinvestigation and reconsideration of the
assessment. When this request was denied, respondent again requested for a
 reconsideration on April 25, 1952, which was denied on May 6, 1953, which denial was
appealed to the Conference Staff. The appeal was heard by the Conference Staff
from September 2, 1953 to July 16, 1955, and as a result of these various negotiations,
the assessment was finally reduced on July 26, 1955. This is the ruling which is now
being questioned after a protracted negotiation on the ground that the collection of the tax
has already prescribed.

It is obvious from the foregoing that petitioner refrained from collecting the tax
by distraint or levy or by proceeding in court within the 5-year period from the filing of
the second amended final return due to the several requests of respondent for extension to
which petitioner yielded to give it every opportunity to prove its claim regarding the
correctness of the assessment. Because of such requests, several reinvestigations were
made and a hearing was even held by the Conference Staff organized in the collection
office to consider claims of such nature which, as the record shows, lasted for several
months. After inducing petitioner to delay collection as he in fact did, it is most unfair for
respondent to now take advantage of such desistance to elude his deficiency income tax
liability to the prejudice of the Government invoking the technical ground of prescription.

While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the running of the
period of limitation for in such case there is need of a written agreement to extend the
period between the Collector and the taxpayer, there are cases however where a taxpayer
may be prevented from setting up the defense of prescription even if he has not
previously waived it in writing as when by his repeated requests or positive acts the
Government has been, for good reasons, persuaded to postpone collection to make him
feel that the demand was not unreasonable or that no harassment or injustice is meant by
the Government. And when such situation comes to pass there are authorities that hold,
based on weighty reasons, that such an attitude or behavior should not be countenanced if
only to protect the interest of the Government.

This case has no precedent in this jurisdiction for it is the first time that such has
risen, but there are several precedents that may be invoked in American jurisprudence. As
Mr. Justice Cardozo has said: The applicable principle is fundamental and unquestioned.
He who prevents a thing from being done may not avail himself of the nonperformance
which he has himself occasioned, for the law says to him in effect this is your own act,
and therefore you are not damnified. (R. H. Stearns Co. vs. U.S., 78 L. ed., 647). Or, as
was aptly said, The tax could have been collected, but the government withheld action at
the specific request of the plaintiff. The plaintiff is now estopped and should not be
permitted to raise the defense of the Statute of Limitations. [Newport Co. vs. U.S., (DC-
WIS), 34 F. Supp. 588].[21]

Conversely, in this case, the assessments were issued beyond the prescribed
period. Also, there is no showing that respondent made any request to persuade the BIR
to postpone the issuance of the assessments.
 The doctrine of estoppel cannot be applied in this case as an exception to the
statute of limitations on the assessment of taxes considering that there is a detailed
procedure for the proper execution of the waiver, which the BIR must strictly follow. As
we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity
which, broadly defined, is justice according to natural law and right. [22] As such, the
doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is
against public policy.[23] It should be resorted to solely as a means of preventing injustice
and should not be permitted to defeat the administration of the law, or to accomplish a
wrong or secure an undue advantage, or to extend beyond them requirements of the
transactions in which they originate.[24] Simply put, the doctrine of estoppel must be
sparingly applied.

Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure
to comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated
earlier, the BIR failed to verify whether a notarized written authority was given by the
respondent to its accountant, and to indicate the date of acceptance and the receipt by the
respondent of the waivers. Having caused the defects in the waivers, the BIR must bear
the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the
statute of limitations, being a derogation of the taxpayers right to security against
prolonged and unscrupulous investigations, must be carefully and strictly construed.[25]

As to the alleged delay of the respondent to furnish the BIR of the required
documents, this cannot be taken against respondent. Neither can the BIR use this as an
excuse for issuing the assessments beyond the three-year period because with or without
the required documents, the CIR has the power to make assessments based on the best
evidence obtainable.[26]

WHEREFORE, the petition is DENIED. The assailed Decision dated March

30, 2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are
hereby AFFIRMED.

SO ORDERED.
 MARIANO C. DEL CASTILLO
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

C E R T I FI CAT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
attestation, it is hereby certified that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the
Courts Division.

REYNATO S. PUNO
Chief Justice

[1]
Republic of the Phils. v. Ablaza, 108 Phil. 1105, 1108 (1960).
[2]
Rollo, pp. 31-45; penned by Associate Justice Lovell R. Bautista and concurred in by Associate Justices Juanito C. Castaeda,
Jr., Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez. Presiding Justice Ernesto D. Acosta was on leave.
[3]
Id., at 46-50; penned by Associate Justice Lovell R. Bautista and concurred in by Presiding Justice Ernesto D. Acosta and
Associate Justices Juanito C. Castaeda, Jr., Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez.
[4]
Records, pp. 227-228.
[5]
Id. at 229-230.
[6]
Id. at 18-21.
[7]
Id. at 1-17.
[8]
Id. at 161-165.
[9]
Id. at 219-226.
[10]
Id. at 259-266.
[11]
Id. at 265.
[12]
Id. at 294-296.
[13]
Rollo, pp. 42-43.
[14]
Id. at 17.
[15]
SEC. 203. Period of Limitation Upon Assessment and Collection. Except as provided in Section 222, internal
revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the
expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law,
the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section, a
return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last
day.
[16]
SEC. 222. Exceptions as to period of limitation of assessment and collection of taxes.
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time
within ten (10) years after the discovery of the falsity, fraud, or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both
the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a)
hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the
assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b)
hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in
 writing before the expiration of the five (5)-year period. The period so agreed upon may be extended by
subsequent written agreements made before the expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding Section and paragraph (a) hereof shall be
construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with
the provisions of any tax amnesty law or decree.
[17]
In the execution of said waiver, the following procedures should be followed:
1. The waiver must be in the form identified hereof. This form may be reproduced by the Office concerned but there
should be no deviation from such form. The phrase but not after ______ 19 ___ should be filled up. This
indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription. The period agreed upon shall constitute the time within which to effect the assessment/collection
of the tax in addition to the ordinary prescriptive period.
2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials.
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official
authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and
agreed to the waiver. The date of such acceptance by the Bureau should be indicated. Both the date of execution
by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of
prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.
3. The following revenue officials are authorized to sign the waiver.
A. In the National Office
1. ACIRs for Collection, Special Operations For tax cases involving
National Assessment, Excise and Legal on tax not more than P500,000.00
cases pending before their respective offices. In
the absence of the ACIR, the Head Executive
Assistant may sign the waiver.
3. Commissioner For tax cases involving more than P1M
xxxx
4. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the case, the
second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the
taxpayer of his/her file copy shall be indicated in the original copy.
5. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with this
Order resulting in prescription of the right to assess/collect shall be administratively dealt with.
[18]
I. Revenue Officials Authorized to Sign the Waiver
The following revenue officials are authorized to sign and accept the Waiver of the Defense of Prescription
Under the Statute of Limitations (Annex A) prescribed in Sections 203, 222 and other related provisions of the
National Internal Revenue Code of 1997:
A. For National Office cases
Designated Revenue Official
1. Assistant Commissioner (ACIR), For tax fraud and policy
Enforcement Service cases
xxxx
In order to prevent undue delay in the execution and acceptance of the waiver, the assistant heads of the
concerned offices are likewise authorized to sign the same under meritorious circumstances in the absence of
the abovementioned officials.
The authorized revenue official shall ensure that the waiver is duly accomplished and signed by the
taxpayer or his authorized representative before affixing his signature to signify acceptance of the same. In case
the authority is delegated by the taxpayer to a representative, the concerned revenue official shall see to it that
such delegation is in writing and duly notarized. The WAIVER should not be accepted by the concerned BIR
office and official unless duly notarized.
II. Repealing Clause
All other issuances and/or portions thereof inconsistent herewith are hereby repealed and amended
accordingly.
[19]
Philippine Journalist, Inc. v. Commissioner of Internal Revenue, 488 Phil. 218, 235 (2004).
[20]
104 Phil 819 (1958).
[21]
Id. at 822-824.
[22]
La Naval Drug Corporation v. Court of Appeals, G.R. No. 103200, August 31, 1994, 236 SCRA 78, 87.
[23]
Ouano v. Court of Appeals, 446 Phil. 690, 708 (2003).
[24]
C & S Fishfarm Corporation v. Court of Appeals, 442 Phil. 279, 290 (2002).
[25]
Philippine Journalist, Inc. v. Commissioner of Internal Revenue, supra note 19 at 231-232.
[26]
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement
xxxx
(b) Failure to Submit Required Returns, Statements, Reports and other Documents. When a report required by law
as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed
by law or rules and regulation or when there is reason to believe that any such report is false, incomplete or
erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.
In case a person fails to file a required return or other document at the time prescribed by law, or willfully or
otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return
from his own knowledge and from such information as he can obtain through testimony or otherwise, which
shall be prima facie correct and sufficient for all legal purposes.
23

TAGANITO VS. COMMISSIONERCTA Case No. 4702April 28, 1995

NATURE
Claim for refund of excise taxes on mineral products allegedly overpaid by Taganito Mining
Corporation
FACTS
-Taganito Mining Corporation (TMC) is a domestic corporation expressly granted a permit by
thegovernment via an operating contract to explore, develop and utilize mineral deposits found in a
specifiedportion of a mineral reservation area located in Surigao del Norte and owned by the
government. Inexchange, TMC is obliged to pay royalty to the government over and above other
taxes.-During July to December 1989, TMC removed, shipped and sold substantial quantities of
BeneficiatedNickel Silicate ore and chromite ore and paid excise taxes in the amount of
Php6,277,993.65 in compliancewith Sec.151(3) of the Tax Code. The 5% excise tax was based on
the amount and weight shown in theprovisional invoice issued by TMC. The metallic minerals are then
shipped abroad to Japanese buyerswhere the minerals were analyzed allegedly by independent
surveyors upon unloading at its port of destination. Analysis abroad would oftentimes reveal a different
value for the metallic minerals from thatindicated in the temporary/provisional invoice submitted by
TMC. Variance is in the market values in theprovisional invoice and that indicated in the final
calculation sheet presented by the buyers. Variancesoccur in the weight of the shipment or the price of
the metallic minerals per kg and sometimes in theirmetallic content resulting in discrepancies in the
total selling price. It is always the price indicated in thefinal invoice that is determinative of the amount
that the buyers will eventually pay TMC. TMC had noquarrel with the price they would receive from the
clients for the metallic minerals sold, but claims thatthere has been overpayment of excise taxes
already paid to the government declaring that the 5% excisetax were based on the amount indicated
in the provisional invoice, and if the excise tax would be based onthe final invoice, they would be
paying less.
TMCs contention:
(1) TMC is entitled to a refund because the actual market value that should be madethe basis of the
taxes is the amount specified in the independent surveyor abroad; (2) The government inreceiving the
royalties due it from amount indicated in the final invoice
Commissioner defense:
(1) claim for refund is subject pending administrative investigation; (2) tax wascollected in accordance
with law; (3) burden of proof is upon the taxpayer to establish the right to refund;(4) mere allegations of
refundability do not ipso facto merit refund claimed; (5) claims for refund of taxesare construed strictly
against claimant, it being in the nature of an exemption; (6) TMCs right to claim forrefund is already
barred after failing to file it within the 2 year prescriptive period, which should becounted from the time
specified by law for payment and not on the date of actual payment; (7) TMC is notentitled for refund
since TMC
ISSUE
1. WON TMC is entitled to refunda. WON the actual market value that should be used should be the
market value after the assessmentabroad was conductedb. WON the recognition of the government
of the later assessment is a proof that the market value thatshould be used is the later market value
through the collection of royalties2a. WON the petition has already prescribedb. WON the question of
prescription should be taken cognizance by the court
HELD1. NO.Ratio.
Tax refund partake of the nature of an exemption, and as such, tax exemption cannot be
allowedunless granted in the most explicit and categorical language. Taxes are what we pay for
civilized society.Without taxes, the government would be paralyzed for lack of the motive power to
activate and operate it.
a. NO.
use market value right after removal from the bed or mines.
Reasoning.
Sec. 151(3) of the Tax Code
1
: on all metallic minerals, a tax of five percent (5%) based on theactual market value of the gross
output thereof
at the time of removal
, in the case of those locallyextracted or produced: or the value used by the Bureau of Customs in
determining tariff and customsduties, net of excise tax and value-added tax, in case of importation.-the
law refers to the actual market value of the minerals at the time these minerals were moved awayfrom
the position it occupied, i.e. Philippine valuation and analysis because it is in this country where
theseminerals were extracted, removed and eventually shipped abroad. To reckon the actual market
value atthe time of removal is also consistent with the essence of an excise tax. It is a charge upon the
privilege of
1
Section 151 (c) Time, manner and place of payment of excise Tax or mineral products
unless otherwise provided, the excise tax on minerals or mineral products shall be due
andpayable upon removal of the minerals and minerals products or quarry resources
from the locality where mined or upon removal from customs custody in the case of
importations.Any person liable to pay the excise tax on locally produced or extracted
mineral, mineral products or quarry resources shall, before removal of such products
file, in duplicate, a returnsetting forth the quantity and the actual market value of the
mineral or mineral products to be removed and pay the excise taxes due thereon to the
collection agent, or the treasurer of the city or municipality of the place where the mine
is located except as therein below provided.However the output of the mine may be
removed from such locality without the prepayment of such excise taxes if the lessee
owner, or the operator of the mining claim shall file a bondin the form and amound and
with which such sureties as the Commissioner may require, conditioned upon the
payment of such excise taxes.
severing or extracting minerals from the earth, and is due and payable upon removal of the
mineralproducts from its bed or mines (Republic Cement vs. Comm, 23 SCRA 967).-The law is clear.
It does not speak of actual market value at the time the mineral products are unloaded atthe country of
destination neither does it speak of the selling price as the basis of the excise tax. The laweven
requires payment of excise taxes upon the removal fo the mineral product or quarry resources
fromthe locality where mined or upon removal from customs custody in the case of importations (Sec.
151 of the Tax Code). It would then necessitate an analysis of these metallic minerals upon its
removal to be ableto accomplish the payment of excise taxes as required by law. Furthermore, it
would be impossible for oneto comply with the date prescribed by law for payment of excise taxes if
one has to wait for the finalanalysis to be done in the country where it is to be shipped and certainly
impractical.-This set-up established by the petitioner is contrary to the principle of administrative
feasibility which isone of the basic principles of a sound tax system. Tax laws should be capable of
convenient, just andeffective administration which is why it fixes a standard or a uniform tax base
upon which taxes should bepaid. In the case of excise taxes on mineral and mineral products, the
basis provided by law is the actualmarket value of these minerals at the time of removal.
b. NO.
Reasoning.
Petitioner argues that excise taxes should be based on the amount indicated in the finalinvoice
because the government in receiving royalties acknowledges this amount as its basis. BUT excisetax
is different from royalties. Excise tax is a tax on the privilege of extracting minerals from the earthwhile
royalty as the term is used and understood in mining and oil operations means a share in the
productor profit paid to the owner of the property (Words and Phrases, vol.37A, p.605). Royalty paid to
thegovernment is rightfully based on the amount indicated in the final invoice because it is the amount
whichwill be received by the seller from the buyer as consideration for the sale of mineral products.2.a.
No. Petition for review filed within the period provided by law.
Reasoning.
Petitioner paid excise taxes on quarterly basis, the last and final payment being January 19,1990.
Petition for review was received on January 17, 1992. SC ruled that if a tax is paid on installments
oronly in part,
the period is counted from the date of the last or final payment until the
whole or entire tax liability is fully paid
(Comm vs. Prieto, 2 SCRA 1007; COmm vs. Palanca, 18 SCRA 496).Period should be counted from
full payment because it is only then that one can determine if there wasoverpayment.-2 year period
should NOT be reckoned from the due date of payment. It should be reckoned from theactual day of
payment. Sec. 230, Tax Code: two year period for the recovery of the tax erroneously orillegally
collected shall be reckoned from the date of payment of the tax or penalty regardless of
anysupervening cause that may arise after payment
2
b. Yes. Even if raised for the first time, its a question which determines the jurisdiction of the court
overthe case and therefore could be raised even on appeal.
DISPOSITION
In view of all the foregoing, petitioners claim for refund in the amount of P362,628.82 is hereby
deniedwith costs against petitioner. So ordered
24 G.R. No. L-25043 April 26, 1968

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and
as judicial co-guardians of JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

Leido, Andrada, Perez and Associates for petitioners.

Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by
hereditary succession the following properties:

(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of
Nasugbu, Batangas province;

(2) A residential house and lot located at Wright St., Malate, Manila; and

(3) Shares of stocks in different corporations.

To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas
and Jose Roxas, formed a partnership called Roxas y Compania.

AGRICULTURAL LANDS

At the conclusion of the Second World War, the tenants who have all been tilling the lands in
Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels which
they actually occupied. For its part, the Government, in consonance with the constitutional mandate
to acquire big landed estates and apportion them among landless tenants-farmers, persuaded the
Roxas brothers to part with their landholdings. Conferences were held with the farmers in the early
part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to the Government for
distribution to actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey and
subdivision expenses.

It turned out however that the Government did not have funds to cover the purchase price, and so a
special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y
Cia. the amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be
sold to the farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for
the same price but by installment, and contracted with the Rehabilitation Finance Corporation to pay
its loan from the proceeds of the yearly amortizations paid by the farmers.

In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and
P29,500.71. Fifty percent of said net gain was reported for income tax purposes as gain on the sale
of capital asset held for more than one year pursuant to Section 34 of the Tax Code.

RESIDENTIAL HOUSE

During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate,
Manila, which they inherited from their grandparents. After Antonio and Eduardo got married, they
resided somewhere else leaving only Jose in the old house. In fairness to his brothers, Jose paid to
Roxas y Cia. rentals for the house in the sum of P8,000.00 a year.

ASSESSMENTS

On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment
of real estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for
late payment, and P150.00 tax for dealers of securities for 1952 plus P10.00 compromise penalty for
late payment. The assessment for real estate dealer's tax was based on the fact that Roxas y Cia.
received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the
Tax Code, an owner of a real estate who derives a yearly rental income therefrom in the amount of
P3,000.00 or more is considered a real estate dealer and is liable to pay the corresponding fixed tax.

The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities
against Roxas y Cia., on the fact that said partnership made profits from the purchase and sale of
securities.

In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas
Brothers for the years 1953 and 1955, as follows:

1953 1955
Antonio Roxas P7,010.00 P5,813.00
Eduardo Roxas 7,281.00 5,828.00
Jose Roxas 6,323.00 5,588.00

The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported
50% of the net profits for 1953 and 1955 derived from the sale of the Nasugbu farm lands to the
tenants, and the disallowance of deductions from gross income of various business expenses and
contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that Roxas y Cia.
subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner
considered the partnership as engaged in the business of real estate, hence, 100% of the profits
derived therefrom was taxed.

The following deductions were disallowed:

ROXAS Y CIA.:
1953
Tickets for Banquet in honor of
P 40.00
S. Osmea
Gifts of San Miguel beer 28.00
Contributions to
Philippine Air Force Chapel 100.00
Manila Police Trust Fund 150.00

Philippines Herald's fund for Manila's

neediest families 100.00
 1955
Contributions to Contribution to
Our Lady of Fatima Chapel,
FEU 50.00
ANTONIO ROXAS:
1953
Contributions to
Pasay City Firemen Christmas Fund 25.00
Pasay City Police Dept. X'mas fund 50.00
1955
Contributions to
Baguio City Police Christmas fund 25.00
Pasay City Firemen Christmas fund 25.00
Pasay City Police Christmas fund 50.00
EDUARDO ROXAS:
1953
Contributions to
Hijas de Jesus' Retiro de Manresa 450.00
Philippines Herald's fund for Manila's
neediest families 100.00
1955
Contributions to Philippines
Herald's fund for Manila's
neediest families 120.00
JOSE ROXAS:
1955
Contributions to Philippines
Herald's fund for Manila's
neediest families 120.00

The Roxas brothers protested the assessment but inasmuch as said protest was denied, they
instituted an appeal in the Court of Tax Appeals on January 9, 1961. The Tax Court heard the appeal
and rendered judgment on July 31, 1965 sustaining the assessment except the demand for the
payment of the fixed tax on dealer of securities and the disallowance of the deductions for
contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa. The Tax
Court's judgment reads:
 WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners
Antonio Roxas, Eduardo Roxas, and Jose Roxas who are hereby ordered to pay the
respondent Commissioner of Internal Revenue the amounts of P12,808.00, P12,887.00 and
P11,857.00, respectively, as deficiency income taxes for the years 1953 and 1955, plus 5%
surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and
modified with respect to the partnership Roxas y Cia. in the sense that it should pay only
P150.00, as real estate dealer's tax. With costs against petitioners.

Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of
Internal Revenue did not appeal.

The issues:

(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence
100% taxable?

(2) Are the deductions for business expenses and contributions deductible?

(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers?

The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real
estate dealer because it engaged in the business of selling real estate. The business activity alluded
to was the act of subdividing the Nasugbu farm lands and selling them to the farmers-occupants on
installment. To bolster his stand on the point, he cites one of the purposes of Roxas y Cia. as
contained in its articles of partnership, quoted below:

4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer

a ella en el futuro, alquilandoles por los plazos y demas condiciones, estime convenientes y
vendiendo aquellas que a juicio de sus gerentes no deben conservarse;

The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal

Revenue cannot be favorably accepted by Us in this isolated transaction with its peculiar
circumstances in spite of the fact that there were hundreds of vendees. Although they paid for their
respective holdings in installment for a period of ten years, it would nevertheless not make the
vendor Roxas y Cia. a real estate dealer during the ten-year amortization period.

It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled
them for generations was not only in consonance with, but more in obedience to the request and
pursuant to the policy of our Government to allocate lands to the landless. It was the bounden duty
of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its
haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and
prices. However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y
Cia. shouldered the Government's burden, went out of its way and sold lands directly to the farmers
in the same way and under the same terms as would have been the case had the Government done
it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing
the people's gratitude.

The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order
to maintain the general public's trust and confidence in the Government this power must be used
justly and not treacherously. It does not conform with Our sense of justice in the instant case for the
Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly
answering the urgent call.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence,
pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain
derived from the sale thereof is capital gain, taxable only to the extent of 50%.

DISALLOWED DEDUCTIONS

Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in
honor of Sergio Osmena and P28.00 for San Miguel beer given as gifts to various persons. The
deduction were claimed as representation expenses. Representation expenses are deductible from
gross income as expenditures incurred in carrying on a trade or business under Section 30(a) of the
Tax Code provided the taxpayer proves that they are reasonable in amount, ordinary and necessary,
and incurred in connection with his business. In the case at bar, the evidence does not show such
link between the expenses and the business of Roxas y Cia. The findings of the Court of Tax
Appeals must therefore be sustained.

The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen,
and Baguio City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for
Manila's neediest families and Our Lady of Fatima chapel at Far Eastern University.

The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio
City Police are not deductible for the reason that the Christmas funds were not spent for public
purposes but as Christmas gifts to the families of the members of said entities. Under Section 39(h),
a contribution to a government entity is deductible when used exclusively for public purposes. For
this reason, the disallowance must be sustained. On the other hand, the contribution to the Manila
Police trust fund is an allowable deduction for said trust fund belongs to the Manila Police, a
government entity, intended to be used exclusively for its public functions.

The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on
the ground that the Philippines Herald is not a corporation or an association contemplated in Section
30 (h) of the Tax Code. It should be noted however that the contributions were not made to the
Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald solely
for charitable purposes. There is no question that the members of this group of citizens do not
receive profits, for all the funds they raised were for Manila's neediest families. Such a group of
citizens may be classified as an association organized exclusively for charitable purposes mentioned
in Section 30(h) of the Tax Code.

Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima
chapel at the Far Eastern University on the ground that the said university gives dividends to its
stockholders. Located within the premises of the university, the chapel in question has not been
shown to belong to the Catholic Church or any religious organization. On the other hand, the lower
court found that it belongs to the Far Eastern University, contributions to which are not deductible
under Section 30(h) of the Tax Code for the reason that the net income of said university injures to
the benefit of its stockholders. The disallowance should be sustained.

Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because
although it earned a rental income of P8,000.00 per annum in 1952, said rental income came from
Jose Roxas, one of the partners. Section 194 of the Tax Code, in considering as real estate dealers
owners of real estate receiving rentals of at least P3,000.00 a year, does not provide any
qualification as to the persons paying the rentals. The law, which states: 1wph1.t

. . . "Real estate dealer" includes any person engaged in the business of buying, selling,
exchanging, leasing or renting property on his own account as principal and holding himself
out as a full or part-time dealer in real estate or as an owner of rental property or properties
rented or offered to rent for an aggregate amount of three thousand pesos or more a year: . .
. (Emphasis supplied) .

is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is
sustained.1wph1.t

To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and
Jose Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00
and P49.00, respectively, computed as follows: *

ANTONIO ROXAS
Net income per return P315,476.59
Add: 1/3 share, profits in Roxas y
P 153,249.15
Cia.
Less amount declared 146,135.46

Amount understated P 7,113.69

Contributions disallowed 115.00

P 7,228.69
Less 1/3 share of contributions
amounting to P21,126.06 disallowed
from partnership but allowed to
partners 7,042.02 186.67

Net income per review P315,663.26

Less: Exemptions 4,200.00

Net taxable income P311,463.26

Tax due 154,169.00
Tax paid 154,060.00

Deficiency P 109.00
==========
EDUARDO ROXAS
Net income per return P
 304,166.92
Add: 1/3 share, profits in Roxas y Cia P 153,249.15
Less profits declared 146,052.58

Amount understated P 7,196.57

Less 1/3 share in contributions
amounting to P21,126.06 disallowed
from partnership but allowed to
partners 7,042.02 155.55

Net income per review P304,322.47

Less: Exemptions 4,800.00

Net taxable income P299,592.47

Tax Due P147,250.00
Tax paid 147,159.00

Deficiency P91.00
===========
JOSE ROXAS
Net income per return P222,681.76
Add: 1/3 share, profits in Roxas y
P153,429.15
Cia.
Less amount reported 146,135.46

Amount understated 7,113.69

Less 1/3 share of contributions
disallowed from partnership but
allowed as deductions to partners 7,042.02 71.67

Net income per review P222,753.43

Less: Exemption 1,800.00

Net income subject to tax P220,953.43

Tax due P102,763.00
Tax paid 102,714.00
Deficiency
P 49.00
 ===========

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

Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Zaldivar, J., took no part.
Concepcion, C.J., is on leave.

Footnotes

*
See BIR Records, p. 387.

-------------

25 [G.R. No. 118295. May 2, 1997]

WIGBERTO E. TAADA and ANNA DOMINIQUE COSETENG, as

members of the Philippine Senate and as taxpayers; GREGORIO
ANDOLANA and JOKER ARROYO as members of the House of
Representatives and as taxpayers; NICANOR P. PERLAS and
HORACIO R. MORALES, both as taxpayers; CIVIL LIBERTIES
UNION, NATIONAL ECONOMIC PROTECTIONISM ASSOCIATION,
CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES,
LIKAS-KAYANG KAUNLARAN FOUNDATION, INC., PHILIPPINE
RURAL RECONSTRUCTION MOVEMENT, DEMOKRATIKONG
KILUSAN NG MAGBUBUKID NG PILIPINAS, INC., and
PHILIPPINE PEASANT INSTITUTE, in representation of various
taxpayers and as non-governmental organizations, petitioners,
vs. EDGARDO ANGARA, ALBERTO ROMULO, LETICIA RAMOS-
SHAHANI, HEHERSON ALVAREZ, AGAPITO AQUINO, RODOLFO
BIAZON, NEPTALI GONZALES, ERNESTO HERRERA, JOSE
LINA, GLORIA MACAPAGAL-ARROYO, ORLANDO MERCADO,
BLAS OPLE, JOHN OSMEA, SANTANINA RASUL, RAMON
REVILLA, RAUL ROCO, FRANCISCO TATAD and FREDDIE
WEBB, in their respective capacities as members of the
Philippine Senate who concurred in the ratification by the
 President of the Philippines of the Agreement Establishing the
World Trade Organization; SALVADOR ENRIQUEZ, in his
capacity as Secretary of Budget and Management; CARIDAD
VALDEHUESA, in her capacity as National Treasurer; RIZALINO
NAVARRO, in his capacity as Secretary of Trade and Industry;
ROBERTO SEBASTIAN, in his capacity as Secretary of
Agriculture; ROBERTO DE OCAMPO, in his capacity as
Secretary of Finance; ROBERTO ROMULO, in his capacity as
Secretary of Foreign Affairs; and TEOFISTO T. GUINGONA, in his
capacity as Executive Secretary, respondents.

DECISION
PANGANIBAN, J.:

The emergence on January 1, 1995 of the World Trade Organization, abetted by the
membership thereto of the vast majority of countries has revolutionized international
business and economic relations amongst states. It has irreversibly propelled the world
towards trade liberalization and economic globalization. Liberalization, globalization,
deregulation and privatization, the third-millennium buzz words, are ushering in a new
borderless world of business by sweeping away as mere historical relics the heretofore
traditional modes of promoting and protecting national economies like tariffs, export
subsidies, import quotas, quantitative restrictions, tax exemptions and currency
controls. Finding market niches and becoming the best in specific industries in a
market-driven and export-oriented global scenario are replacing age-old beggar-thy-
neighbor policies that unilaterally protect weak and inefficient domestic producers of
goods and services. In the words of Peter Drucker, the well-known management guru,
Increased participation in the world economy has become the key to domestic economic
growth and prosperity.

Brief Historical Background

To hasten worldwide recovery from the devastation wrought by the Second World
War, plans for the establishment of three multilateral institutions -- inspired by that grand
political body, the United Nations -- were discussed at Dumbarton Oaks and Bretton
Woods. The first was the World Bank (WB) which was to address the rehabilitation and
reconstruction of war-ravaged and later developing countries; the second, the
International Monetary Fund (IMF) which was to deal with currency problems; and the
third, the International Trade Organization (ITO), which was to foster order and
predictability in world trade and to minimize unilateral protectionist policies that invite
challenge, even retaliation, from other states. However, for a variety of reasons,
including its non-ratification by the United States, the ITO, unlike the IMF and WB, never
took off. What remained was only GATT -- the General Agreement on Tariffs and
Trade. GATT was a collection of treaties governing access to the economies of treaty
adherents with no institutionalized body administering the agreements or dependable
system of dispute settlement.
After half a century and several dizzying rounds of negotiations, principally the
Kennedy Round, the Tokyo Round and the Uruguay Round, the world finally gave birth
to that administering body -- the World Trade Organization -- with the signing of the
Final Act in Marrakesh, Morocco and the ratification of the WTO Agreement by its
members. [1]

Like many other developing countries, the Philippines joined WTO as a founding
member with the goal, as articulated by President Fidel V. Ramos in two letters to the
Senate (infra), of improving Philippine access to foreign markets, especially its major
trading partners, through the reduction of tariffs on its exports, particularly agricultural
and industrial products. The President also saw in the WTO the opening of new
opportunities for the services sector x x x, (the reduction of) costs and uncertainty
associated with exporting x x x, and (the attraction of) more investments into the
country. Although the Chief Executive did not expressly mention it in his letter, the
Philippines - - and this is of special interest to the legal profession - - will benefit from
the WTO system of dispute settlement by judicial adjudication through the independent
WTO settlement bodies called (1) Dispute Settlement Panels and (2) Appellate
Tribunal.Heretofore, trade disputes were settled mainly through negotiations where
solutions were arrived at frequently on the basis of relative bargaining strengths, and
where naturally, weak and underdeveloped countries were at a disadvantage.

The Petition in Brief

Arguing mainly (1) that the WTO requires the Philippines to place nationals and
products of member-countries on the same footing as Filipinos and local products and
(2) that the WTO intrudes, limits and/or impairs the constitutional powers of both
Congress and the Supreme Court, the instant petition before this Court assails the WTO
Agreement for violating the mandate of the 1987 Constitution to develop a self-reliant
and independent national economy effectively controlled by Filipinos x x x (to) give
preference to qualified Filipinos (and to) promote the preferential use of Filipino labor,
domestic materials and locally produced goods.
Simply stated, does the Philippine Constitution prohibit Philippine participation in
worldwide trade liberalization and economic globalization? Does it prescribe Philippine
integration into a global economy that is liberalized, deregulated and privatized? These
are the main questions raised in this petition for certiorari, prohibition
and mandamus under Rule 65 of the Rules of Court praying (1) for the nullification, on
constitutional grounds, of the concurrence of the Philippine Senate in the ratification by
the President of the Philippines of the Agreement Establishing the World Trade
Organization (WTO Agreement, for brevity) and (2) for the prohibition of its
implementation and enforcement through the release and utilization of public funds, the
assignment of public officials and employees, as well as the use of government
properties and resources by respondent-heads of various executive offices concerned
therewith. This concurrence is embodied in Senate Resolution No. 97, dated December
14, 1994.

The Facts

On April 15, 1994, Respondent Rizalino Navarro, then Secretary of

the Department of Trade and Industry (Secretary Navarro, for brevity), representing the
Government of the Republic of the Philippines, signed in Marrakesh, Morocco, the Final
Act Embodying the Results of the Uruguay Round of Multilateral Negotiations (Final Act,
for brevity).
By signing the Final Act, Secretary Navarro on behalf of the Republic of the
[2]

Philippines, agreed:

(a) to submit, as appropriate, the WTO Agreement for the consideration of their
respective competent authorities, with a view to seeking approval of the Agreement in
accordance with their procedures; and

(b) to adopt the Ministerial Declarations and Decisions.

On August 12, 1994, the members of the Philippine Senate received a letter dated
August 11, 1994 from the President of the Philippines, stating among others that the
[3]

Uruguay Round Final Act is hereby submitted to the Senate for its concurrence pursuant
to Section 21, Article VII of the Constitution.
On August 13, 1994, the members of the Philippine Senate received another letter
from the President of the Philippines likewise dated August 11, 1994, which stated
[4]

among others that the Uruguay Round Final Act, the Agreement Establishing the World
Trade Organization, the Ministerial Declarations and Decisions, and the Understanding
on Commitments in Financial Services are hereby submitted to the Senate for its
concurrence pursuant to Section 21, Article VII of the Constitution.
On December 9, 1994, the President of the Philippines certified the necessity of the
immediate adoption of P.S. 1083, a resolution entitled Concurring in the Ratification of
the Agreement Establishing the World Trade Organization. [5]

On December 14, 1994, the Philippine Senate adopted Resolution No. 97 which
Resolved, as it is hereby resolved, that the Senate concur, as it hereby concurs, in the
ratification by the President of the Philippines of the Agreement Establishing the World
Trade Organization. The text of the WTO Agreement is written on pages 137 et seq. of
[6]

Volume I of the 36-volume Uruguay Round of Multilateral Trade Negotiations and

includes various agreements and associated legal instruments (identified in the said
Agreement as Annexes 1, 2 and 3 thereto and collectively referred to as Multilateral
Trade Agreements, for brevity) as follows:

ANNEX 1
Annex 1A: Multilateral Agreement on Trade in Goods

General Agreement on Tariffs and Trade 1994

Agreement on Agriculture

Agreement on the Application of Sanitary and

Phytosanitary Measures

Agreement on Textiles and Clothing

Agreement on Technical Barriers to Trade

Agreement on Trade-Related Investment Measures

Agreement on Implementation of Article VI of the General

Agreement on Tariffs and Trade 1994

Agreement on Implementation of Article VII of the General on

Tariffs and Trade 1994

Agreement on Pre-Shipment Inspection

Agreement on Rules of Origin

Agreement on Imports Licensing Procedures

Agreement on Subsidies and Coordinating Measures

Agreement on Safeguards

Annex 1B: General Agreement on Trade in Services and Annexes

Annex 1C: Agreement on Trade-Related Aspects of Intellectual Property Rights

ANNEX 2

Understanding on Rules and Procedures Governing the Settlement

of Disputes

ANNEX 3
 Trade Policy Review Mechanism

On December 16, 1994, the President of the Philippines signed the Instrument of
[7]

Ratification, declaring:

NOW THEREFORE, be it known that I, FIDEL V. RAMOS, President of the

Republic of the Philippines, after having seen and considered the aforementioned
Agreement Establishing the World Trade Organization and the agreements and
associated legal instruments included in Annexes one (1), two (2) and three (3) of that
Agreement which are integral parts thereof, signed at Marrakesh, Morocco on 15
April 1994, do hereby ratify and confirm the same and every Article and Clause
thereof.

To emphasize, the WTO Agreement ratified by the President of the Philippines is

composed of the Agreement Proper and the associated legal instruments included in
Annexes one (1), two (2) and three (3) of that Agreement which are integral parts
thereof.
On the other hand, the Final Act signed by Secretary Navarro embodies not only the
WTO Agreement (and its integral annexes aforementioned) but also (1) the Ministerial
Declarations and Decisions and (2) the Understanding on Commitments in Financial
Services. In his Memorandum dated May 13, 1996, the Solicitor General describes
[8]

these two latter documents as follows:

The Ministerial Decisions and Declarations are twenty-five declarations and decisions
on a wide range of matters, such as measures in favor of least developed countries,
notification procedures, relationship of WTO with the International Monetary Fund
(IMF), and agreements on technical barriers to trade and on dispute settlement.

The Understanding on Commitments in Financial Services dwell on, among other

things, standstill or limitations and qualifications of commitments to existing non-
conforming measures, market access, national treatment, and definitions of non-
resident supplier of financial services, commercial presence and new financial service.

On December 29, 1994, the present petition was filed. After careful deliberation on
respondents comment and petitioners reply thereto, the Court resolved on December
12, 1995, to give due course to the petition, and the parties thereafter filed their
respective memoranda. The Court also requested the Honorable Lilia R. Bautista, the
Philippine Ambassador to the United Nations stationed in Geneva, Switzerland, to
submit a paper, hereafter referred to as Bautista Paper, for brevity, (1) providing a
[9]

historical background of and (2) summarizing the said agreements.

During the Oral Argument held on August 27, 1996, the Court directed:
(a) the petitioners to submit the (1) Senate Committee Report on the matter in
controversy and (2) the transcript of proceedings/hearings in the Senate; and

(b) the Solicitor General, as counsel for respondents, to file (1) a list of Philippine
treaties signed prior to the Philippine adherence to the WTO Agreement, which
derogate from Philippine sovereignty and (2) copies of the multi-volume WTO
Agreement and other documents mentioned in the Final Act, as soon as possible.

After receipt of the foregoing documents, the Court said it would consider the case
submitted for resolution. In a Compliance dated September 16, 1996, the Solicitor
General submitted a printed copy of the 36-volume Uruguay Round of Multilateral Trade
Negotiations, and in another Compliance dated October 24, 1996, he listed the various
bilateral or multilateral treaties or international instruments involving derogation of
Philippine sovereignty. Petitioners, on the other hand, submitted their Compliance dated
January 28, 1997, on January 30, 1997.

The Issues

In their Memorandum dated March 11, 1996, petitioners summarized the issues as
follows:

A. Whether the petition presents a political question or is otherwise not justiciable.

B. Whether the petitioner members of the Senate who participated in the

deliberations and voting leading to the concurrence are estopped from
impugning the validity of the Agreement Establishing the World Trade
Organization or of the validity of the concurrence.

C. Whether the provisions of the Agreement Establishing the World Trade

Organization contravene the provisions of Sec. 19, Article II, and Secs. 10 and
12, Article XII, all of the 1987 Philippine Constitution.

D. Whether provisions of the Agreement Establishing the World Trade

Organization unduly limit, restrict and impair Philippine sovereignty
specifically the legislative power which, under Sec. 2, Article VI, 1987
Philippine Constitution is vested in the Congress of the Philippines;

E. Whether provisions of the Agreement Establishing the World Trade

Organization interfere with the exercise of judicial power.

F. Whether the respondent members of the Senate acted in grave abuse of

discretion amounting to lack or excess of jurisdiction when they voted for
 concurrence in the ratification of the constitutionally-infirm Agreement
Establishing the World Trade Organization.

G. Whether the respondent members of the Senate acted in grave abuse of

discretion amounting to lack or excess of jurisdiction when they concurred
only in the ratification of the Agreement Establishing the World Trade
Organization, and not with the Presidential submission which included the
Final Act, Ministerial Declaration and Decisions, and the Understanding on
Commitments in Financial Services.

On the other hand, the Solicitor General as counsel for respondents synthesized the
several issues raised by petitioners into the following:
[10]

1. Whether or not the provisions of the Agreement Establishing the World Trade
Organization and the Agreements and Associated Legal Instruments included in
Annexes one (1), two (2) and three (3) of that agreement cited by petitioners directly
contravene or undermine the letter, spirit and intent of Section 19, Article II and
Sections 10 and 12, Article XII of the 1987 Constitution.

2. Whether or not certain provisions of the Agreement unduly limit, restrict or impair
the exercise of legislative power by Congress.

3. Whether or not certain provisions of the Agreement impair the exercise of judicial
power by this Honorable Court in promulgating the rules of evidence.

4. Whether or not the concurrence of the Senate in the ratification by the President of
the Philippines of the Agreement establishing the World Trade Organization implied
rejection of the treaty embodied in the Final Act.

By raising and arguing only four issues against the seven presented by petitioners,
the Solicitor General has effectively ignored three, namely: (1) whether the petition
presents a political question or is otherwise not justiciable; (2) whether petitioner-
members of the Senate (Wigberto E. Taada and Anna Dominique Coseteng) are
estopped from joining this suit; and (3) whether the respondent-members of the Senate
acted in grave abuse of discretion when they voted for concurrence in the ratification of
the WTO Agreement. The foregoing notwithstanding, this Court resolved to deal with
these three issues thus:

(1) The political question issue -- being very fundamental and vital, and being a
matter that probes into the very jurisdiction of this Court to hear and decide this case
-- was deliberated upon by the Court and will thus be ruled upon as the first issue;
(2) The matter of estoppel will not be taken up because this defense is waivable and
the respondents have effectively waived it by not pursuing it in any of their pleadings;
in any event, this issue, even if ruled in respondents favor, will not cause the petitions
dismissal as there are petitioners other than the two senators, who are not vulnerable
to the defense of estoppel; and

(3) The issue of alleged grave abuse of discretion on the part of the respondent
senators will be taken up as an integral part of the disposition of the four issues raised
by the Solicitor General.

During its deliberations on the case, the Court noted that the respondents did not
question the locus standi of petitioners. Hence, they are also deemed to have waived
the benefit of such issue. They probably realized that grave constitutional issues,
expenditures of public funds and serious international commitments of the nation are
involved here, and that transcendental public interest requires that the substantive
issues be met head on and decided on the merits, rather than skirted or deflected by
procedural matters. [11]

To recapitulate, the issues that will be ruled upon shortly are:

(1) DOES THE PETITION PRESENT A JUSTICIABLE
CONTROVERSY? OTHERWISE STATED, DOES THE PETITION INVOLVE A
POLITICAL QUESTION OVER WHICH THIS COURT HAS NO JURISDICTION?
(2) DO THE PROVISIONS OF THE WTO AGREEMENT AND ITS THREE ANNEXES
CONTRAVENE SEC. 19, ARTICLE II, AND SECS. 10 AND 12, ARTICLE XII, OF
THE PHILIPPINE CONSTITUTION?
(3) DO THE PROVISIONS OF SAID AGREEMENT AND ITS ANNEXES LIMIT,
RESTRICT, OR IMPAIR THE EXERCISE OF LEGISLATIVE POWER BY
CONGRESS?
(4) DO SAID PROVISIONS UNDULY IMPAIR OR INTERFERE WITH THE EXERCISE
OF JUDICIAL POWER BY THIS COURT IN PROMULGATING RULES ON
EVIDENCE?
(5) WAS THE CONCURRENCE OF THE SENATE IN THE WTO AGREEMENT AND
ITS ANNEXES SUFFICIENT AND/OR VALID, CONSIDERING THAT IT DID NOT
INCLUDE THE FINAL ACT, MINISTERIAL DECLARATIONS AND DECISIONS,
AND THE UNDERSTANDING ON COMMITMENTS IN FINANCIAL SERVICES?

The First Issue: Does the Court Have Jurisdiction Over the Controversy?

In seeking to nullify an act of the Philippine Senate on the ground that it

contravenes the Constitution, the petition no doubt raises a justiciable
controversy. Where an action of the legislative branch is seriously alleged to have
infringed the Constitution, it becomes not only the right but in fact the duty of the
judiciary to settle the dispute. The question thus posed is judicial rather than
political. The duty (to adjudicate) remains to assure that the supremacy of the
Constitution is upheld. Once a controversy as to the application or interpretation of a
[12]

constitutional provision is raised before this Court (as in the instant case), it becomes a
legal issue which the Court is bound by constitutional mandate to decide. [13]

The jurisdiction of this Court to adjudicate the matters raised in the petition is
[14]

clearly set out in the 1987 Constitution, as follows:

[15]

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not 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.

The foregoing text emphasizes the judicial departments duty and power to strike
down grave abuse of discretion on the part of any branch or instrumentality of
government including Congress. It is an innovation in our political law. As explained by
[16]

former Chief Justice Roberto Concepcion, the judiciary is the final arbiter on the
[17]

question of whether or not a branch of government or any of its officials has acted
without jurisdiction or in excess of jurisdiction or so capriciously as to constitute an
abuse of discretion amounting to excess of jurisdiction. This is not only a judicial power
but a duty to pass judgment on matters of this nature.
As this Court has repeatedly and firmly emphasized in many cases, it will not shirk,
[18]

digress from or abandon its sacred duty and authority to uphold the Constitution in
matters that involve grave abuse of discretion brought before it in appropriate cases,
committed by any officer, agency, instrumentality or department of the government.
As the petition alleges grave abuse of discretion and as there is no other plain,
speedy or adequate remedy in the ordinary course of law, we have no hesitation at all in
holding that this petition should be given due course and the vital questions raised
therein ruled upon under Rule 65 of the Rules of Court. Indeed, certiorari, prohibition
and mandamus are appropriate remedies to raise constitutional issues and to review
and/or prohibit/nullify, when proper, acts of legislative and executive officials. On this, we
have no equivocation.
We should stress that, in deciding to take jurisdiction over this petition, this Court
will not review the wisdom of the decision of the President and the Senate in enlisting
the country into the WTO, or pass upon the merits of trade liberalization as a policy
espoused by said international body. Neither will it rule on the propriety of the
governments economic policy of reducing/removing tariffs, taxes, subsidies, quantitative
restrictions, and other import/trade barriers. Rather, it will only exercise its constitutional
duty to determine whether or not there had been a grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of the Senate in ratifying the WTO
Agreement and its three annexes.

Second Issue: The WTO Agreement and Economic Nationalism

 This is the lis mota, the main issue, raised by the petition.
Petitioners vigorously argue that the letter, spirit and intent of the Constitution
mandating economic nationalism are violated by the so-called parity provisions and
national treatment clauses scattered in various parts not only of the WTO Agreement
and its annexes but also in the Ministerial Decisions and Declarations and in the
Understanding on Commitments in Financial Services.
Specifically, the flagship constitutional provisions referred to are Sec. 19, Article II,
and Secs. 10 and 12, Article XII, of the Constitution, which are worded as follows:

Article II

DECLARATION OF PRINCIPLES AND STATE POLICIES

xx xx xx xx

Sec. 19. The State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos.

xx xx xx xx

Article XII

NATIONAL ECONOMY AND PATRIMONY

xx xx xx xx

Sec. 10. x x x. The Congress shall enact measures that will encourage the formation
and operation of enterprises whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national economy and
patrimony, the State shall give preference to qualified Filipinos.

xx xx xx xx

Sec. 12. The State shall promote the preferential use of Filipino labor, domestic
materials and locally produced goods, and adopt measures that help make them
competitive.

Petitioners aver that these sacred constitutional principles are desecrated by the
following WTO provisions quoted in their memorandum: [19]

a) In the area of investment measures related to trade in goods (TRIMS, for

brevity):
 Article 2

National Treatment and Quantitative Restrictions.

1. Without prejudice to other rights and obligations under GATT 1994. no

Member shall apply any TRIM that is inconsistent with the provisions of
Article III or Article XI of GATT 1994.

2. An Illustrative list of TRIMS that are inconsistent with the obligations of

general elimination of quantitative restrictions provided for in paragraph I of
Article XI of GATT 1994 is contained in the Annex to this
Agreement. (Agreement on Trade-Related Investment Measures, Vol. 27,
Uruguay Round, Legal Instruments, p.22121, emphasis supplied).

The Annex referred to reads as follows:

ANNEX

Illustrative List

1. TRIMS that are inconsistent with the obligation of national treatment

provided for in paragraph 4 of Article III of GATT 1994 include those
which are mandatory or enforceable under domestic law or under
administrative rulings, or compliance with which is necessary to obtain an
advantage, and which require:

(a) the purchase or use by an enterprise of products of domestic origin or from

any domestic source, whether specified in terms of particular products, in
terms of volume or value of products, or in terms of proportion of volume
or value of its local production; or

(b) that an enterprises purchases or use of imported products be limited to an

amount related to the volume or value of local products that it exports.

2. TRIMS that are inconsistent with the obligations of general elimination of

quantitative restrictions provided for in paragraph 1 of Article XI of GATT
1994 include those which are mandatory or enforceable under domestic laws or
under administrative rulings, or compliance with which is necessary to obtain
an advantage, and which restrict:

(a) the importation by an enterprise of products used in or related to the local

production that it exports;
 (b) the importation by an enterprise of products used in or related to its local
production by restricting its access to foreign exchange inflows attributable
to the enterprise; or

(c) the exportation or sale for export specified in terms of particular products,
in terms of volume or value of products, or in terms of a preparation of
volume or value of its local production. (Annex to the Agreement on Trade-
Related Investment Measures, Vol. 27, Uruguay Round Legal Documents,
p.22125, emphasis supplied).

The paragraph 4 of Article III of GATT 1994 referred to is quoted as follows:

The products of the territory of any contracting party imported into the territory of any
other contracting party shall be accorded treatment no less favorable than that
accorded to like products of national origin in respect of laws, regulations and
requirements affecting their internal sale, offering for sale, purchase, transportation,
distribution or use. the provisions of this paragraph shall not prevent the application of
differential internal transportation charges which are based exclusively on the
economic operation of the means of transport and not on the nationality of the
product. (Article III, GATT 1947, as amended by the Protocol Modifying Part II, and
Article XXVI of GATT, 14 September 1948, 62 UMTS 82-84 in relation to paragraph
1(a) of the General Agreement on Tariffs and Trade 1994, Vol. 1, Uruguay Round,
Legal Instruments p.177, emphasis supplied).

b) In the area of trade related aspects of intellectual property rights (TRIPS, for
brevity):

Each Member shall accord to the nationals of other Members treatment no less
favourable than that it accords to its own nationals with regard to the protection of
intellectual property... (par. 1, Article 3, Agreement on Trade-Related Aspect of
Intellectual Property rights, Vol. 31, Uruguay Round, Legal Instruments, p.25432
(emphasis supplied)

(c) In the area of the General Agreement on Trade in Services:

National Treatment

1. In the sectors inscribed in its schedule, and subject to any conditions and
qualifications set out therein, each Member shall accord to services and
service suppliers of any other Member, in respect of all measures affecting
the supply of services, treatment no less favourable than it accords to its
own like services and service suppliers.
 2. A Member may meet the requirement of paragraph I by according to
services and service suppliers of any other Member, either formally
identical treatment or formally different treatment to that it accords to its
own like services and service suppliers.

3. Formally identical or formally different treatment shall be considered to be

less favourable if it modifies the conditions of completion in favour of
services or service suppliers of the Member compared to like services or
service suppliers of any other Member. (Article XVII, General Agreement
on Trade in Services, Vol. 28, Uruguay Round Legal Instruments, p.22610
emphasis supplied).

It is petitioners position that the foregoing national treatment and parity provisions of
the WTO Agreement place nationals and products of member countries on the same
footing as Filipinos and local products, in contravention of the Filipino First policy of the
Constitution. They allegedly render meaningless the phrase effectively controlled by
Filipinos. The constitutional conflict becomes more manifest when viewed in the context
of the clear duty imposed on the Philippines as a WTO member to ensure the
conformity of its laws, regulations and administrative procedures with its obligations as
provided in the annexed agreements. Petitioners further argue that these provisions
[20]

contravene constitutional limitations on the role exports play in national development

and negate the preferential treatment accorded to Filipino labor, domestic materials and
locally produced goods.
On the other hand, respondents through the Solicitor General counter (1) that such
Charter provisions are not self-executing and merely set out general policies; (2) that
these nationalistic portions of the Constitution invoked by petitioners should not be read
in isolation but should be related to other relevant provisions of Art. XII, particularly
Secs. 1 and 13 thereof; (3) that read properly, the cited WTO clauses do not conflict with
the Constitution; and (4) that the WTO Agreement contains sufficient provisions to
protect developing countries like the Philippines from the harshness of sudden trade
liberalization.
We shall now discuss and rule on these arguments.

Declaration of Principles Not Self-Executing

By its very title, Article II of the Constitution is a declaration of principles and state
policies. The counterpart of this article in the 1935 Constitution is called the basic
[21]

political creed of the nation by Dean Vicente Sinco. These principles in Article II are
[22]

not intended to be self-executing principles ready for enforcement through the courts.
They are used by the judiciary as aids or as guides in the exercise of its power of
[23]

judicial review, and by the legislature in its enactment of laws. As held in the leading
case of Kilosbayan, Incorporated vs. Morato, the principles and state policies
[24]
enumerated in Article II and some sections of Article XII are not self-executing
provisions, the disregard of which can give rise to a cause of action in the courts.They
do not embody judicially enforceable constitutional rights but guidelines for legislation.
In the same light, we held in Basco vs. Pagcor that broad constitutional principles
[25]

need legislative enactments to implement them, thus:

On petitioners allegation that P.D. 1869 violates Sections 11 (Personal Dignity) 12

(Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article
XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution,
suffice it to state also that these are merely statements of principles and policies. As
such, they are basically not self-executing, meaning a law should be passed by
Congress to clearly define and effectuate such principles.

In general, therefore, the 1935 provisions were not intended to be self-executing

principles ready for enforcement through the courts. They were rather directives
addressed to the executive and to the legislature. If the executive and the legislature
failed to heed the directives of the article, the available remedy was not judicial but
political. The electorate could express their displeasure with the failure of the
executive and the legislature through the language of the ballot. (Bernas, Vol. II, p. 2).

The reasons for denying a cause of action to an alleged infringement of broad

constitutional principles are sourced from basic considerations of due process and the
lack of judicial authority to wade into the uncharted ocean of social and economic policy
making. Mr. Justice Florentino P. Feliciano in his concurring opinion in Oposa vs.
Factoran, Jr., explained these reasons as follows:
[26]

My suggestion is simply that petitioners must, before the trial court, show a more
specific legal right -- a right cast in language of a significantly lower order of
generality than Article II (15) of the Constitution -- that is or may be violated by the
actions, or failures to act, imputed to the public respondent by petitioners so that the
trial court can validly render judgment granting all or part of the relief prayed for. To
my mind, the court should be understood as simply saying that such a more specific
legal right or rights may well exist in our corpus of law, considering the general policy
principles found in the Constitution and the existence of the Philippine Environment
Code, and that the trial court should have given petitioners an effective opportunity so
to demonstrate, instead of aborting the proceedings on a motion to dismiss.

It seems to me important that the legal right which is an essential component of a

cause of action be a specific, operable legal right, rather than a constitutional or
statutory policy, for at least two (2) reasons.One is that unless the legal right claimed
to have been violated or disregarded is given specification in operational terms,
defendants may well be unable to defend themselves intelligently and effectively; in
other words, there are due process dimensions to this matter.

The second is a broader-gauge consideration -- where a specific violation of law or

applicable regulation is not alleged or proved, petitioners can be expected to fall back
on the expanded conception of judicial power in the second paragraph of Section 1 of
Article VIII of the Constitution which reads:

Section 1. x x x

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not 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. (Emphases supplied)

When substantive standards as general as the right to a balanced and healthy ecology
and the right to health are combined with remedial standards as broad ranging as a
grave abuse of discretion amounting to lack or excess of jurisdiction, the result will
be, it is respectfully submitted, to propel courts into the uncharted ocean of social and
economic policy making. At least in respect of the vast area of environmental
protection and management, our courts have no claim to special technical competence
and experience and professional qualification. Where no specific, operable norms and
standards are shown to exist, then the policy making departments -- the legislative and
executive departments -- must be given a real and effective opportunity to fashion and
promulgate those norms and standards, and to implement them before the courts
should intervene.

Economic Nationalism Should Be Read with Other Constitutional Mandates to

Attain Balanced Development of Economy

On the other hand, Secs. 10 and 12 of Article XII, apart from merely laying down
general principles relating to the national economy and patrimony, should be read and
understood in relation to the other sections in said article, especially Secs. 1 and 13
thereof which read:

Section 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. x x x

xxxxxxxxx

Sec. 13. The State shall pursue a trade policy that serves the general welfare and
utilizes all forms and arrangements of exchange on the basis of equality and
reciprocity.

As pointed out by the Solicitor General, Sec. 1 lays down the basic goals of national
economic development, as follows:
1. A more equitable distribution of opportunities, income and wealth;
2. A sustained increase in the amount of goods and services provided by the nation
for the benefit of the people; and
3. An expanding productivity as the key to raising the quality of life for all especially
the underprivileged.
With these goals in context, the Constitution then ordains the ideals of economic
nationalism (1) by expressing preference in favor of qualified Filipinos in the grant of
rights, privileges and concessions covering the national economy and patrimony and [27]

in the use of Filipino labor, domestic materials and locally-produced goods; (2) by
mandating the State to adopt measures that help make them competitive; and (3) by
[28]

requiring the State to develop a self-reliant and independent national economy

effectively controlled by Filipinos. In similar language, the Constitution takes into
[29]

account the realities of the outside world as it requires the pursuit of a trade policy that
serves the general welfare and utilizes all forms and arrangements of exchange on the
basis of equality and reciprocity; and speaks of industries which are competitive in
[30]

both domestic and foreign markets as well as of the protection of Filipino enterprises
against unfair foreign competition and trade practices.
It is true that in the recent case of Manila Prince Hotel vs. Government Service
Insurance System, et al., this Court held that Sec. 10, second par., Art. XII of the 1987
[31]

Constitution is a mandatory, positive command which is complete in itself and which

needs no further guidelines or implementing laws or rules for its enforcement. From its
very words the provision does not require any legislation to put it in operation. It is per
se judicially enforceable. However, as the constitutional provision itself states, it is
enforceable only in regard to the grants of rights, privileges and concessions covering
national economy and patrimony and not to every aspect of trade and commerce. It
refers to exceptions rather than the rule. The issue here is not whether this paragraph of
Sec. 10 of Art. XII is self-executing or not. Rather, the issue is whether, as a rule, there
are enough balancing provisions in the Constitution to allow the Senate to ratify the
Philippine concurrence in the WTO Agreement. And we hold that there are.
All told, while the Constitution indeed mandates a bias in favor of Filipino goods,
services, labor and enterprises, at the same time, it recognizes the need for business
exchange with the rest of the world on the bases of equality and reciprocity and limits
protection of Filipino enterprises only against foreign competition and trade practices
that are unfair. In other words, the Constitution did not intend to pursue an isolationist
[32]

policy. It did not shut out foreign investments, goods and services in the development of
the Philippine economy. While the Constitution does not encourage the unlimited entry
of foreign goods, services and investments into the country, it does not prohibit them
either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning
only on foreign competition that is unfair.

WTO Recognizes Need to Protect Weak Economies

Upon the other hand, respondents maintain that the WTO itself has some built-in
advantages to protect weak and developing economies, which comprise the vast
majority of its members. Unlike in the UN where major states have permanent seats and
veto powers in the Security Council, in the WTO, decisions are made on the basis of
sovereign equality, with each members vote equal in weight to that of any other. There
is no WTO equivalent of the UN Security Council.

WTO decides by consensus whenever possible, otherwise, decisions of the Ministerial

Conference and the General Council shall be taken by the majority of the votes cast,
except in cases of interpretation of the Agreement or waiver of the obligation of a
member which would require three fourths vote. Amendments would require two
thirds vote in general. Amendments to MFN provisions and the Amendments
provision will require assent of all members. Any member may withdraw from the
Agreement upon the expiration of six months from the date of notice of withdrawals. [33]

Hence, poor countries can protect their common interests more effectively through
the WTO than through one-on-one negotiations with developed countries. Within the
WTO, developing countries can form powerful blocs to push their economic agenda
more decisively than outside the Organization. This is not merely a matter of practical
alliances but a negotiating strategy rooted in law. Thus, the basic principles underlying
the WTO Agreement recognize the need of developing countries like the Philippines to
share in the growth in international trade commensurate with the needs of their
economic development. These basic principles are found in the preamble of the WTO
[34]

Agreement as follows:

The Parties to this Agreement,

Recognizing that their relations in the field of trade and economic endeavour should
be conducted with a view to raising standards of living, ensuring full employment and
a large and steadily growing volume of real income and effective demand, and
expanding the production of and trade in goods and services, while allowing for the
optimal use of the worlds resources in accordance with the objective of sustainable
development, seeking both to protect and preserve the environment and to enhance the
means for doing so in a manner consistent with their respective needs and concerns at
different levels of economic development,

Recognizing further that there is need for positive efforts designed to ensure that
developing countries, and especially the least developed among them, secure a share
in the growth in international trade commensurate with the needs of their economic
development,

Being desirous of contributing to these objectives by entering into reciprocal and

mutually advantageous arrangements directed to the substantial reduction of tariffs
and other barriers to trade and to the elimination of discriminatory treatment in
international trade relations,

Resolved, therefore, to develop an integrated, more viable and durable multilateral

trading system encompassing the General Agreement on Tariffs and Trade, the results
of past trade liberalization efforts, and all of the results of the Uruguay Round of
Multilateral Trade Negotiations,

Determined to preserve the basic principles and to further the objectives underlying
this multilateral trading system, x x x. (underscoring supplied.)

Specific WTO Provisos Protect Developing Countries

So too, the Solicitor General points out that pursuant to and consistent with the
foregoing basic principles, the WTO Agreement grants developing countries a more
lenient treatment, giving their domestic industries some protection from the rush of
foreign competition. Thus, with respect to tariffs in general, preferential treatment is
given to developing countries in terms of the amount of tariff reduction and the period
within which the reduction is to be spread out. Specifically, GATT requires an average
tariff reduction rate of 36% for developed countries to be effected within a period of six
(6) years while developing countries -- including the Philippines -- are required to effect
an average tariff reduction of only 24% within ten (10) years.
In respect to domestic subsidy, GATT requires developed countries to reduce
domestic support to agricultural products by 20% over six (6) years, as compared
to only 13% for developing countries to be effected within ten (10) years.
 In regard to export subsidy for agricultural products, GATT requires developed
countries to reduce their budgetary outlays for export subsidy by 36% and export
volumes receiving export subsidy by 21% within a period of six (6) years. For
developing countries, however, the reduction rate is only two-thirds of that prescribed for
developed countries and a longer period of ten (10) years within which to effect such
reduction.
Moreover, GATT itself has provided built-in protection from unfair foreign
competition and trade practices including anti-dumping measures, countervailing
measures and safeguards against import surges. Where local businesses are
jeopardized by unfair foreign competition, the Philippines can avail of these
measures. There is hardly therefore any basis for the statement that under the WTO,
local industries and enterprises will all be wiped out and that Filipinos will be deprived of
control of the economy. Quite the contrary, the weaker situations of developing nations
like the Philippines have been taken into account; thus, there would be no basis to say
that in joining the WTO, the respondents have gravely abused their discretion.True, they
have made a bold decision to steer the ship of state into the yet uncharted sea of
economic liberalization. But such decision cannot be set aside on the ground of grave
abuse of discretion, simply because we disagree with it or simply because we believe
only in other economic policies. As earlier stated, the Court in taking jurisdiction of this
case will not pass upon the advantages and disadvantages of trade liberalization as an
economic policy. It will only perform its constitutional duty of determining whether the
Senate committed grave abuse of discretion.

Constitution Does Not Rule Out Foreign Competition

Furthermore, the constitutional policy of a self-reliant and independent national

economy does not necessarily rule out the entry of foreign investments, goods and
[35]

services. It contemplates neither economic seclusion nor mendicancy in the

international community. As explained by Constitutional Commissioner Bernardo
Villegas, sponsor of this constitutional policy:

Economic self-reliance is a primary objective of a developing country that is keenly

aware of overdependence on external assistance for even its most basic needs. It does
not mean autarky or economic seclusion; rather, it means avoiding mendicancy in the
international community. Independence refers to the freedom from undue foreign
control of the national economy, especially in such strategic industries as in the
development of natural resources and public utilities. [36]

The WTO reliance on most favored nation, national treatment, and trade without
discrimination cannot be struck down as unconstitutional as in fact they are rules of
equality and reciprocity that apply to all WTO members. Aside from envisioning a trade
policy based on equality and reciprocity, the fundamental law encourages industries
[37]

that are competitive in both domestic and foreign markets, thereby demonstrating a
clear policy against a sheltered domestic trade environment, but one in favor of the
gradual development of robust industries that can compete with the best in the foreign
markets. Indeed, Filipino managers and Filipino enterprises have shown capability and
tenacity to compete internationally. And given a free trade environment, Filipino
entrepreneurs and managers in Hongkong have demonstrated the Filipino capacity to
grow and to prosper against the best offered under a policy of laissez faire.

Constitution Favors Consumers, Not Industries or Enterprises

The Constitution has not really shown any unbalanced bias in favor of any business
or enterprise, nor does it contain any specific pronouncement that Filipino companies
should be pampered with a total
proscription of foreign competition. On the other hand, respondents claim that
WTO/GATT aims to make available to the Filipino consumer the best goods and
services obtainable anywhere in the world at the most reasonable prices. Consequently,
the question boils down to whether WTO/GATT will favor the general welfare of the
public at large.
Will adherence to the WTO treaty bring this ideal (of favoring the general welfare) to
reality?
Will WTO/GATT succeed in promoting the Filipinos general welfare because it will --
as promised by its promoters -- expand the countrys exports and generate more
employment?
Will it bring more prosperity, employment, purchasing power and quality products at
the most reasonable rates to the Filipino public?
The responses to these questions involve judgment calls by our policy makers, for
which they are answerable to our people during appropriate electoral exercises. Such
questions and the answers thereto are not subject to judicial pronouncements based on
grave abuse of discretion.

Constitution Designed to Meet Future Events and Contingencies

No doubt, the WTO Agreement was not yet in existence when the Constitution was
drafted and ratified in 1987. That does not mean however that the Charter is necessarily
flawed in the sense that its framers might not have anticipated the advent of a
borderless world of business. By the same token, the United Nations was not yet in
existence when the 1935 Constitution became effective. Did that necessarily mean that
the then Constitution might not have contemplated a diminution of the absoluteness of
sovereignty when the Philippines signed the UN Charter, thereby effectively
surrendering part of its control over its foreign relations to the decisions of various UN
organs like the Security Council?
 It is not difficult to answer this question. Constitutions are designed to meet not only
the vagaries of contemporary events. They should be interpreted to cover even future
and unknown circumstances. It is to the credit of its drafters that a Constitution can
withstand the assaults of bigots and infidels but at the same time bend with the
refreshing winds of change necessitated by unfolding events. As one eminent political
law writer and respected jurist explains:
[38]

The Constitution must be quintessential rather than superficial, the root and not the
blossom, the base and framework only of the edifice that is yet to rise. It is but the
core of the dream that must take shape, not in a twinkling by mandate of our
delegates, but slowly in the crucible of Filipino minds and hearts, where it will in time
develop its sinews and gradually gather its strength and finally achieve its
substance. In fine, the Constitution cannot, like the goddess Athena, rise full-grown
from the brow of the Constitutional Convention, nor can it conjure by mere fiat an
instant Utopia. It must grow with the society it seeks to re-structure and march apace
with the progress of the race, drawing from the vicissitudes of history the dynamism
and vitality that will keep it, far from becoming a petrified rule, a pulsing, living law
attuned to the heartbeat of the nation.

Third Issue: The WTO Agreement and Legislative Power

The WTO Agreement provides that (e)ach Member shall ensure the conformity of its
laws, regulations and administrative procedures with its obligations as provided in the
annexed Agreements. Petitioners maintain that this undertaking unduly limits, restricts
[39]

and impairs Philippine sovereignty, specifically the legislative power which under Sec. 2,
Article VI of the 1987 Philippine Constitution is vested in the Congress of the
Philippines. It is an assault on the sovereign powers of the Philippines because this
means that Congress could not pass legislation that will be good for our national interest
and general welfare if such legislation will not conform with the WTO Agreement, which
not only relates to the trade in goods x x x but also to the flow of investments and
money x x x as well as to a whole slew of agreements on socio-cultural matters x x x. [40]

More specifically, petitioners claim that said WTO proviso derogates from the power
to tax, which is lodged in the Congress. And while the Constitution allows Congress to
[41]

authorize the President to fix tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts, such authority is subject to specified limits
and x x x such limitations and restrictions as Congress may provide, as in fact it did
[42]

under Sec. 401 of the Tariff and Customs Code.

Sovereignty Limited by International Law and Treaties

 This Court notes and appreciates the ferocity and passion by which petitioners
stressed their arguments on this issue. However, while sovereignty has traditionally
been deemed absolute and all-encompassing on the domestic level, it is however
subject to restrictions and limitations voluntarily agreed to by the Philippines, expressly
or impliedly, as a member of the family of nations. Unquestionably, the Constitution did
not envision a hermit-type isolation of the country from the rest of the world. In its
Declaration of Principles and State Policies, the Constitution adopts the generally
accepted principles of international law as part of the law of the land, and adheres to the
policy of peace, equality, justice, freedom, cooperation and amity, with all nations." By [43]

the doctrine of incorporation, the country is bound by generally accepted principles of

international law, which are considered to be automatically part of our own laws. One
[44]

of the oldest and most fundamental rules in international law is pacta sunt servanda --
international agreements must be performed in good faith. A treaty engagement is not a
mere moral obligation but creates a legally binding obligation on the parties x x x. A
state which has contracted valid international obligations is bound to make in its
legislations such modifications as may be necessary to ensure the fulfillment of the
obligations undertaken. [45]

By their inherent nature, treaties really limit or restrict the absoluteness of

sovereignty. By their voluntary act, nations may surrender some aspects of their state
power in exchange for greater benefits granted by or derived from a convention or
pact. After all, states, like individuals, live with coequals, and in pursuit of mutually
covenanted objectives and benefits, they also commonly agree to limit the exercise of
their otherwise absolute rights. Thus, treaties have been used to record agreements
between States concerning such widely diverse matters as, for example, the lease of
naval bases, the sale or cession of territory, the termination of war, the regulation of
conduct of hostilities, the formation of alliances, the regulation of commercial relations,
the settling of claims, the laying down of rules governing conduct in peace and the
establishment of international organizations. The sovereignty of a state therefore
[46]

cannot in fact and in reality be considered absolute. Certain restrictions enter into the
picture: (1) limitations imposed by the very nature of membership in the family of nations
and (2) limitations imposed by treaty stipulations. As aptly put by John F. Kennedy,
Today, no nation can build its destiny alone. The age of self-sufficient nationalism is
over. The age of interdependence is here. [47]

UN Charter and Other Treaties Limit Sovereignty

Thus, when the Philippines joined the United Nations as one of its 51 charter
members, it consented to restrict its sovereign rights under the concept of sovereignty
as auto-limitation.47-A Under Article 2 of the UN Charter, (a)ll members shall give the
United Nations every assistance in any action it takes in accordance with the present
Charter, and shall refrain from giving assistance to any state against which the United
Nations is taking preventive or enforcement action. Such assistance includes payment
of its corresponding share not merely in administrative expenses but also in
expenditures for the peace-keeping operations of the organization. In its advisory
opinion of July 20, 1961, the International Court of Justice held that money used by the
United Nations Emergency Force in the Middle East and in the Congo were expenses of
the United Nations under Article 17, paragraph 2, of the UN Charter. Hence, all its
members must bear their corresponding share in such expenses. In this sense, the
Philippine Congress is restricted in its power to appropriate. It is compelled to
appropriate funds whether it agrees with such peace-keeping expenses or not. So too,
under Article 105 of the said Charter, the UN and its representatives enjoy diplomatic
privileges and immunities, thereby limiting again the exercise of sovereignty of members
within their own territory. Another example: although sovereign equality and domestic
jurisdiction of all members are set forth as underlying principles in the UN Charter,
such provisos are however subject to enforcement measures decided by the Security
Council for the maintenance of international peace and security under Chapter VII of the
Charter. A final example: under Article 103, (i)n the event of a conflict between the
obligations of the Members of the United Nations under the present Charter and their
obligations under any other international agreement, their obligation under the present
charter shall prevail, thus unquestionably denying the Philippines -- as a member -- the
sovereign power to make a choice as to which of conflicting obligations, if any, to honor.
Apart from the UN Treaty, the Philippines has entered into many other international
pacts -- both bilateral and multilateral -- that involve limitations on Philippine
sovereignty. These are enumerated by the Solicitor General in his Compliance dated
October 24, 1996, as follows:

(a) Bilateral convention with the United States regarding taxes on income, where
the Philippines agreed, among others, to exempt from tax, income received in
the Philippines by, among others, the Federal Reserve Bank of the United
States, the Export/Import Bank of the United States, the Overseas Private
Investment Corporation of the United States. Likewise, in said convention,
wages, salaries and similar remunerations paid by the United States to its
citizens for labor and personal services performed by them as employees or
officials of the United States are exempt from income tax by the Philippines.

(b) Bilateral agreement with Belgium, providing, among others, for the avoidance
of double taxation with respect to taxes on income.

(c) Bilateral convention with the Kingdom of Sweden for the avoidance of double
taxation.

(d) Bilateral convention with the French Republic for the avoidance of double
taxation.

(e) Bilateral air transport agreement with Korea where the Philippines agreed to
exempt from all customs duties, inspection fees and other duties or taxes
aircrafts of South Korea and the regular equipment, spare parts and supplies
arriving with said aircrafts.
 (f) Bilateral air service agreement with Japan, where the Philippines agreed to
exempt from customs duties, excise taxes, inspection fees and other similar
duties, taxes or charges fuel, lubricating oils, spare parts, regular equipment,
stores on board Japanese aircrafts while on Philippine soil.

(g) Bilateral air service agreement with Belgium where the Philippines granted
Belgian air carriers the same privileges as those granted to Japanese and
Korean air carriers under separate air service agreements.

(h) Bilateral notes with Israel for the abolition of transit and visitor visas where
the Philippines exempted Israeli nationals from the requirement of obtaining
transit or visitor visas for a sojourn in the Philippines not exceeding 59 days.

(I) Bilateral agreement with France exempting French nationals from the
requirement of obtaining transit and visitor visa for a sojourn not exceeding 59
days.

(j) Multilateral Convention on Special Missions, where the Philippines agreed that
premises of Special Missions in the Philippines are inviolable and its agents
can not enter said premises without consent of the Head of Mission
concerned. Special Missions are also exempted from customs duties, taxes and
related charges.

(k) Multilateral Convention on the Law of Treaties. In this convention, the

Philippines agreed to be governed by the Vienna Convention on the Law of
Treaties.

(l) Declaration of the President of the Philippines accepting compulsory

jurisdiction of the International Court of Justice. The International Court of
Justice has jurisdiction in all legal disputes concerning the interpretation of a
treaty, any question of international law, the existence of any fact which, if
established, would constitute a breach of international obligation.

In the foregoing treaties, the Philippines has effectively agreed to limit the exercise
of its sovereign powers of taxation, eminent domain and police power. The underlying
consideration in this partial surrender of sovereignty is the reciprocal commitment of the
other contracting states in granting the same privilege and immunities to the Philippines,
its officials and its citizens. The same reciprocity characterizes the Philippine
commitments under WTO-GATT.

International treaties, whether relating to nuclear disarmament, human rights, the

environment, the law of the sea, or trade, constrain domestic political sovereignty
through the assumption of external obligations. But unless anarchy in international
relations is preferred as an alternative, in most cases we accept that the benefits of the
reciprocal obligations involved outweigh the costs associated with any loss of political
sovereignty. (T)rade treaties that structure relations by reference to durable, well-
defined substantive norms and objective dispute resolution procedures reduce the risks
of larger countries exploiting raw economic power to bully smaller countries, by
subjecting power relations to some form of legal ordering. In addition, smaller
countries typically stand to gain disproportionately from trade liberalization. This is
due to the simple fact that liberalization will provide access to a larger set of potential
new trading relationship than in case of the larger country gaining enhanced success to
the smaller countrys market. [48]

The point is that, as shown by the foregoing treaties, a portion of sovereignty may
be waived without violating the Constitution, based on the rationale that the Philippines
adopts the generally accepted principles of international law as part of the law of the
land and adheres to the policy of x x x cooperation and amity with all nations.

Fourth Issue: The WTO Agreement and Judicial Power

Petitioners aver that paragraph 1, Article 34 of the General Provisions and Basic
Principles of the Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS) intrudes on the power of the Supreme Court to promulgate rules concerning
[49]

pleading, practice and procedures. [50]

To understand the scope and meaning of Article 34, TRIPS, it will be fruitful to
[51]

restate its full text as follows:

Article 34

Process Patents: Burden of Proof

1. For the purposes of civil proceedings in respect of the infringement of the rights
of the owner referred to in paragraph 1(b) of Article 28, if the subject matter of a
patent is a process for obtaining a product, the judicial authorities shall have the
authority to order the defendant to prove that the process to obtain an identical
product is different from the patented process. Therefore, Members shall provide,
in at least one of the following circumstances, that any identical product when
produced without the consent of the patent owner shall, in the absence of proof to
the contrary, be deemed to have been obtained by the patented process:

(a) if the product obtained by the patented process is new;

 (b) if there is a substantial likelihood that the identical product was made by
the process and the owner of the patent has been unable through
reasonable efforts to determine the process actually used.

2. Any Member shall be free to provide that the burden of proof indicated in
paragraph 1 shall be on the alleged infringer only if the condition referred to in
subparagraph (a) is fulfilled or only if the condition referred to in subparagraph
(b) is fulfilled.

3. In the adduction of proof to the contrary, the legitimate interests of defendants

in protecting their manufacturing and business secrets shall be taken into account.

From the above, a WTO Member is required to provide a rule of disputable (note
the words in the absence of proof to the contrary) presumption that a product shown to
be identical to one produced with the use of a patented process shall be deemed to
have been obtained by the (illegal) use of the said patented process, (1) where such
product obtained by the patented product is new, or (2) where there is substantial
likelihood that the identical product was made with the use of the said patented process
but the owner of the patent could not determine the exact process used in obtaining
such identical product. Hence, the burden of proof contemplated by Article 34 should
actually be understood as the duty of the alleged patent infringer to overthrow such
presumption. Such burden, properly understood, actually refers to the burden of
evidence (burden of going forward) placed on the producer of the identical (or fake)
product to show that his product was produced without the use of the patented process.
The foregoing notwithstanding, the patent owner still has the burden of proof since,
regardless of the presumption provided under paragraph 1 of Article 34, such owner still
has to introduce evidence of the existence of the alleged identical product, the fact that
it is identical to the genuine one produced by the patented process and the fact of
newness of the genuine product or the fact of substantial likelihood that the identical
product was made by the patented process.
The foregoing should really present no problem in changing the rules of evidence as
the present law on the subject, Republic Act No. 165, as amended, otherwise known as
the Patent Law, provides a similar presumption in cases of infringement of patented
design or utility model, thus:

SEC. 60. Infringement. - Infringement of a design patent or of a patent for utility

model shall consist in unauthorized copying of the patented design or utility model for
the purpose of trade or industry in the article or product and in the making, using or
selling of the article or product copying the patented design or utility model. Identity
or substantial identity with the patented design or utility model shall constitute
evidence of copying. (underscoring supplied)
 Moreover, it should be noted that the requirement of Article 34 to provide a
disputable presumption applies only if (1) the product obtained by the patented process
is NEW or (2) there is a substantial likelihood that the identical product was made by the
process and the process owner has not been able through reasonable effort to
determine the process used. Where either of these two provisos does not obtain,
members shall be free to determine the appropriate method of implementing the
provisions of TRIPS within their own internal systems and processes.
By and large, the arguments adduced in connection with our disposition of the third
issue -- derogation of legislative power - will apply to this fourth issue also. Suffice it to
say that the reciprocity clause more than justifies such intrusion, if any actually
exists. Besides, Article 34 does not contain an unreasonable burden, consistent as it is
with due process and the concept of adversarial dispute settlement inherent in our
judicial system.
So too, since the Philippine is a signatory to most international conventions on
patents, trademarks and copyrights, the adjustment in legislation and rules of procedure
will not be substantial.
[52]

Fifth Issue: Concurrence Only in the WTO Agreement and Not in Other
Documents Contained in the Final Act

Petitioners allege that the Senate concurrence in the WTO Agreement and its
annexes -- but not in the other documents referred to in the Final Act, namely the
Ministerial Declaration and Decisions and the Understanding on Commitments in
Financial Services -- is defective and insufficient and thus constitutes abuse of
discretion. They submit that such concurrence in the WTO Agreement alone is flawed
because it is in effect a rejection of the Final Act, which in turn was the document signed
by Secretary Navarro, in representation of the Republic upon authority of the
President. They contend that the second letter of the President to the Senate which [53]

enumerated what constitutes the Final Act should have been the subject of concurrence
of the Senate.
A final act, sometimes called protocol de clture, is an instrument which records
the winding up of the proceedings of a diplomatic conference and usually includes a
reproduction of the texts of treaties, conventions, recommendations and other acts
agreed upon and signed by the plenipotentiaries attending the conference. It is not the
[54]

treaty itself. It is rather a summary of the proceedings of a protracted conference which

may have taken place over several years. The text of the Final Act Embodying the
Results of the Uruguay Round of Multilateral Trade Negotiations is contained in just one
page in Vol. I of the 36-volume Uruguay Round of Multilateral Trade Negotiations. By
[55]

signing said Final Act, Secretary Navarro as representative of the Republic of the
Philippines undertook:
 "(a) to submit, as appropriate, the WTO Agreement for the consideration of their
respective competent authorities with a view to seeking approval of the
Agreement in accordance with their procedures; and

(b) to adopt the Ministerial Declarations and Decisions."

The assailed Senate Resolution No. 97 expressed concurrence in exactly what the
Final Act required from its signatories, namely, concurrence of the Senate in the WTO
Agreement.
The Ministerial Declarations and Decisions were deemed adopted without need for
ratification. They were approved by the ministers by virtue of Article XXV: 1 of GATT
which provides that representatives of the members can meet to give effect to those
provisions of this Agreement which invoke joint action, and generally with a view to
facilitating the operation and furthering the objectives of this Agreement.
[56]

The Understanding on Commitments in Financial Services also approved in

Marrakesh does not apply to the Philippines. It applies only to those 27 Members which
have indicated in their respective schedules of commitments on standstill, elimination of
monopoly, expansion of operation of existing financial service suppliers, temporary entry
of personnel, free transfer and processing of information, and national treatment with
respect to access to payment, clearing systems and refinancing available in the normal
course of business.[57]

On the other hand, the WTO Agreement itself expresses what multilateral
agreements are deemed included as its integral parts, as follows:
[58]

Article II

Scope of the WTO

1. The WTO shall provide the common institutional framework for the conduct of
trade relations among its Members in matters to the agreements and associated
legal instruments included in the Annexes to this Agreement.

2. The Agreements and associated legal instruments included in Annexes 1, 2, and

3 (hereinafter referred to as Multilateral Agreements) are integral parts of this
Agreement, binding on all Members.

3. The Agreements and associated legal instruments included in Annex 4

(hereinafter referred to as Plurilateral Trade Agreements) are also part of this
Agreement for those Members that have accepted them, and are binding on those
Members. The Plurilateral Trade Agreements do not create either obligation or
rights for Members that have not accepted them.
 4. The General Agreement on Tariffs and Trade 1994 as specified in annex 1A
(hereinafter referred to as GATT 1994) is legally distinct from the General
Agreement on Tariffs and Trade, dated 30 October 1947, annexed to the Final Act
adopted at the conclusion of the Second Session of the Preparatory Committee of
the United Nations Conference on Trade and Employment, as subsequently
rectified, amended or modified (hereinafter referred to as GATT 1947).

It should be added that the Senate was well-aware of what it was concurring in as
shown by the members deliberation on August 25, 1994. After reading the letter of
President Ramos dated August 11, 1994, the senators of the Republic minutely
[59]

dissected what the Senate was concurring in, as follows: [60]

THE CHAIRMAN: Yes. Now, the question of the validity of the submission came up
in the first day hearing of this Committee yesterday. Was the observation made by
Senator Taada that what was submitted to the Senate was not the agreement on
establishing the World Trade Organization by the final act of the Uruguay Round
which is not the same as the agreement establishing the World Trade Organization?
And on that basis, Senator Tolentino raised a point of order which, however, he agreed
to withdraw upon understanding that his suggestion for an alternative solution at that
time was acceptable. That suggestion was to treat the proceedings of the Committee as
being in the nature of briefings for Senators until the question of the submission could
be clarified.

And so, Secretary Romulo, in effect, is the President submitting a new... is he making
a new submission which improves on the clarity of the first submission?

MR. ROMULO: Mr. Chairman, to make sure that it is clear cut and there should be no
misunderstanding, it was his intention to clarify all matters by giving this letter.

THE CHAIRMAN: Thank you.

Can this Committee hear from Senator Taada and later on Senator Tolentino since
they were the ones that raised this question yesterday?

Senator Taada, please.

SEN. TAADA: Thank you, Mr. Chairman.

Based on what Secretary Romulo has read, it would now clearly appear that what is
being submitted to the Senate for ratification is not the Final Act of the Uruguay
Round, but rather the Agreement on the World Trade Organization as well as the
Ministerial Declarations and Decisions, and the Understanding and Commitments in
Financial Services.
I am now satisfied with the wording of the new submission of President Ramos.

SEN. TAADA. . . . of President Ramos, Mr. Chairman.

THE CHAIRMAN. Thank you, Senator Taada. Can we hear from Senator
Tolentino? And after him Senator Neptali Gonzales and Senator Lina.

SEN TOLENTINO, Mr. Chairman, I have not seen the new submission actually
transmitted to us but I saw the draft of his earlier, and I think it now complies with the
provisions of the Constitution, and with the Final Act itself. The Constitution does not
require us to ratify the Final Act. It requires us to ratify the Agreement which is now
being submitted. The Final Act itself specifies what is going to be submitted to with
the governments of the participants.

In paragraph 2 of the Final Act, we read and I quote:

By signing the present Final Act, the representatives agree: (a) to submit as
appropriate the WTO Agreement for the consideration of the respective competent
authorities with a view to seeking approval of the Agreement in accordance with their
procedures.

In other words, it is not the Final Act that was agreed to be submitted to the
governments for ratification or acceptance as whatever their constitutional procedures
may provide but it is the World Trade Organization Agreement. And if that is the one
that is being submitted now, I think it satisfies both the Constitution and the Final Act
itself.

Thank you, Mr. Chairman.

THE CHAIRMAN. Thank you, Senator Tolentino, May I call on Senator Gonzales.

SEN. GONZALES. Mr. Chairman, my views on this matter are already a matter of
record. And they had been adequately reflected in the journal of yesterdays session
and I dont see any need for repeating the same.

Now, I would consider the new submission as an act ex abudante cautela.

THE CHAIRMAN. Thank you, Senator Gonzales. Senator Lina, do you want to make
any comment on this?
SEN. LINA. Mr. President, I agree with the observation just made by Senator
Gonzales out of the abundance of question. Then the new submission is, I believe,
stating the obvious and therefore I have no further comment to make.

Epilogue

In praying for the nullification of the Philippine ratification of the WTO Agreement,
petitioners are invoking this Courts constitutionally imposed duty to determine whether
or not there has been grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the Senate in giving its concurrence therein via Senate
Resolution No. 97. Procedurally, a writ of certiorari grounded on grave abuse of
discretion may be issued by the Court under Rule 65 of the Rules of Court when it is
amply shown that petitioners have no other plain, speedy and adequate remedy in the
ordinary course of law.
By grave abuse of discretion is meant such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction. Mere abuse of discretion is not
[61]

enough. It must be grave abuse of discretion as when the power is exercised in an

arbitrary or despotic manner by reason of passion or personal hostility, and must be so
patent and so gross as to amount to an evasion of a positive duty or to a virtual refusal
to perform the duty enjoined or to act at all in contemplation of law. Failure on the part
[62]

of the petitioner to show grave abuse of discretion will result in the dismissal of the
petition.
[63]

In rendering this Decision, this Court never forgets that the Senate, whose act is
under review, is one of two sovereign houses of Congress and is thus entitled to great
respect in its actions. It is itself a constitutional body independent and coordinate, and
thus its actions are presumed regular and done in good faith. Unless convincing proof
and persuasive arguments are presented to overthrow such presumptions, this Court
will resolve every doubt in its favor. Using the foregoing well-accepted definition of grave
abuse of discretion and the presumption of regularity in the Senates processes, this
Court cannot find any cogent reason to impute grave abuse of discretion to the Senates
exercise of its power of concurrence in the WTO Agreement granted it by Sec. 21 of
Article VII of the Constitution.
[64]

It is true, as alleged by petitioners, that broad constitutional principles require the

State to develop an independent national economy effectively controlled by Filipinos;
and to protect and/or prefer Filipino labor, products, domestic materials and locally
produced goods. But it is equally true that such principles -- while serving as judicial and
legislative guides -- are not in themselves sources of causes of action. Moreover, there
are other equally fundamental constitutional principles relied upon by the Senate which
mandate the pursuit of a trade policy that serves the general welfare and utilizes all
forms and arrangements of exchange on the basis of equality and reciprocity and the
promotion of industries which are competitive in both domestic and foreign markets,
thereby justifying its acceptance of said treaty. So too, the alleged impairment of
sovereignty in the exercise of legislative and judicial powers is balanced by the adoption
of the generally accepted principles of international law as part of the law of the land
and the adherence of the Constitution to the policy of cooperation and amity with all
nations.
That the Senate, after deliberation and voting, voluntarily and overwhelmingly gave
its consent to the WTO Agreement thereby making it a part of the law of the land is a
legitimate exercise of its sovereign duty and power. We find no patent and gross
arbitrariness or despotism by reason of passion or personal hostility in such exercise. It
is not impossible to surmise that this Court, or at least some of its members, may even
agree with petitioners that it is more advantageous to the national interest to strike down
Senate Resolution No. 97. But that is not a legal reason to attribute grave abuse of
discretion to the Senate and to nullify its decision. To do so would constitute grave
abuse in the exercise of our own judicial power and duty.Ineludably, what the Senate did
was a valid exercise of its authority. As to whether such exercise was wise, beneficial or
viable is outside the realm of judicial inquiry and review. That is a matter between the
elected policy makers and the people. As to whether the nation should join the
worldwide march toward trade liberalization and economic globalization is a matter that
our people should determine in electing their policy makers. After all, the WTO
Agreement allows withdrawal of membership, should this be the political desire of a
member.
The eminent futurist John Naisbitt, author of the best seller Megatrends, predicts an
Asian Renaissance where the East will become the dominant region of the world
[65]

economically, politically and culturally in the next century. He refers to the free market
espoused by WTO as the catalyst in this coming Asian ascendancy. There are at
present about 31 countries including China, Russia and Saudi Arabia negotiating for
membership in the WTO. Notwithstanding objections against possible limitations on
national sovereignty, the WTO remains as the only viable structure for multilateral
trading and the veritable forum for the development of international trade law. The
alternative to WTO is isolation, stagnation, if not economic self-destruction. Duly
enriched with original membership, keenly aware of the advantages and disadvantages
of globalization with its on-line experience, and endowed with a vision of the future, the
Philippines now straddles the crossroads of an international strategy for economic
prosperity and stability in the new millennium. Let the people, through their duly
authorized elected officers, make their free choice.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Kapunan,
Mendoza, Francisco, Hermosisima, Jr., and Torres, Jr., JJ., concur.
Padilla, and Vitug, JJ., in the result.

In Annex A of her Memorandum, dated August 8, 1996, received by this Court on August 12, 1996,
[1]

Philippine Ambassador to the United Nations, World Trade Organization and other international
organizations Lilia R. Bautista (hereafter referred to as Bautista Paper) submitted a 46-year Chronology of
GATT as follows:
1947 The birth of GATT. On 30 October 1947, the General Agreement on Tariffs and
Trade (GATT) was signed by 23 nations at the Palais des Nations in
Geneva. The Agreement contained tariff concessions agreed to in the first
multilateral trade negotiations and a set of rules designed to prevent these
concessions from being frustrated by restrictive trade measures.
The 23 founding contracting parties were members of the Preparatory Committee
established by the United Nations Economic and Social Council in 1946 to draft
the charter of the International Trade Organization (ITO). The ITO was envisaged
as the final leg of a triad of post-War economic agencies (the other two were the
International Monetary Fund and the International Bank for Reconstruction - later
the World Bank).
In parallel with this task, the Committee members decided to negotiate tariff concessions
among themselves. From April to October 1947, the participants completed some
123 negotiations and established 20 schedules containing the tariff reductions
and bindings which became an integral part of GATT. These schedules resulting
from the first Round covered some 45,000 tariff concessions and about $10
billion in trade.
GATT was conceived as an interim measure that put into effect the commercial-policy
provisions of the ITO. In November, delegations from 56 countries met in
Havana, Cuba, to consider the ITO draft as a whole.After long and difficult
negotiations, some 53 countries signed the Final Act authenticating the text of the
Havana Charter in March 1948. There was no commitment, however, from
governments to ratification and, in the end, the ITO was stillborn, leaving GATT
as the only international instrument governing the conduct of world trade.
1948 Entry into force. On 1 January 1948, GATT entered into force. The 23 founding
members were: Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China,
Cuba, Czechoslovakia, France, India, Lebanon, Luxemburg, Netherlands, New
Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, United
Kingdom and United States. The first Session of the contracting parties was held
from February to March in Havana, Cuba. The secretariat of the Interim
Commission for the ITO, which served as the ad hoc secretariat of GATT, move
from lake Placid, New York, to Geneva. The Contracting Parties held their
second session in Geneva from August to September.
1949 Second Round at Annecy. During the second Round of trade negotiations, held
from April to August at Annecy, France, the contracting parties exchange some
5,000 tariff concession. At their third Session, they also dealt with the accession
of ten more countries.
1950 Third Round At Torquay. From September 1950 to April 1951, the contracting
parties exchange some 8,700 tariff concessions in the English town, yielding tariff
reduction of about 25 per cent in relation to the 1948 level. Four more countries
acceded to GATT. During the fifth Session of the Contracting Parties, the United
States indicated that the ITO Charter would not be re-submitted to the US
congress; this, in effect, meant that ITO would not come into operation.
1956 Fourth Round at Geneva. The fourth Round was completed in May and produce
some $2.5 billion worth of tariff reductions. At the beginning of the year, the GATT
commercial policy course for officials of developing countries was inaugurated.
1958 The Haberler Report. GATT published Trends in International Trade in
October. Known as the "Haberler Report" in honour of Professor Gottfried
 Haberler, the chairman of the panel of imminent economist, it provided initial
guidelines for the work of GATT. The Contracting Parties at their 13th Sessions,
attended by Ministers, subsequently established 3 committees in
GATT: Committee I to convene a further tariff negotiating conference; Committee
II To review the agricultural policies of member governments and Committee III to
tackle the problems facing developing countries in their trade. The establishment
of the European Economic Community during the previous year also demanded
large scale tariff negotiation under Article XXIV 6 of the General Agreement.
1960 The Dillon Round. The fifth Round opened in September and was divided into two
phases: the first was concerned with EEC members states for the creation of a
single schedule of concessions for the Community based on its Common
External Tariff; and the second was a further general round of tariff
negotiations. Named in honor of US Under-Secretary of State Douglas Dillon
who proposed the negotiations, the Round was concluded in July 1962 and
resulted in about 4,400 tariff concessions covering $4.9 billion of trade.
1961 The Short-Term Arrangement covering cotton textiles was agreed as an exception
to the GATT rules. The arrangement permitted the negotiation of quota
restrictions affecting the exports of cotton-producing countries. In 1962 the "Short
Term " Arrangement become the "Long term" Arrangement, lasting until 1974
when the Multifibre Arrangement entered into force.
1964 The Kennedy Round. Meeting at Ministerial Level, a Trade Negotiations
Committee formally opened the Kennedy Round in May. In June 1967, the
Round's Final Act was signed by some 50 participating countries which together
accounted for 75 per cent of world trade. For the first time, negotiation departed
from product-by-product approach used in the previous Rounds to an across-the-
board or linear method of cutting tariffs for industrial goods. The working
hypothesis of a 50 per cent target cut in tariff levels was achieved in many
areas. Concessions covered an estimated total value of trade of about $40
billion. Separate agreements were reached on grains, chemical products and a
Code on Anti-Dumping.
1965 A New Chapter. The early 1960s marked the accession to the General Agreement
of many newly-independent developing countries. In February, the Contracting
Parties, meeting in a special session, adopted the text of Part IV on Trade and
Development. The additional chapter to the GATT required developed countries
to accord high priority to the reduction of trade barriers to products of developing
countries. A committee on Trade and Development was established to oversee
the functioning of the new GATT provisions. In the preceding year, GATT had
established the International Trade Center (ITC) to help developing countries in
trade promotion and identification of potential markets. Since 1968, the ITC had
been jointly operated by GATT and the UN Conference on Trade and
Development (UNCTAD).
1973 The Tokyo Round. The seventh Round was launched by Ministers in September at
the Japanese capital. Some 99 countries participated in negotiating a
comprehensive body of agreements covering both tariff and non-tariff matters. At
the end of the Round in November 1979, participants exchange tariff reduction
and bindings which covered more than $300 billion of trade. As a result of these
cuts, the weighted average tariff on manufactured goods in the world's nine major
Industrial Markets declined from 7.0 to 4.7 per cent. Agreements were reached in
the following areas; subsidies and countervailing measures, technical barriers to
trade, import licensing procedures, government procurement, customs valuation,
a revised anti-dumping code, trade in bovine meat, trade in daily products and
trade in civil aircraft. The first concrete result of the Round was the reduction of
 import duties and other trade barriers by industrial countries on tropical products
exported by developing countries.
1974 On 1 January 1974, the Arrangement Regarding International Trade in textiles,
otherwise known as the Multifibre Arrangement (MFA), entered into force. Its
superseded the arrangement that had been governing trade in cotton textiles
since 1961. The MFA seeks to promote the expansion and progressive
liberalization of trade in textile product while at the same time avoiding disruptive
effects in individual markets in lines of production. The MFA was extended in
1978, 1982, 1986, 1991 and 1992. MFA members account for most of the world
exports of textiles and clothing which in 1986 amounted to US$128 billion.
1982 Ministerial Meeting. Meeting for the first time in nearly ten years, the GATT
Ministers in November at Geneva reaffirmed the validity of GATT rules for the
conduct of international trade and committed themselves to combating
protectionist pressures. They also established a wide-ranging work programme
for the GATT which was to laid down the ground work for a new Round.
1986 The Uruguay Round. The GATT Trade Ministers meeting at Punta del
Este, Uruguay, launched the eighth Round of Trade Negotiations on 20
September. The Punta del Este, declarations, while representing a single political
undertaking, was divided into two section. The First covered negotiations on
Trade in goods and the second initiated negotiation on trade in services. In the
area of trade in goods, the Ministers committed themselves to a "standstill" on
new trade measures inconsistent with their GATT obligations and to a "rollback"
programme aimed at phasing out existing inconsistent measures. Envisaged to
last four years, negotiations started in early February 1987 in the following areas:
tariffs, non-tariff measures, tropical products, natural resource-based products,
textiles and clothing, agriculture, subsidies, safeguards, trade-related aspects of
intellectual property rights including trade in counterfeit goods, in trade- related
investment measures. The work of other groups included a review of GATT
articles, the GATT dispute-settlement procedure, the Tokyo Round agreements,
as well as functioning of the GATT system as a whole.
1994 "GATT 1994" is the updated version of GATT 1947 and takes into account the substantive
and institutional changes negotiated in the Uruguay Round. GATT 1994 is an integral part
of the World Trade Organization established on 1 January 1995. It is agreed that there be
a one year transition period during which certain GATT 1947 bodies and commitments
would co-exist with those of the World Trade Organization."
[2]
The Final Act was signed by representatives of 125 entities, namely Algeria, Angola, Antigua and
Barbuda, Argentine Republic, Australia, Republic of Austria, State of Bahrain, Peoples Republic of
Bangladesh, Barbados, The Kingdom of Belgium, Belize, Republic of Benin, Bolivia, Botswana,
Brazil, Brunei Darussalam, Burkina Faso, Burundi, Cameroon, Canada, Central African Republic,
Chad, Chile, Peoples Republic of China, Colombia, Congo, Costa Rica, Republic of Cote dIvoire,
Cuba, Cyprus, Czech Republic, Kingdom of Denmark, Commonwealth of Dominica, Dominican
Republic, Arab Republic of Egypt, El Salvador, European Communities, Republic of Fiji, Finland,
French Republic, Gabonese Republic, Gambia, Federal Republic of Germany, Ghana, Hellenic
Republic, Grenada, Guatemala, Republic of Guinea-Bissau, Republic of Guyana, Haiti,
Honduras, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, State of Israel, Italian
Republic, Jamaica, Japan, Kenya, Korea, State of Kuwait, Kingdom of Lesotho, Principality of
Liechtenstein, Grand Duchy of Luxembourg, Macau, Republic of Madagascar, Republic of
Malawi, Malaysia, Republic of Maldives, Republic of Mali, Republic of Malta, Islamic Republic of
Mauritania, Republic of Mauritius, United Mexican States, Kingdom of Morocco, Republic of
Mozambique, Union of Myanmar, Republic of Namibia, Kingdom of the Netherlands, New
Zealand, Nicaragua, Republic of Niger, Federal Republic of Nigeria, Kingdom of Norway, Islamic
Republic of Pakistan, Paraguay, Peru, Philippines, Poland, Portuguese Republic, State of Qatar,
Romania, Rwandese Republic, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the
 Grenadines, Senegal, Sierra Leone, Singapore, Slovak Republic, South Africa, Kingdom of Spain,
Democratic Socialist Republic of Sri Lanka, Republic of Surinam, Kingdom of Swaziland,
Kingdom of Sweden, Swiss Confederation, United Republic of Tanzania, Kingdom of Thailand,
Togolese Republic, Republic of Trinidad and Tobago, Tunisia, Turkey, Uganda, United Arab
Emirates, United Kingdom of Great Britain and Northern Ireland, United States of America,
Eastern Republic of Uruguay, Venezuela, Republic of Zaire, Republic of Zambia, Republic of
Zimbabwe; see pp. 6-25, Vol. 1, Uruguay Round of Multilateral Trade Negotiations.
[3]
11 August 1994
The Honorable Members
Senate
Through Senate President Edgardo Angara
Manila
Ladies and Gentlemen:
I have the honor to forward herewith an authenticated copy of the Uruguay Round Final Act signed by
Department of Trade and Industry Secretary Rizalino S. Navarro for the Philippines on 15 April
1994 in Marrakesh, Morocco.
The Uruguay Round Final Act aims to liberalize and expand world trade and strengthen the
interrelationship between trade and economic policies affecting growth and development.
The Final Act will improve Philippine access to foreign markets, especially its major trading partners
through the reduction of tariffs on its exports particularly agricultural and industrial
products. These concessions may be availed of by the Philippines, only if it is a member of the
World Trade Organization. By GATT estimates, the Philippines can acquire additional export
revenues from $2.2 to $2.7 Billion annually under Uruguay Round. This will be on top of the
normal increase in exports that the Philippines may experience.
The Final Act will also open up new opportunities for the services sector in such areas as the movement
of personnel, (e.g. professional services and construction services), cross-border supply (e.g.
computer-related services), consumption abroad (e.g. tourism, convention services, etc.) and
commercial presence.
The clarified and improved rules and disciplines on anti-dumping and countervailing measures will also
benefit Philippine exporters by reducing the costs and uncertainty associated with exporting while
at the same time providing a means for domestic industries to safeguard themselves against
unfair imports.
Likewise, the provision of adequate protection for intellectual property rights is expected to attract more
investments into the country and to make it less vulnerable to unilateral actions by its trading
partners (e.g. Sec. 301 of the United States Omnibus Trade Law).
In view of the foregoing, the Uruguay Round Final Act is hereby submitted to the Senate for its
concurrence pursuant to Section 21, Article VII of the Constitution.
A draft of a proposed Resolution giving its concurrence to the aforesaid Agreement is enclosed.
Very truly yours,
(SGD.) FIDEL V. RAMOS
[4]
11 August 1994
The Honorable Members
Senate
Through Senate President Edgardo Angara
Manila
Ladies and Gentlemen:
I have the honor to forward herewith an authenticated copy of the Uruguay Round Final
Act signed by Department of Trade and Industry Secretary Rizalino S. Navarro for the Philippines
on 13 April 1994 in Marrakech (sic), Morocco.
Members of the trade negotiations committee, which included the Philippines, agreed that
the Agreement Establishing the World Trade Organization, the Ministerial Declarations and
Decisions, and the Understanding on Commitments in Financial Services embody the results of
their negotiations and form an integral part of the Uruguay Round Final Act.
By signing the Uruguay Round Final Act, the Philippines, through Secretary Navarro,
agreed:
(a) To submit the Agreement Establishing the World Trade Organization to the Senate for its concurrence
pursuant to Section 21, Article VII of the Constitution; and
(b) To adopt the Ministerial Declarations and Decisions.
The Uruguay Round Final Act aims to liberalize and expand world trade and strengthen the
interrelationship between trade and economic policies affecting growth and development.
The Final Act will improve Philippine access to foreign markets, especially its major
trading partners through the reduction of tariffs on its exports particularly agricultural and
industrial products. These concessions may be availed of by the Philippines, only if it is a member
of the World Trade Organization. By GATT estimates, the Philippines can acquire additional
export revenues from $2.2 to $2.7 Billion annually under Uruguay Round. This will be on top of
the normal increase in the exports that the Philippines may experience.
The Final Act will also open up new opportunities for the services sector in such areas as
the movement of personnel, (e.g., professional services and construction services), cross-border
supply (e.g., computer-related services), consumption abroad (e.g., tourism, convention services,
etc.) and commercial presence.
The clarified and improved rules and disciplines on anti-dumping and countervailing
measures will also benefit Philippine exporters by reducing the costs and uncertainty associated
with exporting while at the same time providing a means for domestic industries to safeguard
themselves against unfair imports.
Likewise, the provision of adequate protection for intellectual property rights is expected
to attract more investments into the country and to make it a less vulnerable to unilateral actions
by its trading partners (e.g., Sec. 301 of the United States Omnibus Trade Law).
In view of the foregoing, the Uruguay Round Final Act, the Agreement Establishing the
World Trade Organization, the Ministerial Declarations and Decisions, and the Understanding on
Commitments in Financial Services, as embodied in the Uruguay Round Final Act and forming
and integral part thereof are hereby submitted to the Senate for its concurrence pursuant to
Section 21, Article VII of the Constitution.
A draft of a proposed Resolution giving its concurrence to the aforesaid Agreement is
enclosed.
Very truly yours,
(SGD.) FIDEL V. RAMOS
[5]
December 9, 1994
HON. EDGARDO J. ANGARA
Senate President
Senate, Manila
Dear Senate President Angara:
Pursuant to the provisions of Sec. 26 (2) Article VI of the Constitution, I hereby certify to
the necessity of the immediate adoption of P.S. 1083, entitled:
CONCURRING IN THE RATIFICATION OF THE AGREEMENT ESTABLISHING THE WORLD TRADE
ORGANIZATION
to meet a public emergency consisting of the need for immediate membership in the WTO in
order to assure the benefits to the Philippine economy arising from such membership.
Very truly yours,
(SGD.) FIDEL V. RAMOS
[6]
Attached as Annex A, Petition; rollo, p. 52. P.S. 1083 is the forerunner of assailed Senate Resolution
No. 97. It was prepared by the Committee of the Whole on the General Agreement on Tariffs and
Trade chaired by Sen. Blas F. Ople and co-chaired by Sen. Gloria Macapagal-Arroyo; see Annex
C, Compliance of petitioners dated January 28, 1997.
[7]
The Philippines is thus considered an original or founding member of WTO, which as of July 26, 1996
had 123 members as follows: Antigua and Barbuda, Argentina, Australia, Austria, Bahrain,
Bangladesh, Barbados, Belgium, Belize, Benin, Bolivia, Botswana, Brazil, Brunei Darussalam,
Burkina Faso, Burundi, Cameroon, Canada, Central African Republic, Chili, Colombia, Costa
Rica, Cote dIvoire, Cuba, Cyprus, Czech Republic, Denmark, Djibouti, Dominica, Dominican
Republic, Ecuador, Egypt, El Salvador, European Community, Fiji, Finland, France, Gabon,
Germany, Ghana, Greece, Grenada, Guatemala, Guinea, Guinea Bissau, Guyana, Haiti,
Honduras, Hongkong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan,
Kenya, Korea, Kuwait, Lesotho, Liechtenstein, Luxembourg, Macau, Madagascar, Malawi,
Malaysia, Maldives, Mali, Malta, Mauritania, Mauritius, Mexico, Morocco, Mozambique, Myanmar,
Namibia, Netherlands -- for the Kingdom in Europe and for the Netherlands Antilles, New
Zealand, Nicaragua, Nigeria, Norway, Pakistan, Papua New Guinea, Paraguay, Peru, Philippines,
Poland, Portugal, Qatar, Romania, Rwanda, Saint Kitts and Nevis, Saint Lucia, Saint Vincent &
the Grenadines, Senegal, Sierra Leone, Singapore, Slovak Republic, Slovenia, Solomon Islands,
South Africa, Spain, Sri Lanka, Surinam, Swaziland, Sweden, Switzerland, Tanzania, Thailand,
Togo, Trinidad and Tobago, Tunisia, Turkey, Uganda, United Arab Emirates, United Kingdom,
United States, Uruguay, Venezuela, Zambia, and Zimbabwe. See Annex A, Bautista Paper, infra.
[8]
Page 6; rollo, p. 261.
[9]
In compliance, Ambassador Bautista submitted to the Court on August 12, 1996, a Memorandum (the
Bautista Paper) consisting of 56 pages excluding annexes. This is the same document mentioned
in footnote no. 1.
[10]
Memorandum for Respondents, p. 13; rollo, p. 268.
[11]
Cf. Kilosbayan, Incorporated vs. Morato, 246 SCRA 540, July 17, 1995 for a discussion on locus
standi. See also the Concurring Opinion of Mr. Justice Vicente V. Mendoza in Tatad vs. Garcia,
Jr., 243 SCRA 473, April 6, 1995, as well as Kilusang Mayo Uno Labor Center vs. Garcia, Jr., 239
SCRA 386, 414, December 23, 1994.
[12]
Aquino, Jr. vs. Ponce Enrile, 59 SCRA 183, 196, September 17, 1974, cited in Bondoc vs. Pineda, 201
SCRA 792, 795, September 26, 1991.
[13]
Guingona, Jr. vs. Gonzales, 219 SCRA 326, 337, March 1, 1993.
[14]
See Tanada and Macapagal vs. Cuenco, et al., 103 Phil. 1051 for a discussion on the scope of political
question.
[15]
Section 1, Article VIII, (par. 2).
[16]
In a privilege speech on May 17, 1993, entitled Supreme Court -- Potential Tyrant? Senator Arturo
Tolentino concedes that this new provision gives the Supreme Court a duty to intrude into the
jurisdiction of the Congress or the President.
[17]
I Record of the Constitutional Commission 436.
[18]
Cf. Daza vs. Singson, 180 SCRA 496, December 21, 1989.
[19]
Memorandum for Petitioners, pp. 14-16; rollo, pp. 204-206.
[20]
Par. 4, Article XVI, WTO Agreement, Uruguay Round of Multilateral Trade Negotiations, Vol. 1, p. 146.
[21]
Also entitled Declaration of Principles. The nomenclature in the 1973 Charter is identical with that in the
1987s.
[22]
Philippine Political Law, 1962 Ed., p. 116.
[23]
Bernas, The Constitution of the Philippines: A Commentary, Vol. II, 1988 Ed., p. 2. In the very recent
case of Manila Prince Hotel vs. GSIS, G.R. No. 122156, February 3, 1997, p. 8, it was held that A
provision which lays down a general principle, such as those found in Art. II of the 1987
Constitution, is usually not self-executing.
[24]
246 SCRA 540, 564, July 17, 1995. See also Tolentino vs. Secretary of Finance, G.R. No. 115455 and
consolidated cases, August 25, 1995.
[25]
197 SCRA 52, 68, May 14, 1991.
[26]
224 SCRA 792, 817, July 30, 1993.
[27]
Sec. 10, Article XII.
[28]
Sec. 12, Article XII.
[29]
Sec. 19, Art. II.
[30]
Sec. 13, Art. XII.
[31]
G.R. No. 122156, February 3, 1997, pp. 13-14.
[32]
Sec. 1, Art. XII.
[33]
Bautista Paper, p. 19.
[34]
Preamble, WTO Agreement p. 137, Vol. 1, Uruguay Round of Multilateral Trade
Negotiations. Underscoring supplied.
[35]
Sec. - 19, Article II, Constitution.
[36]
III Records of the Constitutional Commission 252.
[37]
Sec. 13, Article XII, Constitution.
[38]
Justice Isagani A. Cruz, Philippine Political Law, 1995 Ed., p. 13, quoting his own article entitled, A
Quintessential Constitution earlier published in the San Beda Law Journal, April 1972;
underscoring supplied.
[39]
Par. 4, Article XVI (Miscellaneous Provisions), WTO Agreement, p.146, Vol. 1, Uruguay Round of
Multilateral Trade Negotiations.
[40]
Memorandum for the Petitioners, p. 29; rollo, p. 219.
[41]
Sec. 24, Article VI, Constitution.
[42]
Subsection (2), Sec. 28, Article, VI Constitution.
[43]
Sec. 2, Article II, Constitution.
[44]
Cruz, Philippine Political Law, 1995 Ed., p. 55.
[45]
Salonga and Yap, op cit 305.
[46]
Salonga, op. cit., p. 287.
[47]
Quoted in Paras and Paras, Jr., International Law and World Politics, 1994 Ed., p. 178.
47-A
Reagan vs. Commission of Internal Revenue, 30 SCRA 968, 973, December 27, 1969.
[48]
Trebilcock and Howse. The Regulation of International Trade, p. 14, London, 1995, cited on p. 55-56,
Bautista Paper.
[49]
Uruguay Round of Multilateral Trade Negotiations, Vol. 31, p. 25445.
[50]
Item 5, Sec. 5, Article VIII, Constitution.
[51]
Uruguay Round of Multilateral Trade Negotiations, Vol. 31, p. 25445.
[52]
Bautista Paper, p. 13.
[53]
See footnote 3 of the text of this letter.
[54]
Salonga and Yap, op cit., pp. 289-290.
[55]
The full text, without the signatures, of the Final Act is as follows:
Final Act Embodying the Results of the
Uruguay Round of Multilateral Trade Negotiations
1. Having met in order to conclude the Uruguay Round of Multilateral Trade Negotiations, representatives
of the governments and of the European Communities, members of the Trade Negotiations
Committee, agree that the Agreement Establishing the World Trade Organization (referred to in
the Final Act as the WTO Agreement), the Ministerial Declarations and Decisions, and the
Understanding on Commitments in Financial Services, as annexed hereto, embody the results of
their negotiations and form an integral part of this Final Act.
2. By signing to the present Final Act, the representatives agree.
(a) to submit, as appropriate, the WTO Agreement for the consideration of their respective competent
authorities with a view to seeking approval of the Agreement in accordance with their procedures;
and
(b) to adopt the Ministerial Declarations and Decisions.
3. The representatives agree on the desirability of acceptance of the WTO Agreement by all participants
in the Uruguay Round of Multilateral Trade Negotiations (hereinafter referred to as participants)
with a view to its entry into force by 1 January 1995, or as early as possible thereafter. Not later
than late 1994, Ministers will meet, in accordance with the final paragraph of the Punta del Este
Ministerial Declarations, to decide on the international implementation of the results, including the
timing of their entry into force.
4. The representatives agree that the WTO Agreement shall be opened for acceptance as a whole, by
signature or otherwise, by all participants pursuant to Article XIV thereof. The acceptance and
entry into force of a Plurilateral Trade Agreement included in Annex 4 of the WTO Agreement
shall be governed by the provisions of that Plurilateral Trade Agreement.
5. Before accepting the WTO Agreement, participants which are not contracting parties to the General
Agreement on Tariffs and Trade must first have concluded negotiations for their accession to the
General Agreement and become contracting parties thereto. For participants which are not
contracting parties to the general Agreement as of the date of the Final Act, the Schedules are not
definitive and shall be subsequently completed for the purpose of their accession to the General
Agreement and acceptance of the WTO Agreement.
6. This Final Act and the Texts annexed hereto shall be deposited with the Director-General to the
CONTRACTING PARTIES to the General Agreement on Tariffs and Trade who shall promptly
furnish to each participant a certified copy thereof.
DONE at Marrakesh this fifteenth day of April One thousand nine hundred and ninety-four, in a single
copy, in the English, French and Spanish languages, each text being authentic."
[56]
Bautista Paper, p. 16.
[57]
Bautista Paper, p. 16.
[58]
Uruguay Round of Multilateral Trade Negotiations, Vol. I, pp. 137-138.
[59]
See footnote 3 for complete text.
[60]
Taken from pp. 63-85, Respondent Memorandum.
[61]
Zarate vs. Olegario, G.R. No. 90655, October 7, 1996.
[62]
San Sebastian College vs. Court of Appeals, 197 SCRA 138, 144, May 15, 1991; Commissioner of
Internal Revenue vs. Court of Tax Appeals, 195 SCRA 444, 458 March 20, 1991; Simon vs. Civil
Service Commission, 215 SCRA 410, November 5, 1992; Bustamante vs. Commissioner on
Audit, 216 SCRA 134, 136, November 27, 1992.
[63]
Paredes vs. Civil Service Commission, 192 SCRA 84, 94, December 4, 1990.
[64]
Sec. 21. No treaty or international agreement shall be valid and effective unless concurred in by at least
two-thirds of all the Members of the Senate.
[65]
Readers Digest, December 1996 issue, p. 28.

26

THIRD DIVISION

[G. R. No. 131512. January 20, 2000]

LAND TRANSPORTATION OFFICE [LTO], represented by Assistant Secretary

Manuel F. Bruan, LTO Regional Office, Region X represented by its Regional
Director, Timoteo A. Garcia; and LTO Butuan represented by Rosita G. Sadiaga,
its Registrar, petitioners, vs. CITY OF BUTUAN, represented in this case by
Democrito D. Plaza II, City Mayor, respondents.

DECISION

VITUG, J.:

The 1987 Constitution enunciates the policy that the territorial and political subdivisions shall
enjoy local autonomy. In obedience to that, mandate of the fundamental law, Republic Act
[1]

("R.A.") No.7160, otherwise known as the Local Government Code, expresses that the
[2]

territorial and political subdivisions of the State shall enjoy genuine and meaningful local
autonomy in order to enable them to attain their fullest development as self-reliant communities
and make them more effective partners in the attainment of national goals, and that it is a basic
aim of the State to provide for a more responsive and accountable local government structure
instituted through a system of decentralization whereby local government units shall be given
more powers, authority, responsibilities and resources.
While the Constitution seeks to strengthen local units and ensure their viability, clearly, however,
it has never been the intention of that organic law to create an imperium in imperio and install
an intra sovereign political subdivision independent of a single sovereign state.

The Court is asked in this instance to resolve the issue of whether under the present set up the
power of the Land Registration Office ("LTO") to register, tricycles in particular, as well as
to issue licenses for the driving thereof, has likewise devolved to local government units.

The Regional Trial Court (Branch 2) of Butuan City held: that the authority to register tricycles,
[3]

the grant of the corresponding franchise, the issuance of tricycle drivers' license, and the
collection of fees therefor had all been vested in the Local Government Units ("LGUs").
Accordingly, it decreed the issuance of a permanent writ of injunction against LTO, prohibiting
and enjoining LTO, as well as its employees and other persons acting in its behalf, from (a)
registering tricycles and (b) issuing licenses to drivers of tricycles. The Court of Appeals, on
appeal to it, sustained the trial court.

The adverse rulings of both the court a quo and the appellate court prompted the LTO to file the
instant petition for review on certiorari to annul and set aside the decision, dated 17 November
[4]

1997, of the Court of Appeals affirming the permanent injunctive writ order of the Regional Trial
Court (Branch 2) of Butuan City.

Respondent City of Butuan asserts that one of the salient provisions introduced by the Local
Government Code is in the area of local taxation which allows LGUs to collect registration fees
or charges along with, in its view, the corresponding issuance of all kinds of licenses or permits
for the driving of tricycles.

The 1987 Constitution provides:

"Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments." [5]

Section 129 and Section 133 of the Local Government Code read:

"SEC. 129. Power to Create Sources of Revenue. - Each local government unit
shall exercise its power to create its own sources of revenue and to levy taxes,
fees, and charges subject to the provisions herein, consistent with the basic policy
of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the
local government units."

"SEC. 133. Common Limitations on the Taxing Powers of Local Government

Units. - Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:
 "xxx.......xxx.......xxx.

"(I) Taxes, fees or charges for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof, except
tricycles."

Relying on the foregoing provisions of the law, the Sangguniang Panglungsod ("SP") of Butuan,
on 16 August 1992, passed SP Ordinance No.916-92 entitled "An Ordinance Regulating the
Operation of Tricycles-for-Hire, providing mechanism for the issuance of Franchise,
Registration and Permit, and Imposing Penalties for Violations thereof and for other
Purposes." The ordinance provided for, among other things, the payment of franchise fees for the
grant of the franchise of tricycles-for-hire, fees for the registration of the vehicle, and fees for the
issuance of a permit for the driving thereof.

Petitioner LTO explains that one of the functions of the national government that, indeed, has
been transferred to local government units is the franchising authority over tricycles-for-hire of
the Land Transportation Franchising and Regulatory Board ("LTFRB") but not, it asseverates, the
authority of LTO to register all motor vehicles and to issue to qualified persons of licenses to
drive such vehicles.

In order to settle the variant positions of the parties, the City of Butuan, represented by its City
Mayor Democrito D. Plaza, filed on 28 June 1994 with the trial court a petition for
"prohibition, mandamus, injunction with a prayer for preliminary restraining order ex-
parte" seeking the declaration of the validity of SP Ordinance No.962-93 and the prohibition of
the registration of tricycles-for-hire and the issuance of licenses for the driving thereof by the
LTO.

LTO opposed the prayer in the petition.

On 20 March 1995, the trial court rendered a resolution; the dispositive portion read:

"In view of the foregoing, let a permanent injunctive writ be issued against the
respondent Land Transportation Office and the other respondents, prohibiting and
enjoining them, their employees, officers, attorney's or other persons acting in
their behalf from forcing or compelling Tricycles to be registered with, and
drivers to secure their licenses from respondent LTO or secure franchise from
LTFRB and from collecting fees thereon. It should be understood that the
registration, franchise of tricycles and driver's license/permit granted or issued by
the City of Butuan are valid only within the territorial limits of Butuan City.

"No pronouncement as to costs." [6]

Petitioners timely moved for a reconsideration of the above resolution but it was to no avail.
Petitioners then appealed to the Court of Appeals. In its now assailed decision, the appellate
court, on 17 November 1997, sustained the trial court. It ruled:
 "WHEREFORE, the petition is hereby DISMISSED and the questioned
permanent injunctive writ issued by the court a quo dated March 20, 1995
AFFIRMED." [7]

Coming up to this Court, petitioners raise this sole assignment of error, to wit:

"The Court of Appeals [has] erred in sustaining the validity of the writ of
injunction issued by the trial court which enjoined LTO from (1) registering
tricycles-for-hire and (2) issuing licenses for the driving thereof since the Local
Government Code devolved only the franchising authority of the LTFRB.
Functions of the LTO were not devolved to the LGU's." [8]

The petition is impressed with merit.

The Department of Transportation and Communications ("DOTC"), through the LTO and the
[9]

LTFRB, has since been tasked with implementing laws pertaining to land transportation. The
LTO is a line agency under the DOTC whose powers and functions, pursuant to Article III,
Section 4 (d) (1), of R.A. No.4136, otherwise known as Land Transportation and Traffic
[10]

Code, as amended, deal primarily with the registration of all motor vehicles and the licensing of
drivers thereof. The LTFRB, upon the other hand, is the governing body tasked by E.O. No. 202,
dated 19 June 1987, to regulate the operation of public utility or "for hire" vehicles and to grant
franchises or certificates of public convenience ("CPC"). Finely put, registration
[11]

and licensing functions are vested in the LTO while franchising and regulatory responsibilities
had been vested in the LTFRB.

Under the Local Government Code, certain functions of the DOTC were transferred to the
LGUs, thusly:

"SEC. 458. Powers, Duties, Functions and Compensation. -

"xxx.......xxx.......xxx

"(3) Subject to the provisions of Book II of this Code, enact ordinances granting
franchises and authorizing the issuance of permits or licenses, upon such
conditions and for such purposes intended to promote the general welfare of the
inhabitants of the city and pursuant to this legislative authority shall:

"xxx.......xxx.......xxx.

"(VI) Subject to the guidelines prescribed by the Department of Transportation

and Communications, regulate the operation of tricycles and grant franchises
for the operation thereof within the territorial jurisdiction of the city." (Emphasis
supplied)

LGUs indubitably now have the power to regulate the operation of tricycles-for-hire and to grant
franchises for the operation thereof. "To regulate" means to fix, establish, or control; to adjust by
rule, method, or established mode; to direct by rule or restriction; or to subject to governing
principles or laws. A franchise is defined to be a special privilege to do certain things conferred
[12]

by government on an individual or corporation, and which does not belong to citizens generally
of common right. On the other hand, "to register" means to record formally and exactly, to
[13]

enroll, or to enter precisely in a list or the like, and a "driver's license" is the certificate or
[14]

license issued by the government which authorizes a person to operate a motor vehicle. The
[15]

devolution of the functions of the DOTC, performed by the LTFRB, to the LGUs, as so aptly
observed by the Solicitor General, is aimed at curbing the alarming increase of accidents in
national highways involving tricycles. It has been the perception that local governments are in
good position to achieve the end desired by the law-making body because of their proximity to
the situation that can enable them to address that serious concern better than the national
government.

It may not be amiss to state, nevertheless, that under Article 458 (a)[3-VI] of the Local
Government Code, the power of LGUs to regulate the operation of tricycles and to grant
franchises for the operation thereof is still subject to the guidelines prescribed by the DOTC. In
compliance therewith, the Department of Transportation and Communications ("DOTC")
issued "Guidelines to Implement the Devolution of LTFRBs Franchising Authority over
Tricycles-For-Hire to Local Government units pursuant to the Local Government
Code." Pertinent provisions of the guidelines state:

"In lieu of the Land Transportation Franchising and Regulatory Board (LTFRB) in
the DOTC, the Sangguniang Bayan/Sangguniang Panglungsod (SB/SP) shall
perform the following:

"(a) Issue, amend, revise, renew, suspend, or cancel MTOP and prescribe the
appropriate terms and conditions therefor;

"xxx.......xxx.......xxx.

"Operating Conditions:

"1. For safety reasons, no tricycles should operate on national highways utilized
by 4 wheel vehicles greater than 4 tons and where normal speed exceed 40 KPH.
However, the SB/SP may provide exceptions if there is no alternative routs.

"2. Zones must be within the boundaries of the municipality/city. However,

existing zones within more than one municipality/city shall be maintained,
provided that operators serving said zone shall secure MTOP's from each of the
municipalities/cities having jurisdiction over the areas covered by the zone.

"3. A common color for tricycles-for-hire operating in the same zone may be
imposed. Each unit shall be assigned and bear an identification number, aside
from its LTO license plate number.
 "4. An operator wishing to stop service completely, or to suspend service for more
than one month, should report in writing such termination or suspension to the
SB/SP which originally granted the MTOP prior thereto. Transfer to another zone
may be permitted upon application.

"5. The MTOP shall be valid for three (3) years, renewable for the same period.
Transfer to another zone, change of ownership of unit or transfer of MTOP shall
be construed as an amendment to an MTOP and shall require appropriate approval
of the SB/SP.

"6. Operators shall employ only drivers duly licensed by LTO for tricycles-for-
hire.

"7. No tricycle-for-hire shall be allowed to carry more passengers and/or goods

than it is designed for.

"8. A tricycle-for-hire shall be allowed to operate like a taxi service, i.e., service is
rendered upon demand and without a fixed route within a zone." [16]

Such as can be gleaned from the explicit language of the statute, as well as the corresponding
guidelines issued by DOTC, the newly delegated powers pertain to the franchising and
regulatory powers theretofore exercised by the LTFRB and not to the functions of the LTO
relative to the registration of motor vehicles and issuance of licenses for the driving thereof.
Clearly unaffected by the Local Government Code are the powers of LTO under R.A. No.4136
requiring the registration of all kinds of motor vehicles "used or operated on or upon any public
highway" in the country. Thus -

"SEC. 5. All motor vehicles and other vehicles must be registered. - (a) No motor
vehicle shall be used or operated on or upon any public highway of the
Philippines unless the same is properly registered for the current year in
accordance with the provisions of this Act (Article 1, Chapter II, R.A. No.
4136).

The Commissioner of Land Transportation and his deputies are empowered at anytime to
examine and inspect such motor vehicles to determine whether said vehicles are registered, or
are unsightly, unsafe, improperly marked or equipped, or otherwise unfit to be operated on
because of possible excessive damage to highways, bridges and other infrastructures. The LTO[17]

is additionally charged with being the central repository and custodian of all records of all motor
vehicles.[18]

The Court shares the apprehension of the Solicitor General if the above functions were to
likewise devolve to local government units; he states:

"If the tricycle registration function of respondent LTO is decentralized, the

incidence of theft of tricycles will most certainly go up, and stolen tricycles
 registered in one local government could be registered in another with ease. The
determination of ownership thereof will also become very difficult.

"Fake driver's licenses will likewise proliferate. This likely scenario unfolds
where a tricycle driver, not qualified by petitioner LTO's testing, could secure a
license from one municipality, and when the same is confiscated, could just go
another municipality to secure another license.

"Devolution will entail the hiring of additional personnel charged with inspecting
tricycles for road worthiness, testing drivers, and documentation. Revenues raised
from tricycle registration may not be enough to meet salaries of additional
personnel and incidental costs for tools and equipment." [19]

The reliance made by respondents on the broad taxing power of local government units,
specifically under Section 133 of the Local Government Code, is tangential. Police power and
taxation, along with eminent domain, are inherent powers of sovereignty which the State might
share with local government units by delegation given under a constitutional or a statutory fiat.
All these inherent powers are for a public purpose and legislative in nature but the similarities
just about end there. The basic aim of police power is public good and welfare. Taxation, in its
case, focuses on the power of government to raise revenue in order to support its existence and
carry out its legitimate objectives. Although correlative to each other in many respects, the grant
of one does not necessarily carry with it the grant of the other. The two powers are, by tradition
and jurisprudence, separate and distinct powers, varying in their respective concepts, character,
scopes and limitations. To construe the tax provisions of Section 133(1) indistinctively would
result in the repeal to that extent of LTO's regulatory power which evidently has not been
intended. If it were otherwise, the law could have just said so in Section 447 and 458 of Book III
of the Local Government Code in the same manner that the specific devolution of LTFRB's
power on franchising of tricycles has been provided. Repeal by implication is not favored. The
[20]

power over tricycles granted under Section 458(a)(3)(VI) of the Local Government Code to
LGUs is the power to regulate their operation and to grant franchises for the operation thereof.
The exclusionary clause contained in the tax provisions of Section 133(1) of the Local
Government Code must not be held to have had the effect of withdrawing the express power of
LTO to cause the registration of all motor vehicles and the issuance of licenses for the driving
thereof. These functions of the LTO are essentially regulatory in nature, exercised pursuant to the
police power of the State, whose basic objectives are to achieve road safety by insuring the road
worthiness of these motor vehicles and the competence of drivers prescribed by R. A. 4136. Not
insignificant is the rule that a statute must not be construed in isolation but must be taken in
harmony with the extant body of laws.
[21]

The Court cannot end this decision without expressing its own serious concern over the
seeming laxity in the grant of franchises for the operation of tricycles-for-hire and in
allowing the indiscriminate use by such vehicles on public highways and principal
thoroughfares. Senator Aquilino C. Pimentel, Jr., the principal author, and sponsor of the bill
that eventually has become to be known as the Local Government Code, has aptly remarked:
 "Tricycles are a popular means of transportation, specially in the
countryside. They are, unfortunately, being allowed to drive along highways
and principal thoroughfares where they pose hazards to their passengers
arising from potential collisions with buses, cars and jeepneys.

"The operation of tricycles within a municipality may be regulated by

the Sangguniang Bayan. In this connection, the Sangguniang concerned
would do well to consider prohibiting the operation of tricycles along or
across highways invite collisions with faster and bigger vehicles and impede
the flow of traffic."[22]

The need for ensuring public safety and convenience to commuters and pedestrians alike is
paramount. It might be well, indeed, for public officials concerned to pay heed to a number of
provisions in our laws that can warrant in appropriate cases an incurrence of criminal and civil
liabilities. Thus -

The Revised Penal Code -

"Art. 208. Prosecution of offenses; negligence and tolerance. - The penalty of

prision correccional in its minimum period and suspension shall be imposed upon
any public officer, or officer of the law, who, in dereliction of the duties of his
office, shall maliciously refrain from instituting prosecution for the punishment of
violators of the law, or shall tolerate the commission of offenses."

The Civil Code -

"Art. 27. Any person suffering material or moral loss because a public servant or
employee refuses or neglects, without just cause, to perform his official duty may
file an action for damages and other relief against the latter, without prejudice to
any disciplinary administrative action that may be taken."

"Art. 34. When a member of a city or municipal police force refuses or fails to
render aid or protection to any person in case of danger to life or property, such
peace officer shall be primarily liable for damages, and the city or municipality
shall be subsidiarily responsible therefor. The civil action herein recognized shall
be independent of any criminal, proceedings, and a preponderance of evidence
shall suffice to support such action."

"Art. 2189. Provinces, cities and municipalities shall be liable for damages for the
death of, or injuries suffered by, any person by reason of the defective condition
of roads, streets, bridges, public buildings, and other public works under their
control or supervision."

The Local Government Code -

 "Sec. 24. Liability for Damages. - Local government units and their officials are
not exempt from liability for death or injury to persons or damage to property."

WHEREFORE, the assailed decision which enjoins the Land Transportation Office from
requiring the due registration of tricycles and a license for the driving thereof is REVERSED and
SET ASIDE.

No pronouncements on costs.

Let copies of this decision be likewise furnished the Department of Interior and Local
Governments, the Department of Public Works and Highways and the Department of
Transportation and Communication.

SO ORDERED.

Melo, (Chairman), Panganiban, Purisima, and Gonzaga-Reyes, JJ., concur.

[1]
Section 2, Article X of the 1987 Constitution.
[2]
The law was approved on 10 October 1991 and it became effective on 01 January 1992.
[3]
Per Judge Rosarito Dabalos.
[4]
Penned by Justice Jorge S. Imperial, concurred in by Justices Ramon U. Mabutas, Jr. and Hilarion L. Aquino.
[5]
Sec. 5, Art. X.
[6]
Rollo, p. 34.
[7]
Rollo, p. 31.
[8]
Rollo, pp.10-11.

[9]
Book IV, Title XV, Chapter 1, Section 2 of the Administrative Code of 1987 reads:

"SEC. 2. Mandate. The Department of Transportation and Communications shall be the primary policy, planning,
programming, coordinating, implementing, regulating and administrative entity of the Executive Branch of the
government in the promotion, development and regulation of dependable and coordinated networks of transportation
and communication system as well as in the fast, safe, efficient and reliable postal, transportation and
communications services."
[10]
(1) With the approval of the Secretary of Public Works (Transportation) and Communications, to issue rules and
regulations not in conflict with the provisions of this Act, prescribing the procedure for the examination,
licensing and bonding of drivers; the registration and re-registration of motor vehicles, transfer of ownership,
change of status; the replacement of lost certificates, licenses, badges, permits or number plates; and to prescribe the
minimum standards and specifications including allowable gross weight, allowable length, width and height of
motor vehicles, distribution of loads, allowable loads on tires, change of tire sizes, body design or carrying capacity
subsequent to registration and all other special cases which may arise for which no specific provision is otherwise
made in this Act." (Emphasis supplied)

"SEC. 5. Powers and Functions of the Land Transportation Franchising and Regulatory Board. -The Board shall
[11]

have the following powers and functIons:

a. To prescribe and regulate routes of service. economically viable capacities and zones or areas of operation of
public land transportation services provided by motorized vehicles in accordance with the public land transportation
development plans and programs approved by the Department of T ransportation and Communications; b. To issue,
amend, revise, suspend or cancel Certificates of Public Convenience or permits authorizing the operation of public
land transportation services provided by motorized vehicles. and to prescribe the appropriate terms and conditions
therefor;"
[12]
Black's Law Dictionary, Sixth edition, p. 1286.
[13]
Ibid., p.658.
[14]
Ibid., p. 1283.
[15]
Ibid., p. 495.
[16]
Rollo, pp. 153-154.
[17]
Section 4(d)(6). Article III, Chapter I.
[18]
Section 4(d)(2). Article III, Chapter I. reads in full: "(2) To compile and arrange all applications, certificates,
permits, licenses, and to enter, note and record thereon transfers, notifications, suspensions, revocations, or
judgments of conviction rendered by competent courts concerning violations of this Act, with the end in view of
preserving and making easily available such documents and records to public officers and private persons properly
and legitimately interested therein."
[19]
Rollo, pp. 159-160.
[20]
In Laguna Lake Development Authority vs. Court of Appeals, 20 this Court has ruled that a special law cannot be
repealed, amended or altered by a subsequent general law by mere supposition, and that the charter of LLDA which
embodies a valid exercise of police power should prevail over the Local Government Code on matters affecting the
lake.
[21]
Sajonas vs. CA, 258 SCRA 79.
[22]
Rollo, pp. 152.153.

27G.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.

G.R. No. 109446 October 3, 1994

CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG, MANUELITO
O. CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in
his capacity as COMMISSIONER OF INTERNAL REVENUE, respondents.

Rufino R. Tan for and in his own behalf.

Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446.

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 net income, 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. The above objectives of the fundamental law appear to us to have been sufficiently
1

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 approach in the income taxation of
2

individual taxpayers and to maintain, by and large, the present global treatment on taxable
3

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. Here, the partners themselves, not the
4

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 an individual, 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.

Narvasa, C.J., Cruz, Feliciano, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno,
Kapunan and Mendoza, JJ., concur.

Padilla and Bidin, JJ., are on leave.

#Footnotes

1 Justice Isagani A. Cruz on Philippine Political Law 1993 edition, pp. 146-147, citing
with approval Cooley on Constitutional Limitations.

2 A system employed where the income tax treatment varies and made to depend on
the kind or category of taxable income of the taxpayer.

3 A system where the tax treatment views indifferently the tax base and generally
treats in common all categories of taxable income of the taxpayer.

4 A general professional partnership, in this context, must be formed for the sole
purpose of exercising a common profession, no part of the income of which is
derived from its engaging in any trade business; otherwise, it is subject to tax as an
ordinary business partnership or, which is to say, as a corporation and thereby
subject to the corporate income tax. The only other exempt partnership is a joint
venture for undertaking construction projects or engaging in petroleum operations
pursuant to an operating agreement under a service contract with the government
(see Sections 20, 23 and 24, National Internal Revenue Code).
 28[G.R. No. 119252. August 18, 1997]

COMMISIONER OF INTERNAL REVENUE and COMMISIONER OF

CUSTOMS, petitioners, vs. HON. APOLINARIO B. SANTOS, in his
capacity as Presiding Judge of the Regional Trial Court, Branch
67, Pasig City; ANTONIO M. MARCO; JEWELRY BY MARCO &
CO., INC., and GUILD OF PHILIPPINE JEWELLERS,
INC., respondents.

DECISION
HERMOSISIMA, JR., J.:

Of grave concern to this Court is the judicial pronouncement of the court a quo that
certain provisions of the Tariff & Customs Code and the National Internal Revenue Code
are unconstitutional. This provokes the issue: Can the Regional Trial Courts declare a
law inoperative and without force and effect or otherwise unconstitutional? If it can,
under what circumstances?
In this petition, the Commissioner of Internal Revenue and the Commissioner of
Customs jointly seek the reversal of the Decision, dated February 16, 1995, of herein
[1]

public respondent, Hon. Apolinario B. Santos, Presiding Judge of Branch 67 of the

Regional Trial Court of Pasig City.
The following facts, concisely related in the petition of the Office of the Solicitor
[2]

General, appear to be undisputed:

"1. Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino

jewelers engaged in the manufacture of jewelers (sic) and allied undertakings. Among
its members are Hans Brumann, Inc., Miladay Jewels Inc., Mercelles, Inc., Solid Gold
International Traders inc., Diagem Trading Corporation, and Private respondent
Jewelry by Marco & Co., Inc. Private respondent Antonio M. Marco is the President
of the Guild.

2. On August 5, 1988, Felicidad L. Viray, then Regional Director, Region No. 4-A of
the Bureau of Internal Revenue, acting for and in behalf of the Commissioner of
Internal Revenue, issued Regional Mission Order No. 109-88 to BIR officers, led by
Eliseo Corcega, to conduct surveillance, monitoring, and inventory of all imported
articles of Hans Brumann, Inc., and place the same under preventive embargo. The
duration of the mission was from August 8 to August 20, 1988 (Exhibit 1; Exhibit A).

3. On August 17, 1988, persuant to the aforementioned Mission Order, the BIR
officers proceeded to the establishment of Hans Brumann, Inc., served the Mission
Order, and informed the establishment that they were going to make an inventory of
the articles involved to see if the proper taxes thereon have been paid. They then made
an inventory of the articles displayed in the cabinets with the assistance of an
employee of the establishment. They listed down the articles, which list was signed by
the assistant employee. They also requested the presentation of proof of necessary
payments for excise tax and value-added tax on said articles (pp, 10-15, TSN April
12,1993, Exhibits 2, 2-A, 3, 3-a).

4. The BIR officers requested the establishment not to sell the articles until it can be
proven that the necessary taxes thereon have been paid. Accordingly, Mr. Hans
Brumann, the owner of the establishment, signed a receipt for Goods, Articles, and
Things Seized under Authority of the National Internal Revenue Code (dated August
17, 1988), acknowledging that the articles inventoried have been seized and left in his
possession, and promising not to dispose of the same without authority of the
Commissioner of Internal Revenue pending investigation. [3]

5. Subsequently, BIR officer Eliseo Corcega submitted to his superiors a report of the
inventory conducted and a computation of the value-added tax and ad valorem tax on
the articles for evaluation and disposition.
[4]

6. Mr. Hans Brumann, the owner of the establishment, never filed a protest with the
BIR on the preventive embargo of the articles. [5]

7. On October 17, 1988, Letter of Authority No. 0020596 was issued by Deputy
Commissioner Eufracio D. Santos to BIR officers to examine the books of accounts
and other accounting records of Hans Brumann, Inc., for stocktaking investigation for
excise tax purposes for the period January 1, 1988 to present (Exhibit C). In a latter
dated October 27, 1988, in connection with the physical count of the inventory (stocks
on hand) pursuant to said Letter of Authority, Hans Brumann, Inc. was requested to
prepare and make available to the BIR the documents indicated therein (Exhibit 'D').

8. Hans Brumann, inc., did not produce the documents requested by the BIR. [6]

9. Similar Letters of Authority were issued to BIR officers to examine the books of
accounts ans other accounting records of Miladay Jewels, Inc., Mercelles, Inc., Solid
Gold International Traders, Inc., (Exhibit E, G and N) and Diagem Trading
Corporation for stocktaking/investigation for excise tax pirpose for the period
[7]

January 1, 1988 to present.

10. In the case of Miladay Jewels, Inc. and Mercelles, Inc., there is no account of what
actually transpired in the implementation of the Letters of Authority.
11. In the case of Solid Gold International Traders Corporation, the BIR officers made
an inventory of the articles in the establishment. The same is true with respect to
[8]

Diagem Traders Corporation. [9]

12. On November 29, 1988, private respondents Antonio M. Marco and Jewelry By
Marco & Co., Inc. filed with the Regional Trial Court, National Capital Judicial
Region, Pasig City, Meto Manila, a petition for declaratory relief with writ of
preliminary injunction and/or temporary restraining order against herein petitioners
and Revenue Regional Director Felicidad L. Viray (docketed as Civil Case No.
56736) praying that Sections 126, 127(a) and (b) and 150 (a) of the National Internal
Revenue Code and Hdg. No 71.01, 71.02, 71.03 and 71.04, Chapter 71 of the Tariff
and Customs Code of the Philippines be declared unconstitutional and void, and that
the Commissioner of Internal Revenue and Customs be prevented or enjoined from
issuing mission orders and other orders of similar nature. x x x

13. On February 9, 1989, herein petitioners filed their answer to the petition. x x x

14. On October 16, 1989, private respondents filed a Motion with Leave to Amend
Petition by including as petitioner the Guild of Philippine Jewelers, Inc., which
motion was granted. x x x

15. The case, which was originally assigned to Branch 154, was later reassigned to
Branch 67.

16. On February 16, 1995, public respondent rendered a decision, the dispositive
portion of which reads:

'In view of the foregoing reflections, judgment is hereby rendered, as follows:

1. Declaring Section 104 of the Tariff and the Custom Code of the Philippines, Hdg,
71.01, 71.02, 71.03, and 71.04, Chapter 71 as amended by Executive Order No. 470,
imposing three to ten (3% to 10%) percent tariff and customs duty on natural and
cultured pearls and precious or semi-precious stones, and Section 150 par. (a)the
National Internal Revenue Code of 1977, as amended, renumbered and rearranged by
Executive Order 273, imposing twenty (20%) percent excise tax on jewelry, pearls
and other precious stones, as INOPERATIVE and WITHOUT FORCE and EFFECT
insofar as petitioners are concerned.

2. Enforcement of the same is hereby enjoined.

No cost.
SO ORDERED.

Section 150 (a) of Executive Order No. 273 reads:

SEC. 150. Non-essential goods. There shall be levied, assessed and collected a tax
equivalent to 20% based on the wholesale price or the value of importation used by
the Bureau of Customs in determining tariff and customs duties; net of the excise tax
and value-added tax, of the following goods:

(a) All goods commonly or commercially known as jewelry, whether real or imitation,
pearls, precious and semi-precious stones and imitations thereof; goods made of, or
ornamented, mounted and fitted with, precious metals or imitations thereof or ivory
(not including surgical and dental instruments, silver-plated wares, frames or
mountings for spectacles or eyeglasses, and dental gold or gold alloys and other
precious metals used in filling, mounting or fitting of the teeth); opera glasses and
lorgnettes. The term precious metals shall include platinum, gold, silver, and other
metals of similar or greater value.The term imitation thereof shall include platings and
alloys of such metals.

Section 150 (a) of Executive Order No. 273, which took effect on January 1, 1988,
amended the then Section 163 (a) of the Tax Code of 1986 which provided that:

SEC. 163. Percentage tax on sales of non-essential articles. There shall be levied,
assessed and collected, once only on every original sale, barter, exchange or similar
transaction for nominal or valuable consideration intended to transfer ownership of, or
title to, the article herein below enumerated a tax equivalent to 50% of the gross value
in money of the articles so sold, bartered. Exchanged or transferred, such tax to be
paid by the manufacturer or producer:

(a) All articles commonly or commercially known as jewelry, whether real or

imitation, pearls, precious and semi-precious stones, and imitations thereof, articles
made of, or ornamented, mounted or fitted with, precious metals or imitations thereof
or ivory (not including surgical and dental instruments, silver-plated wares, frames or
mounting for spectacles or eyeglasses, and dental gold or gold alloys and other
precious metal used in filling, mounting or fitting of the teeth); opera glasses, and
lorgnettes. The term precious metals shall include platinum, gold, silver, and other
metals of similar or greater value. The term imitations thereof shall include platings
and alloys of such metals;

Section 163(a) of the 1986 Tax Code was formerly Section 194(a) of the 1977 Tax
Code and Section 184(a) of the Tax code, as amended by Presidential Decree No. 69,
which took effect on January 1, 1974.
 It will be noted that, while under the present law, jewelry is subject to a 20% excise
tax in addition to a 10% value-added tax under the old law, it was subjected to 50%
percentage tax. It was even subjected to a 70% percentage tax under then Section
184(a) of the Tax Code, as amended by P.D. 69.
Section 104, Hdg, Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the Tariff and
Customs Code, as amended by Executive Order No. 470, dated July 20, 1991, imposes
import duty on natural or cultured pearls and precious or semi-precious stones at the
rate of 3% to 10% to be applied in stages from 1991 to 1994 and 30% in 1995.
Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10% to 50%
when the petition was filed in the court a quo.
In support of their petition before the lower court, the private respondents submitted
a position paper purporting to be an exhaustive study of the tax rates on jewelry
prevailing in other Asian countries, in comparison to tax rates levied on the same in the
Philippines.[10]

The following issues were thus raised therein:

"1. Whether or not the Honorable Court has jurisdiction over the subject matter of the
petition.

2. Whether the petition states a cuase of action or whether the petition alleges a
justiciable controversy between the parties.

3. Whether Section 150, par. (a) of the NIRC and Section 104, Hdg. 71.01, 71.02,
71.03 and 71.04 of the Tariff and Customs Code are unconstitutional.

4. Whether the issuance of the Mission Order and Letters of Authority is valid and
legal.

In the assailed decision, the public respondent held indeed that the Regional Trial
Court has jurisdiction to take cognizance of the petition since jurisdiction over the nature
of the suit is conferred by law and it is detemine[d] through the allegations in the
petition, and that the Court of Tax Appeals ha no jurisdiction to declare a statute
unconstitutional much less issue writs of certiorari and prohibition in order to correct
acts of respondents allegedly committed with grave abuse of discretion amounting to
lack of jurisdiction.
As to the second issue, the public respondent, made the holding that there exist a
justiciable controversy between the parties, agreeing with the statements made in the
position paper presented by the private respondents, and considering these statements
to be factual evidence, to wit:

Evidence for the petitioners indeed reveals that government taxation policy treats
jewelry, pearls, and other precious stones and metals as non-essential luxury items and
therefore, taxed heavily; that the atmospheric cost of taxation is killing the local
manufacturing jewelry industry because they cannot compete with the neighboring
and other countries where importation and manufacturing of jewelry is not taxed
heavily, if not at all; that while government incentives and subsidies exist, local
manufacturers cannot avail of the same because officially many of them are
unregistered and are unable to produce the required official documents because they
operate underground, outside the tariff and tax structure; that local jewelry
manufacturing is under threat of extinction, otherwise discouraged, while domestic
trading has become more attractive; and as a consequence, neighboring countries,
such as Hongkong, Singapore, Malaysia, Thailand, and other foreign competitors
supplying the Philippine market either through local channels or through the black
market for smuggled goods are the ones who are getting business and making money,
while members of the petitioner Guild of Philippine Jewelers, Inc. are constantly
subjected to bureaucratic harassment instead of being given by the government the
necessary support in order to survive and generate revenue for the government, and
most of all fight competitively not only in the domestic market but in the arena of
world market where the real contest is.

Considering the allegations of fact in the petition which were duly proven during the
trial, the Court holds that the petition states a cause of action and there exist a
justiciable controversy between the parties which would require determination of
constitutionality of laws imposing excise tax and customs duty on jewelry. (emphasis
[11]

ours)

The public respondent, in addressing the third issue, ruled that the laws in question
are confiscatory and oppressive. Again, virtually adopting verbatim the reasons
presented by the private respondents in their position paper, the lower court stated:

The court finds that indeed government taxation policy trats(sic) hewelry(sic) as non-
essential luxury item and therefore, taxed heavily. Aside from the ten (10%) percent
value added tax (VAT), local jewelry manufacturers contend with the (manufacturing)
excise tax of twenty (20%) percent (to be applied in stages) customs duties on
imported raw materials, the highest in the Asia-Pacific region. In contrast, imported
gemstones and other precious metals are duty free in Hongkong, Thailand, Malaysia
and Singapore.

The court elaborates further on the experience of other countries in their treatment of
the jewelry sector.

MALAYSIA
Duties and taxes on imported gemstones and gold and the sales tax on jewelry were
abolished in Malaysia in 1984. They were removed to encouraged the development of
Malaysias jewelry manufacturing industry and to increase exports of jewelry.

THAILAND

Gems and jewelry are Thailands ninth most important export earner. In the past, the
industry was overlooked by successive administrations much to the dismay of those
involved in developing trade.Prohibitive import duties and sales tax on precious
gemstones restricted the growth (sic) of the industry, resulting in most of the business
being unofficial. It was indeed difficult for a government or businessman to promote
an industry which did not officially exist.

Despite these circumstances, Thailands Gem business kept growing up in (sic)

businessmen began to realize its potential. In 1978, the government quietly removed
the severe duties on precious stones, but imposed a sales tax of 3.5%. Little was said
or done at that time as the government wanted to see if a free trade in gemstones and
jewelry would increase local manufacturing and exports or if it would mean more
foreign made jewelry pouring into Thailand. However, as time progressed, there were
indications that local manufacturing was indeed being encouraged and the economy
was earning more from exports. The government soon removed the 3% sales tax too.
Putting Thailand at par with Hongkong and Singapore. In these countries, there are no
more import duties and sales tax on gems. (Cited in pages 6 and 7 of Exhibit M. The
Center for Research and Communication in cooperation with the Guild of Philippine
Jewelers, Inc., June 1986).

To illustrate, shown hereunder in the Philippine tariff and tax structure on jewelry and
other percious and semi-precious stones compared to other neighboring countries, to
wit:

Tariff on imported
Jewelry and (MANUFACTURING) Sales Tax 10% (VAT)
Precious stones Excise Tax

Philippines 3% to 10% to be 20% 10% VAT

applied in stages

Malaysia None None None

Thailand None None None

Singapore None None None

Hongkong None None None

In this connection, the present tariff and tax structure increases manufacturing costs
and renders the local jewelry manufacturers uncompetitive against other countries
even before they start manufacturing and trading. Because of the prohibitive cast(sic)
of taxation, most manufacturers source from black market for smuggled goods, and
that while manufacturers can avail of tax exemption and/or tax credits from the
(manufacturing) excise tax, they have no documents to present when filing this
exemption because, as pointed out earlier, most of them source their raw materials
from the black market, and since many of them do not legally exist or operate
onofficially(sic), or underground, again they have no records (receipts) to indicate
where and when they will utilize such tax credits. (Cited in Exhibit M Buencamino
Report).

Given these constraints, the local manufacturer has no recourse but to the back door
for smuggled goods if only to be able to compete even ineffectively, or cease
manufacturing activities and instead engage in the tradinf (sic) of smuggled finished
jewelry.

Worthy of not is the fact that indeed no evidence was adduced by respondents to
disprove the foregoing allegations of fact. Under the foregoing factual circumstances,
the Court finds the questioned statutory provisions confiscatory and destructive of the
proprietary right of the petitioners to engage in business in violation of Section 1,
Article III of the Constitution which states, as follows:

No person shall be deprived of the life, liberty, or property without due process of law
x x x.
[12]

Anent the fourth and last issue, the herein public respondent did not find it
necessary to rule thereon, since, in his opinion, the same has been rendered moot and
academic by the aforementioned pronouncement. [13]

The petitioners now assail the decision rendered by the public respondent,
contending that the latter has no authority to pass judgment upon the taxation policy of
the government. In addition, the petitioners impugn the decision in question by asserting
that there was no showing that the tax laws on jewelry are confiscatory and desctructive
of private respondents proprietary rights.
We rule in favor of the petitioners.
It is interesting to note that public respondent, in the dispositive portion of his
decision, perhaps keeping in mind his limitations under the law as a trial judge, did not
go so far as to declare the laws in question to be unconstitutional. However, therein he
declared the laws to be inoperative and without force and effect insofar as the private
respondents are concerned.But, respondent judge, in the body of his decision,
unequivocally but wrongly declared the said provisions of law to be violative of Section
1, Article III of the Constitution. In fact, in their Supplemental Comment on the Petition
for Review, the private respondents insist that Judge Santos, in his capacity as judge
[14]

of the Regional Trial Court, acted within his authority in passing upon the issues, to wit:

A perusal of the appealed decision would undoubtedly disclose that public respondent
did not pass judgment on the soundness or wisdom of the governments tax policy on
jewelry. True, public respondent, in his questioned decision, observed, inter alia, that
indeed government tax policy treats jewelry as non-essential item, and therefore,
taxed heavily; that the present tariff and tax structure increase manufacturing cost and
renders the local jewelry manufacturers uncompetitive against other countries even
before they start manufacturing and trading; that many of the local manufacturers do
not legally exist or operate unofficially or underground; and that the manufacturers
have no recourse but to the back door for smuggled goods if only to be able to
compete even if ineffectively or cease manufacturing activities.

BUT, public respondent did not, in any manner, interfere with or encroach upon the
prerogative of the legislature to determine what should be the tax policy on
jewelry. On the other hand, the issue raised before, and passed upon by, the public
respondent was whether or not Section 150, paragraph (a) of the National Internal
Revenue Code (NIRC) and Section 104, Hdg, 71.01, 71.02, 71.03 and 71,04 of the
Tariff and Customs Code are unconstitutional, or differently stated, whether or not the
questioned statutory provisions affect the constitutional right of private respondents to
engage in business.

It is submitted that public respondent confined himself on this issue which is clearly a
judicial question.

We find it incongruous, in the face of the sweeping pronouncements made by Judge

Santos in his decision, that private respondents can still persist in their argument that
the former did not overreach the restrictions dictated upon him by law. There is no doubt
in the Courts mind, despite protestations to the contrary, that respondent judge
encroached upon matters properly falling within the province of legislative functions. In
citing as basis for his decision unproven comparative data pertaining to differences
between tax rates of various Asian countries, and concluding that the jewelry industry in
the Philippines suffers as a result, the respondent judge took it upon himself to supplant
legislative policy regarding jewelry taxation. In advocating the abolition of local tax and
duty on jewelry simply because other countries have adopted such policies, the
respondent judge overlooked the fact that such matters are not for him to decide.There
are reasons why jewelry, a non-essential item, is taxed as it is in this country, and these
reasons, deliberate upon by our legislature, are beyond the reach of judicial
questioning. As held in Macasiano vs. National Housing Authority: [15]
The policy of our courts is to avoid ruling on constitutional questions and to presume
that the acts of the political departments are valid in the absence of a clear and
unmistakable showing to the contrary. To doubt is to sustain, this presumption is based
on the doctrine of separation of powers which enjoins upon each department a
becoming respect for the acts of the other departments. The theory is that as the joint
act of Congress and the President of the Philippines, a law has been carefully studied
and determined to be in accordance with the fundamental law before it was finally
enacted. (emphasis ours)

What we see here is a debate on the WISDOM of the laws in question. This is a
matter on which the RTC is not competent to rule. As Cooley observed: Debatable
[16]

questions are for the legislature to decide. The courts do not sit to resolve the merits of
conflicting issues. In Angara vs. Electoral Commission, Justice Laurel made it clear
[17] [18]

that the judiciary does not pass upon question of wisdom, justice or expediency of
legislation. And fittingly so, for in the exercise of judicial power, we are allowed only to
settle actual controversies involving rights which are legally demandable and
enfoceable, and may not annul an act of the political departments simply because we
feel it is unwise or impractical. This is not to say that Regional Trial Courts have no
[19]

power whatsoever to declare a law unconstitutional. In J. M. Tuason and Co. v. Court of

Appeals we said that [p]lainly the Constitution contemplates that the inferior courts
[20]

should have jurisdiction in cases involving constitutionality of any treaty or law, for it
speaks of appellate review of final judgments of inferior courts in cases where such
constitutionality happens to be in issue. this authority of lower courts to decide
questions of constitutionality in the first instance was reaffirmed in Ynos v.
Intermediate Court of Appeals. But this authority does not extend to deciding questions
[21]

which pertain to legislative policy.

The trial court is not the proper forum for the ventilation of the issues raised by the
private respondents. The arguments they presented focus on the wisdom of the
provisions of law which they seek to nullify. Regional Trial Courts can only look into the
validity of a provision, that is, whether or not it has been passed according to the
procedures laid down by law, and thus cannot inquire as to the reasons for its
existence. Granting arguendo that the private respondents may have provided
convincing arguments why the jewelry industry in the Philippines should not be taxed as
it is, it is to the legislature that they must resort to for relief, since 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.[22]

As succinctly put in Lim vs. Pacquing: Where a controversy may be settled an a

[23]

platform other than one involving constitutional adjudication, the court should exercise
becoming modesty and avoid the constitutional question. As judges, we can only
interpret and apply the law and, despite our doubts about its wisdom, cannot repeal or
amend it. [24]

The respondents presented an exhaustive study on the tax rates on jewelry levied
by different Asian countries. This is meant to convince us that compared to other
countries, the tax rates imposed on said industry in the Philippines is oppressive and
confiscatory. This Court, however, cannot subscribe to the theory that the tax rates of
other countries should be used as a yardstick in determining what may be the proper
subjects of taxation in our own country. It should be pointed out that in imposing the
aforementioned taxes and duties, the State, acting through the legislative and executive
branches, is exercising its sovereign prerogative. 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 singling out of one particular class for taxation, or
exemption, infringe no constitutional limitation. [25]

WHEREFORE, premises considered, the petition is hereby GRANTED, and the

DECISION in Civil Case No. 56736 is hereby REVERSED and SET ASIDE. No costs.
SO ORDERED
Padilla, (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.

[1]
Civil Case No. 56736.
[2]
Rollo, pp. 8-29.
[3]
TSN, April 12, 1993, pp. 18-19; Exhibit 4; Exhibit B.
[4]
TSN, April 12, 1993, pp. 20-21; Exhibits 5 & 5-A.
[5]
TSN, June 16, 1993, p. 16.
[6]
TSN, October 21, 1992, p. 11.
[7]
TSN, September 16, 1992, pp. 9-14; pp. 44-45.
[8]
TSN, December 7, 1992, pp. 6-7.
[9]
TSN, September 16, 1992, pp. 9-14; pp.44-45.
[10]
This position paper was prepared by a certain J. Antonio Buencamino of the Corporate Planning
Services Division, Center for Research and Communication in cooperation with the Guild of
Philippine Jewelers, Inc.
[11]
Decision, pp. 7-8; Rollo, pp. 36-37.
[12]
Decision, pp. 10-12; Rollo, pp. 39-41.
[13]
Decision, p. 13; Rollo, p. 42.
[14]
Rollo, pp. 146-147.
[15]
Macasiano vs. National Housing Authority, 224 SCRA 236 (1993), citing Garcia vs. Executive
Secretary, 204 SCRA 516 (1991).
[16]
Ibid.
[17]
Ibid.
[18]
63 Phil. 139 (1936).
[19]
Macasiano vs. National Housing Authority, supra.
[20]
3 SCRA 696 [1961].
[21]
148 SCRA 659 [1987].
[22]
Tan vs. Del Rosario, Jr., 237 SCRA 324 (1994).
[23]
240 SCRA 649 (1995). See separate opinion.
[24]
Pangilinan vs. Maglaya, 225 SCRA 511 (1993).
[25]
Lutz vs. Araneta, 98 Phil. 148 (1955); Sison Jr. vs. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng
mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, 163 SCRA 371 (1988); Tolentino vs.
Secretary of Finance, 249 SCRA 628 (1995).

29

G.R. No. 96266 July 18, 1991

ERNESTO M. MACEDA, petitioner,

vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL PETROLEUM
CORPORATION AND PETRON CORPORATION, respondents.

G.R. No. 96349 July 18, 1991

EUGENIO O. ORIGINAL, IRENEO N. AARON, JR., RENE LEDESMA, ROLANDO VALLE,

ORLANDO MONTANO, STEVE ABITANG, NERI JINON, WILFREDO DELEONIO, RENATO
BORRO, RODRIGO DE VERA, ALVIN BAYUANG, JESUS MELENDEZ, NUMERIANO CAJILIG
JR., RUFINO DE LA CRUZ AND JOVELINO G. TIPON, petitioners,
vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL PETROLEUM
CORPORATION AND PETRON CORPORATION, respondents.

G.R. No. 96284 July 18,1991

CEFERINO S. PAREDES, JR., petitioner,

vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL, INC. AND
PETROPHIL CORPORATION, respondents.

RESOLUTION

MEDIALDEA, J.:

In G.R. No. 96266, petitioner Maceda seeks nullification of the Energy Regulatory Board (ERB)
Orders dated December 5 and 6, 1990 on the ground that the hearings conducted on the second
provisional increase in oil prices did not allow him substantial cross-examination, in effect, allegedly,
a denial of due process.
The facts of the case are as follows:

Upon the outbreak of the Persian Gulf conflict on August 2, 1990, private respondents oil companies
filed with the ERB their respective applications on oil price increases (docketed as ERB Case Nos.
90-106, 90-382 and 90-384, respectively).

On September 21, 1990, the ERB issued an order granting a provisional increase of P1.42 per liter.
Petitioner Maceda filed a petition for Prohibition on September 26, 1990 (E. Maceda v. ERB, et al.,
G.R. No. 95203), seeking to nullify the provisional increase. We dismissed the petition on December
18, 1990, reaffirming ERB's authority to grant provisional increase even without prior hearing,
pursuant to Sec. 8 of E.O. No. 172, clarifying as follows:

What must be stressed is that while under Executive Order No. 172, a hearing is
indispensable, it does not preclude the Board from ordering, ex-parte, a provisional increase,
as it did here, subject to its final disposition of whether or not: (1) to make it permanent; (2) to
reduce or increase it further; or (3) to deny the application. Section 3, paragraph (e) is akin to
a temporary restraining order or a writ of preliminary attachment issued by the courts, which
are given ex-parte and which are subject to the resolution of the main case.

Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate
exclusively of the other, in that the Board may resort to one but not to both at the same time.
Section 3(e) outlines the jurisdiction of the Board and the grounds for which it may decree a
price adjustment, subject to the requirements of notice and hearing. Pending that, however, it
may order, under Section 8, an authority to increase provisionally, without need of a hearing,
subject to the final outcome of the proceeding. The Board, of course, is not prevented from
conducting a hearing on the grant of provisional authority-which is of course, the better
procedure however, it cannot be stigmatized later if it failed to conduct one. (pp. 129-
130, Rollo) (Emphasis supplied)

In the same order of September 21, 1990, authorizing provisional increase, the ERB set the
applications for hearing with due notice to all interested parties on October 16, 1990. Petitioner
Maceda failed to appear at said hearing as well as on the second hearing on October 17, 1990.

To afford registered oppositors the opportunity to cross-examine the witnesses, the ERB set the
continuation of the hearing to October 24, 1990. This was postponed to November 5, 1990, on
written notice of petitioner Maceda.

On November 5, 1990, the three oil companies filed their respective motions for leave to file or admit
amended/supplemental applications to further increase the prices of petroleum products.

The ERB admitted the respective supplemental/amended petitions on November 6, 1990 at the
same time requiring applicants to publish the corresponding Notices of Public Hearing in two
newspapers of general circulation (p. 4, Rollo and Annexes "F" and "G," pp. 60 and 62, Rollo).

Hearing for the presentation of the evidence-in-chief commenced on November 21, 1990 with ERB
ruling that testimonies of witnesses were to be in the form of Affidavits (p. 6, Rollo). ERB
subsequently outlined the procedure to be observed in the reception of evidence, as follows:

CHAIRMAN FERNANDO:
 Well, at the last hearing, applicant Caltex presented its evidence-in-chief and there is an
understanding or it is the Board's wish that for purposes of good order in the presentation of
the evidence considering that these are being heard together, we will defer the cross-
examination of applicant Caltex's witness and ask the other applicants to present their
evidence-in-chief so that the oppositors win have a better Idea of what an of these will lead
to because as I mentioned earlier, it has been traditional and it is the intention of the Board to
act on these applications on an industry-wide basis, whether to accept, reject, modify or
whatever, the Board win do it on an industry wide basis, so, the best way to have (sic) the
oppositors and the Board a clear picture of what the applicants are asking for is to have all
the evidence-in-chief to be placed on record first and then the examination will come later,
the cross-examination will come later. . . . (pp. 5-6, tsn., November 23, 1990, ERB Cases
Nos. 90-106, 90382 and 90-384). (p. 162, Rollo)

Petitioner Maceda maintains that this order of proof deprived him of his right to finish his cross-
examination of Petron's witnesses and denied him his right to cross-examine each of the witnesses
of Caltex and Shell. He points out that this relaxed procedure resulted in the denial of due process.

We disagree. The Solicitor General has pointed out:

. . . The order of testimony both with respect to the examination of the particular witness and
to the general course of the trial is within the discretion of the court and the exercise of this
discretion in permitting to be introduced out of the order prescribed by the rules is not
improper (88 C.J.S. 206-207).

Such a relaxed procedure is especially true in administrative bodies, such as the ERB
which in matters of rate or price fixing is considered as exercising a quasi-legislative, not
quasi-judicial, function As such administrative agency, it is not bound by the strict or technical
rules of evidence governing court proceedings (Sec. 29, Public Service Act; Dickenson v.
United States, 346, U.S. 389, 98 L. ed. 132, 74 S. St. 152). (Emphasis supplied)

In fact, Section 2, Rule I of the Rules of Practice and Procedure Governing Hearings Before
the ERB provides that

These Rules shall govern pleadings, practice and procedure before the Energy Regulatory
Board in all matters of inquiry, study, hearing, investigation and/or any other proceedings
within the jurisdiction of the Board. However, in the broader interest of justice, the Board
may, in any particular matter, except itself from these rules and apply such suitable
procedure as shall promote the objectives of the Order.

(pp. 163-164, Rollo)

Petitioner Maceda also claims that there is no substantial evidence on record to support the
provisional relief.

We have, in G.R. Nos. 95203-05, previously taken judicial notice of matters and events related to the
oil industry, as follows:

. . . (1) as of June 30, 1990, the OPSF has incurred a deficit of P6.1 Billion; (2) the exchange
rate has fallen to P28.00 to $1.00; (3) the country's balance of payments is expected to
reach $1 Billion; (4) our trade deficit is at P2.855 Billion as of the first nine months of the
year.
 . . . (p. 150, Rollo)

The Solicitor General likewise commented:

Among the pieces of evidence considered by ERB in the grant of the contested provisional
relief were: (1) certified copies of bins of lading issued by crude oil suppliers to the private
respondents; (2) reports of the Bankers Association of the Philippines on the peso-dollar
exchange rate at the BAP oil pit; and (3) OPSF status reports of the Office of Energy Affairs.
The ERB was likewise guided in the determination of international crude oil prices by
traditional authoritative sources of information on crude oil and petroleum products, such as
Platt's Oilgram and Petroleum Intelligence Weekly. (p. 158, Rollo)

Thus, We concede ERB's authority to grant the provisional increase in oil price, as We note that the
Order of December 5, 1990 explicitly stated:

in the light, therefore, of the rise in crude oil importation costs, which as earlier mentioned,
reached an average of $30.3318 per barrel at $25.551/US $ in September-October 1990; the
huge OPSF deficit which, as reported by the Office of Energy Affairs, has amounted to P5.7
Billion (based on filed claims only and net of the P5 Billion OPSF) as of September 30, 1990,
and is estimated to further increase to over P10 Billion by end December 1990; the decision
of the government to discontinue subsidizing oil prices in view of inflationary pressures; the
apparent inadequacy of the proposed additional P5.1 Billion government appropriation for
the OPSF and the sharp drop in the value of the peso in relation to the US dollar to P28/US
$, this Board is left with no other recourse but to grant applicants oil companies further relief
by increasing the prices of petroleum products sold by them. (p. 161, Rollo)

Petitioner Maceda together with petitioner Original (G.R. No. 96349) also claim that the provisional
increase involved amounts over and above that sought by the petitioning oil companies.

The Solicitor General has pointed out that aside from the increase in crude oil prices, all the
applications of the respondent oil companies filed with the ERB covered claims from the OPSF.

We shall thus respect the ERB's Order of December 5, 1990 granting a provisional price increase on
petroleum products premised on the oil companies' OPSF claims, crude cost peso differentials, forex
risk for a subsidy on sale to NPC (p. 167, Rollo), since the oil companies are "entitled to as much
relief as the fact alleged constituting the course of action may warrant," (Javellana v. D.O. Plaza
Enterprises, Inc., G.R. No. L-28297, March 30, 1970, 32 SCRA 261 citing Rosales v. Reyes, 25 Phil.
495; Aguilar v. Rubiato, 40 Phil. 470) as follows:

Per Liter

Weighted

Petron Shell Caltex Average

Crude Cost P3.11 P3.6047 P2.9248 P3.1523

Peso Cost

Diffn'l 2.1747 1.5203 1.5669 1.8123

 Forex Risk

Fee -0.1089 -0,0719 -0.0790 -0.0896

Subsidy on

Sales to NPC 0.1955 0.0685 0.0590 0.1203

Total Price

Increase

Applied for P59.3713 P5.1216 P4.4717 P4.9954

Less: September 21 Price

Relief

Actual Price Increase P1.42

Actual Tax Reduction:

Ad Valorem Tax

(per Sept. 1, 1990

price build-up) P1.3333

Specific Tax (per

Oct. 5, 1990 price

build-up) .6264 .7069 2.1269

Net Price Increase

Applied for 2.8685

Nonetheless, it is relevant to point out that on December 10, 1990, the ERB, in response to the
President's appeal, brought back the increases in Premium and Regular gasoline to the levels
mandated by the December 5, 1990 Order (P6.9600 and P6.3900, respectively), as follows:

Product In Pesos Per Liter

OPSF

Premium Gasoline 6.9600

Regular Gasoline 6.3900

 Avturbo 4.9950

Kerosene 1.4100

Diesel Oil 1.4100

Fuel Oil/Feedstock 0.2405

LPG 1.2200

Asphalt 2.5000

Thinner 2.5000

In G.R. No. 96349, petitioner Original additionally claims that if the price increase will be used to
augment the OPSF this will constitute illegal taxation. In the Maceda case, (G.R. Nos. 95203-
05, supra) this Court has already ruled that "the Board Order authorizing the proceeds generated by
the increase to be deposited to the OPSF is not an act of taxation but is authorized by Presidential
Decree No. 1956, as amended by Executive Order No. 137.

The petitions of E.O. Original et al. (G.R. No. 96349) and C.S. Povedas, Jr. (G.R. No. 96284),
insofar as they question the ERB's authority under Sec. 8 of E.O. 172, have become moot and
academic.

We lament Our helplessness over this second provisional increase in oil price. We have stated that
this "is a question best judged by the political leadership" (G.R. Nos. 95203-05, G.R. Nos. 95119-
21, supra). We wish to reiterate Our previous pronouncements therein that while the government is
able to justify a provisional increase, these findings "are not final, and it is up to petitioners to
demonstrate that the present economic picture does not warrant a permanent increase."

In this regard, We also note the Solicitor General's comments that "the ERB is not averse to the idea
of a presidential review of its decision," except that there is no law at present authorizing the same.
Perhaps, as pointed out by Justice Padilla, our lawmakers may see the wisdom of allowing
presidential review of the decisions of the ERB since, despite its being a quasi-judicial body, it is still
"an administrative body under the Office of the President whose decisions should be appealed to the
President under the established principle of exhaustion of administrative remedies," especially on a
matter as transcendental as oil price increases which affect the lives of almost an Filipinos.

ACCORDINGLY, the petitions are hereby DISMISSED.

SO ORDERED.

Narvasa, Melencio-Herrera, Feliciano, Gancayco, Bidin, Grio-Aquino and Regalado, JJ., concur.
Davide, J., concurs in the result.

Fernan, C.J., took no part.

 Separate Opinions

PARAS, J., dissenting:

I dissent. As I have long previously indicated, the ERB has absolutely no power to tax which is solely
the prerogative of Congress. This is what the ERB is precisely doing by getting money from the
people to ultimately subsidize the ravenous oil companies. Additionally, the stubborn refusal of the
ERB to effectively rollback oil prices is a continuing bestial insult to the intelligence of our
countrymen, and a gross abandonment of the people in their hour of economic misery. I therefore
vote for a complete and effective rollback of all oil prices.

Cruz, J., concurs.

PADILLA, J., dissenting:

I regret that I can not concur in the majority opinion.

In the matter of price increases of oil products, which vitally affects the people, especially those in
the middle and low income groups, any increase, provisional or otherwise, should be allowed only
after the Energy Regulatory Board (ERB) shall have fully determined, through bona fide and full-
dress hearings, that it is absolutely necessary and by how much it shall be effected. The people,
represented by reputable oppositors, deserve to be given full opportunity to be heard in their
opposition to any increase in the prices of fuel. The right to be heard includes not only the right to
present one's case and submit evidence in support thereof, but also the right to confront and cross-
examine the witnesses of the adverse parties.

Because of the procedure adopted by the ERB in the reception of evidence leading to the price
increases of 5 and 6 December 1990, petitioner Maceda was not able to finish his cross-examination
of Petron's sole witness. And, even before each of the witnesses of Shell and Caltex could be cross-
examined by petitioners and before they could present evidence in support of their opposition to the
increase, the ERB had already issued its 5 December 1990 order allowing a "provisional increase"
sought by the oil companies in their respective supplemental applications.

That there were postponements of scheduled hearings before the ERB, at the instance of oppositor
Maceda, did not justify a denial of the right of oppositors to be heard. The postponements were not
intended to delay the proceedings. In fact, the resetting of the scheduled hearings on November 14,
15 and 16 to a later date, upon motion of petitioner Maceda, was to enable him to file a written
opposition to the supplemental applications filed by the oil companies.

The ERB acted hastily in granting the provisional increases sought by the oil companies even before
the oppositors could submit evidence in support of their opposition. The fact that the questioned
orders merely allowed a provisional increase is beside the point, for past experiences have shown
that so-called provisional increases" allowed by the ERB ultimately became permanent.

ERB's claim that the second provisional increase was duly supported by evidence, is belied by its
own act of modifying said order (of provisional increase) not only once but twice, upon the "request"
of the President. First, the ERB rolled back the prices of fuel just a day after it issued the questioned
order, altering the allocation of the increase. Second, on 10 December 1990, the ERB further
modified the price of petroleum products resulting in reduction of the weighted average provisional
increase from P2.82 to P2.05 per liter, but only after the President had announced that she would
meet with the leaders of both Houses of Congress, to discuss the creation of a special fund to be
raised from additional taxes, to subsidize the prices of petroleum products. 1

These acts of the ERB ostensibly sparked by "presidential requests" clearly demonstrate that the
evidence did not, in the first place, justify the price increases it had ordered on 5 and 6 December
1990. Furthermore, the ERB never came out with a categorical and official declaration of how much
was the so-called deficit of the Oil Price Stabilization Fund (OPSF) and how much of the oil price
increases was intended to cover such deficit.

In the midst of a national crisis related to oil price increases, each and every one is called upon to
assume his/its share of continuing sacrifices. The public, the government, as well as the oil
companies should work hand in hand in solving the present problem that confronts us. We are not
unmindful of the fact that the oil companies are profit-oriented. However, profits should not be their
only concern in times of deepening inability of the people to cope with their prices with "built-in-
margins". A reduction of profits during these crucial and trying times, is certainly in order considering
that in the past, the oil companies had unquestionably made tremendous profits.

In view of the foregoing, I vote to GRANT the petition for the nullification of the 5 and 6 December
1990 orders of the ERB and for a roll-back of the prices of oil products to levels existing before 5 and
6 December 1990 until hearings before the ERB are finally concluded.

Before closing, I also would like to submit for congressional consideration two (2) proposals in the
public interest. They are:

(1) to do away with the present scheme of allowing provisional price increases of oil products. This
scheme, to my mind, is misleading and serves as an excuse for unilateral and arbitrary ERB-action.
As already noted, these provisional price increases are, to all intents and purposes, permanent when
fixed. To that extent, the scheme is a fraud on the people.

(2) all decisions and orders of the ERB should be expressly made appealable by statute to the
President of the Philippines whose decisions shall be final, except in cases involving questions of
law or grave abuse of discretion which may be elevated to the Supreme Court in a special civil
action for certiorari under Rule 65 of the Rules of Court.

While at present, decisions and orders of the ERB are, in my considered opinion, appealable to the
President under the principle of "exhaustion of administrative remedies", it is nevertheless desirable
that the appealability of ERB decisions and orders to the President be placed beyond any and all
doubts. In this way, the President of the Philippines has to assume full responsibility for all price
increases in oil products, which should be the case because the matter involved is not only one of
national interest but profoundly one of people's survival.

Gutierrez, Jr. and Cruz, JJ., concur.

SARMIENTO, J., separate opinion:

I would like to point out a few things in view of the majority's reliance on the first Maceda case. 1

The first Maceda case was a challenge on provisional oil price increases decreed by the Energy
Regulatory Board (ERB). This Court sustained the Board, as it is sustaining the Board in this case,
on a few economic outputs, namely, the Oil Price Stabilization Fund (OPSF) deficit, the deteriorating
exchange rate, and the balance of payments and trade gaps.

As I held in my dissent in yet another Maceda case, Maceda v. Macaraig, the current oil price
2

increases were (are) also the result of the devaluation of the currency, since a devalued peso forced
oil companies to pay more pesos for oil worth in dollars.

I simply wish to state what has apparently been left unstated in the course of debate and perhaps,
the real score behind recurring oil price hikes and why the ERB has been very quick in granting
them.

The truth is that petroleum prices have been dictated by the Government's economic maneuvers,
and not rather the vagaries of the world market. The truth is that the recent oil hikes have nothing to
do with Saddam Hussein or the Gulf crisis (during which oil prices in fact dropped) and are, rather,
the natural consequences of calculated moves by the Government in its effort to meet so-called
International Monetary Fund (IMF) targets.

In 1989, the Government of the Republic of the Philippines submitted its letter of intent to the IMF
outlining the country's economic program from 1989 through 1992. In its paragraph 19, it states that:

The Government intends to continue with the floating exchange rate system established in
October 1984 . . .3

Since exchange control was abolished and the floating rate system was established, the Philippine
peso has seen a series of devaluations that have progressively pushed up prices, significantly,
prices of petroleum. According to one authority, devaluation has been a "standard prescription" to
correct balance of payments (BOP) deficits. It makes dollars expensive, discourages import and
4

encourages exports, and forces dollars conservation. 5

It is a matter of opinion whether or not devaluation has been good for the country and whether or not
it has realized these objectives. The truth is that, whatever it has accomplished, oil which is
imported has been subject to the effects of devaluation.

Early this year, Governor Jose Cuisia of the Central Bank, Secretary Jesus Estanislao of the
Department of Finance, and Secretary Guillermo Carague of the Budget and Management
Department, wrote Mr. Michael Camdessus of the International Monetary Fund (the letter of intent)
and informed him of the country's "Economic Stabilization Plan, 1991-92". The Plan recognized
certain economic imbalances that have supposedly inhibited growth, in particular, inflation and an
increasing balance of payments deficit, and drew a program centered on "a strong effort to bring
down the overall fiscal deficit "through, among other things, "the gradual elimination of the deficit of
the Oil Price Stabilization Fund." It spelled out, among other things, a "[r]estoration of a sustainable
6

external position requir[ing] the continuation of a flexible exchange rate policy . . . " and described in
7

detail an "Oil Price and Energy Policy" focused on wiping out the OPSF deficit, to wit:

xxx xxx xxx

A substantial erosion in the overall fiscal position occurred in 1989 and 1990 as a result of
official price support for oil products provided through the OPSF. Despite a lowering of the
excise tax on oil in September 1990 and average domestic oil price increases of about 30
percent in September and 32 percent in December 1990, the fund continued to incur a deficit
during the second half of 1990. The cumulative OPSF deficit (excluding unfiled claims) at
 end December 1990 is estimated at P8.8 billion, and this deficit will rise in the first part of
1991. However the cumulative OPSF deficit is to be eliminated by the end of the third quarter
of 1991. To this end, the Government intends to follow a pricing policy that ensures
attainment of zero balance within the specific time. In particular, the Government will
maintain present price levels despite projected world price declines. In addition, a budgetary
transfer of P5 billion will be provided in 1991 to settle outstanding claim of the OPSF.

15. Full deregulation of oil prices continues to be an important objective of the Government
once calm has been restored to world oil markets. Meanwhile the technical and legal
groundwork is being laid with a view to full deregulation as soon as practicable.

16. The principal objectives of the Government's policy in the energy sector are: (i) the
development of economically viable indigenous energy resources, mainly thermal,
geothermal and hydro-electric power, together with ensuring adequate maintenance of
existing facilities; (ii) promoting more efficient use of energy resources through various
energy conservation measures; and (ii) the elimination of distortions in every resource
allocation through appropriate pricing policies. 8

xxx xxx xxx

As I said, Philippine oil prices today have nothing to do with the law on supply and demand, if they
had anything to do with it in recent years. (I also gather that the Government is intending to re-adjust
the prices of gasoline and diesel fuel soon since apparently, low diesel prices have reduced the
demand for gasoline resulting in "distortions".)

As the Court held in the first Maceda v. Energy Regulatory Board, oil pricing "is a question best
9

judged by the political leadership" and oil prices are (and have been apparently), political, rather than
economic, decisions.

I am not to be mistaken as accepting the "letter of intent" as a correct prescription much less a
necessary medicine although I will be lacking in candor if I did not say that it is a bitter pill to
swallow. What I must be understood as saying is that "oil" is a political card to be played on a
political board rather than the courts, so long, of course, as nobody has done anything illegal.

The "politics of oil" as spelled out in the Government's letter of intent likewise bring to light the true
nature of the ERB Under the Memorandum on Philippine Economic Stabilization Plan:

xxx xxx xxx

In the past, energy prices had been set to broadly reflect the average cost of supply.
However, the lack of transparency of the pricing mechanism and subsidization of
consumption have increasingly become a cause for concern. To alleviate some of these
problems, in mid-1987, the Government established the Energy Regulatory Board ERB a
quasi-judicial body empowered with the setting and regulation of the pricing of petroleum
products and electricity tariffs, the regulation of additions to oil refining capacity, and the
regulation of importing, transporting, processing and distributing all energy resources.
(Petroleum pricing policy is described in paragraphs 14 and 15.) In addition to the full pass-
through of changes in oil prices to power tariffs, the Government is committed to the
adoption of longrun marginal cost pricing for electricity. To this end, NPC intends to introduce
a marginal cost imported-has tariff structure to ensure that it meets its target of achieving a
rate of return of eight percent on its rate base. 10
it is apparent that the Board, in spite of its "independence" (from the Office of the President), is
bound by the terms of the program and that it has after all, no genuine discretion to deny requests
for price adjustments by oil companies. I seriously doubt whether or not it is possessed of that
discretion judging, first, from its performance since 1987 (in which it has not overruled the
Government on "oil cases") and the fact that the exchange rate, the balance of payment deficit, and
the OPSF deficiency are matters of simple arithmetic.

And certainly, the Board can not possibly overrule the Government's "letter of intent."

The first Maceda case sustained the grant of provisional price increases ex parte not only because
Section 8 of Executive Order No. 172 authorized the grant of provisional relief without a hearing but
because fluctuations in the foreign exchange rates, for instance, were, and are, a matter of judicial
notice, and a hearing thereafter was necessary only to see whether or not the ERB determined the
rates correctly.

This likewise brings to light the necessity for an ERB to fix rates since it does not, after all fix
(meaning decide) rates but merely announces their imminence on demonstrable figures of higher
rates. The Court however can not question the wisdom of a statute and after all, I suppose the
Government can make use of an accountant.

I agree with Justice Padilla insofar as he refers to the "present scheme of allowing provisional price
increase" as a "scheme [to defraud] the people." I would like to go further. As I indicated the ERB
does no more than to punch calculators for the Government-which decides oil price increases. The
comedy of December, 1990, when the Board adjusted prices in a matter of days, is a confirmation of
this point. As Justice Padilla noted, the re-adjustment of December 10, 1990 was in fact prompted by
"presidential requests" which does not speak well of the Board's independence and which in fact
bares the truth as to who really makes the decision. (The readjustment, consisting in the reduction in
diesel fuel and a corresponding increase in gasoline, sought to mollify the indignation of the public.)

I agree with Justice Padilla that it amounts to fraud on the people to make them believe that the ERB
can give them a fair hearing, indeed, if it can do anything at all.

I agree, finally, with Justice Padilla that the nation is one in crisis, and evidently, the "ravenous" oil
companies Justice Paras refers to, have not helped any. I submit however that we have not
succeeded in fingering the real villain the letter of intent. Saddam's Middle East folly has nothing to
do with that.

Separate Opinions

PARAS, J., dissenting:

I dissent. As I have long previously indicated, the ERB has absolutely no power to tax which is solely
the prerogative of Congress. This is what the ERB is precisely doing by getting money from the
people to ultimately subsidize the ravenous oil companies. Additionally, the stubborn refusal of the
ERB to effectively rollback oil prices is a continuing bestial insult to the intelligence of our
countrymen, and a gross abandonment of the people in their hour of economic misery. I therefore
vote for a complete and effective rollback of all oil prices.

Cruz, J., concurs.

PADILLA, J., dissenting:

I regret that I can not concur in the majority opinion.

In the matter of price increases of oil products, which vitally affects the people, especially those in
the middle and low income groups, any increase, provisional or otherwise, should be allowed only
after the Energy Regulatory Board (ERB) shall have fully determined, through bona fide and full-
dress hearings, that it is absolutely necessary and by how much it shall be effected. The people,
represented by reputable oppositors, deserve to be given full opportunity to be heard in their
opposition to any increase in the prices of fuel. The right to be heard includes not only the right to
present one's case and submit evidence in support thereof, but also the right to confront and cross-
examine the witnesses of the adverse parties.

Because of the procedure adopted by the ERB in the reception of evidence leading to the price
increases of 5 and 6 December 1990, petitioner Maceda was not able to finish his cross-examination
of Petron's sole witness. And, even before each of the witnesses of Shell and Caltex could be cross-
examined by petitioners and before they could present evidence in support of their opposition to the
increase, the ERB had already issued its 5 December 1990 order allowing a "provisional increase"
sought by the oil companies in their respective supplemental applications.

That there were postponements of scheduled hearings before the ERB, at the instance of oppositor
Maceda, did not justify a denial of the right of oppositors to be heard. The postponements were not
intended to delay the proceedings. In fact, the resetting of the scheduled hearings on November 14,
15 and 16 to a later date, upon motion of petitioner Maceda, was to enable him to file a written
opposition to the supplemental applications filed by the oil companies.

The ERB acted hastily in granting the provisional increases sought by the oil companies even before
the oppositors could submit evidence in support of their opposition. The fact that the questioned
orders merely allowed a provisional increase is beside the point, for past experiences have shown
that so-called provisional increases" allowed by the ERB ultimately became permanent.

ERB's claim that the second provisional increase was duly supported by evidence, is belied by its
own act of modifying said order (of provisional increase) not only once but twice, upon the "request"
of the President. First, the ERB rolled back the prices of fuel just a day after it issued the questioned
order, altering the allocation of the increase. Second, on 10 December 1990, the ERB further
modified the price of petroleum products resulting in reduction of the weighted average provisional
increase from P2.82 to P2.05 per liter, but only after the President had announced that she would
meet with the leaders of both Houses of Congress, to discuss the creation of a special fund to be
raised from additional taxes, to subsidize the prices of petroleum products. 1

These acts of the ERB ostensibly sparked by "presidential requests" clearly demonstrate that the
evidence did not, in the first place, justify the price increases it had ordered on 5 and 6 December
1990. Furthermore, the ERB never came out with a categorical and official declaration of how much
was the so-called deficit of the Oil Price Stabilization Fund (OPSF) and how much of the oil price
increases was intended to cover such deficit.

In the midst of a national crisis related to oil price increases, each and every one is called upon to
assume his/its share of continuing sacrifices. The public, the government, as well as the oil
companies should work hand in hand in solving the present problem that confronts us. We are not
unmindful of the fact that the oil companies are profit-oriented. However, profits should not be their
only concern in times of deepening inability of the people to cope with their prices with "built-in-
margins". A reduction of profits during these crucial and trying times, is certainly in order considering
that in the past, the oil companies had unquestionably made tremendous profits.

In view of the foregoing, I vote to GRANT the petition for the nullification of the 5 and 6 December
1990 orders of the ERB and for a roll-back of the prices of oil products to levels existing before 5 and
6 December 1990 until hearings before the ERB are finally concluded.

Before closing, I also would like to submit for congressional consideration two (2) proposals in the
public interest. They are:

(1) to do away with the present scheme of allowing provisional price increases of oil products. This
scheme, to my mind, is misleading and serves as an excuse for unilateral and arbitrary ERB-action.
As already noted, these provisional price increases are, to all intents and purposes, permanent when
fixed. To that extent, the scheme is a fraud on the people.

(2) all decisions and orders of the ERB should be expressly made appealable by statute to the
President of the Philippines whose decisions shall be final, except in cases involving questions of
law or grave abuse of discretion which may be elevated to the Supreme Court in a special civil
action for certiorari under Rule 65 of the Rules of Court.

While at present, decisions and orders of the ERB are, in my considered opinion, appealable to the
President under the principle of "exhaustion of administrative remedies", it is nevertheless desirable
that the appealability of ERB decisions and orders to the President be placed beyond any and all
doubts. In this way, the President of the Philippines has to assume full responsibility for all price
increases in oil products, which should be the case because the matter involved is not only one of
national interest but profoundly one of people's survival.

Gutierrez, Jr. and Cruz, JJ., concur.

SARMIENTO, J., separate opinion:

I would like to point out a few things in view of the majority's reliance on the first Maceda case. 1

The first Maceda case was a challenge on provisional oil price increases decreed by the Energy
Regulatory Board (ERB). This Court sustained the Board, as it is sustaining the Board in this case,
on a few economic outputs, namely, the Oil Price Stabilization Fund (OPSF) deficit, the deteriorating
exchange rate, and the balance of payments and trade gaps.

As I held in my dissent in yet another Maceda case, Maceda v. Macaraig, the current oil price
2

increases were (are) also the result of the devaluation of the currency, since a devalued peso forced
oil companies to pay more pesos for oil worth in dollars.

I simply wish to state what has apparently been left unstated in the course of debate and perhaps,
the real score behind recurring oil price hikes and why the ERB has been very quick in granting
them.

The truth is that petroleum prices have been dictated by the Government's economic maneuvers,
and not rather the vagaries of the world market. The truth is that the recent oil hikes have nothing to
do with Saddam Hussein or the Gulf crisis (during which oil prices in fact dropped) and are, rather,
the natural consequences of calculated moves by the Government in its effort to meet so-called
International Monetary Fund (IMF) targets.
In 1989, the Government of the Republic of the Philippines submitted its letter of intent to the IMF
outlining the country's economic program from 1989 through 1992. In its paragraph 19, it states that:

The Government intends to continue with the floating exchange rate system established in
October 1984 . . .3

Since exchange control was abolished and the floating rate system was established, the Philippine
peso has seen a series of devaluations that have progressively pushed up prices, significantly,
prices of petroleum. According to one authority, devaluation has been a "standard prescription" to
correct balance of payments (BOP) deficits. It makes dollars expensive, discourages import and
4

encourages exports, and forces dollars conservation. 5

It is a matter of opinion whether or not devaluation has been good for the country and whether or not
it has realized these objectives. The truth is that, whatever it has accomplished, oil which is
imported has been subject to the effects of devaluation.

Early this year, Governor Jose Cuisia of the Central Bank, Secretary Jesus Estanislao of the
Department of Finance, and Secretary Guillermo Carague of the Budget and Management
Department, wrote Mr. Michael Camdessus of the International Monetary Fund (the letter of intent)
and informed him of the country's "Economic Stabilization Plan, 1991-92". The Plan recognized
certain economic imbalances that have supposedly inhibited growth, in particular, inflation and an
increasing balance of payments deficit, and drew a program centered on "a strong effort to bring
down the overall fiscal deficit "through, among other things, "the gradual elimination of the deficit of
the Oil Price Stabilization Fund." It spelled out, among other things, a "[r]estoration of a sustainable
6

external position requir[ing] the continuation of a flexible exchange rate policy . . . " and described in
7

detail an "Oil Price and Energy Policy" focused on wiping out the OPSF deficit, to wit:

xxx xxx xxx

A substantial erosion in the overall fiscal position occurred in 1989 and 1990 as a result of
official price support for oil products provided through the OPSF. Despite a lowering of the
excise tax on oil in September 1990 and average domestic oil price increases of about 30
percent in September and 32 percent in December 1990, the fund continued to incur a deficit
during the second half of 1990. The cumulative OPSF deficit (excluding unfiled claims) at
end December 1990 is estimated at P8.8 billion, and this deficit will rise in the first part of
1991. However the cumulative OPSF deficit is to be eliminated by the end of the third quarter
of 1991. To this end, the Government intends to follow a pricing policy that ensures
attainment of zero balance within the specific time. In particular, the Government will
maintain present price levels despite projected world price declines. In addition, a budgetary
transfer of P5 billion will be provided in 1991 to settle outstanding claim of the OPSF.

15. Full deregulation of oil prices continues to be an important objective of the Government
once calm has been restored to world oil markets. Meanwhile the technical and legal
groundwork is being laid with a view to full deregulation as soon as practicable.

16. The principal objectives of the Government's policy in the energy sector are: (i) the
development of economically viable indigenous energy resources, mainly thermal,
geothermal and hydro-electric power, together with ensuring adequate maintenance of
existing facilities; (ii) promoting more efficient use of energy resources through various
energy conservation measures; and (ii) the elimination of distortions in every resource
allocation through appropriate pricing policies. 8
 xxx xxx xxx

As I said, Philippine oil prices today have nothing to do with the law on supply and demand, if they
had anything to do with it in recent years. (I also gather that the Government is intending to re-adjust
the prices of gasoline and diesel fuel soon since apparently, low diesel prices have reduced the
demand for gasoline resulting in "distortions".)

As the Court held in the first Maceda v. Energy Regulatory Board, oil pricing "is a question best
9

judged by the political leadership" and oil prices are (and have been apparently), political, rather than
economic, decisions.

I am not to be mistaken as accepting the "letter of intent" as a correct prescription much less a
necessary medicine although I will be lacking in candor if I did not say that it is a bitter pill to
swallow. What I must be understood as saying is that "oil" is a political card to be played on a
political board rather than the courts, so long, of course, as nobody has done anything illegal.

The "politics of oil" as spelled out in the Government's letter of intent likewise bring to light the true
nature of the ERB Under the Memorandum on Philippine Economic Stabilization Plan:

xxx xxx xxx

In the past, energy prices had been set to broadly reflect the average cost of supply.
However, the lack of transparency of the pricing mechanism and subsidization of
consumption have increasingly become a cause for concern. To alleviate some of these
problems, in mid-1987, the Government established the Energy Regulatory Board ERB a
quasi-judicial body empowered with the setting and regulation of the pricing of petroleum
products and electricity tariffs, the regulation of additions to oil refining capacity, and the
regulation of importing, transporting, processing and distributing all energy resources.
(Petroleum pricing policy is described in paragraphs 14 and 15.) In addition to the full pass-
through of changes in oil prices to power tariffs, the Government is committed to the
adoption of longrun marginal cost pricing for electricity. To this end, NPC intends to introduce
a marginal cost imported-has tariff structure to ensure that it meets its target of achieving a
rate of return of eight percent on its rate base. 10

it is apparent that the Board, in spite of its "independence" (from the Office of the President), is
bound by the terms of the program and that it has after all, no genuine discretion to deny requests
for price adjustments by oil companies. I seriously doubt whether or not it is possessed of that
discretion judging, first, from its performance since 1987 (in which it has not overruled the
Government on "oil cases") and the fact that the exchange rate, the balance of payment deficit, and
the OPSF deficiency are matters of simple arithmetic.

And certainly, the Board can not possibly overrule the Government's "letter of intent."

The first Maceda case sustained the grant of provisional price increases ex parte not only because
Section 8 of Executive Order No. 172 authorized the grant of provisional relief without a hearing but
because fluctuations in the foreign exchange rates, for instance, were, and are, a matter of judicial
notice, and a hearing thereafter was necessary only to see whether or not the ERB determined the
rates correctly.

This likewise brings to light the necessity for an ERB to fix rates since it does not, after all fix
(meaning decide) rates but merely announces their imminence on demonstrable figures of higher
rates. The Court however can not question the wisdom of a statute and after all, I suppose the
Government can make use of an accountant.

I agree with Justice Padilla insofar as he refers to the "present scheme of allowing provisional price
increase" as a "scheme [to defraud] the people." I would like to go further. As I indicated the ERB
does no more than to punch calculators for the Government-which decides oil price increases. The
comedy of December, 1990, when the Board adjusted prices in a matter of days, is a confirmation of
this point. As Justice Padilla noted, the re-adjustment of December 10, 1990 was in fact prompted by
"presidential requests" which does not speak well of the Board's independence and which in fact
bares the truth as to who really makes the decision. (The readjustment, consisting in the reduction in
diesel fuel and a corresponding increase in gasoline, sought to mollify the indignation of the public.)

I agree with Justice Padilla that it amounts to fraud on the people to make them believe that the ERB
can give them a fair hearing, indeed, if it can do anything at all.

I agree, finally, with Justice Padilla that the nation is one in crisis, and evidently, the "ravenous" oil
companies Justice Paras refers to, have not helped any. I submit however that we have not
succeeded in fingering the real villain the letter of intent. Saddam's Middle East folly has nothing to
do with that.

Footnotes

Padilla Dissenting

1 Comment by Public Respondent ERB, Rollo, p. 152.

Sarmiento Separate Opinion

1 G.R. Nos. 95203-05, December 18, 1990.

2 G.R. No. 88291, May 31, 1991.

3 Memorandum on Economic Policy of the Government of the Philippines, March 6, 1989,

Bulletin Today, March 15, 1989, p. 35, col. 5.

4 Henares, Hilarion, "Devaluation, the last resort," Bulletin Today, June 1, 1984.

5 Id.

6 Memorandum on Philippine Economic Stabilization Plan; 1991-92, February, 1991, Daily

Globe February 4, 1991, p. 10.

7 Id., emphasis supplied.

8 Id., emphasis supplied.

9 Supra, see fn. 1.

10 Memorandum on Philippine Economic Stabilization Plan, Id.

30 same as 13 maceda

31G.R. No. 91649 May 14, 1991

ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND

LORENZO SANCHEZ,petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent.

H.B. Basco & Associates for petitioners.

Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.

PARAS, J.:

A TV ad proudly announces:

"The new PAGCOR responding through responsible gaming."

But the petitioners think otherwise, that is why, they filed the instant petition seeking to annul the
Philippine Amusement and Gaming Corporation (PAGCOR) Charter PD 1869, because it is
allegedly contrary to morals, public policy and order, and because

A. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law.
It waived the Manila City government's right to impose taxes and license fees, which is
recognized by law;

B. For the same reason stated in the immediately preceding paragraph, the law has intruded
into the local government's right to impose local taxes and license fees. This, in
contravention of the constitutionally enshrined principle of local autonomy;

C. It violates the equal protection clause of the constitution in that it legalizes PAGCOR
conducted gambling, while most other forms of gambling are outlawed, together with
prostitution, drug trafficking and other vices;

D. It violates the avowed trend of the Cory government away from monopolistic and crony
economy, and toward free enterprise and privatization. (p. 2, Amended Petition; p. 7, Rollo)

In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the declared
national policy of the "new restored democracy" and the people's will as expressed in the 1987
Constitution. The decree is said to have a "gambling objective" and therefore is contrary to Sections
11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the present
Constitution (p. 3, Second Amended Petition; p. 21, Rollo).
The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner Basco
being also the Chairman of the Committee on Laws of the City Council of Manila), can question and
seek the annulment of PD 1869 on the alleged grounds mentioned above.

The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D.
1067-A dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January 1,
1977 "to establish, operate and maintain gambling casinos on land or water within the territorial
jurisdiction of the Philippines." Its operation was originally conducted in the well known floating
casino "Philippine Tourist." The operation was considered a success for it proved to be a potential
source of revenue to fund infrastructure and socio-economic projects, thus, P.D. 1399 was passed
on June 2, 1978 for PAGCOR to fully attain this objective.

Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government
to regulate and centralize all games of chance authorized by existing franchise or permitted by law,
under the following declared policy

Sec. 1. Declaration of Policy. It is hereby declared to be the policy of the State to

centralize and integrate all games of chance not heretofore authorized by existing franchises
or permitted by law in order to attain the following objectives:

(a) To centralize and integrate the right and authority to operate and conduct games of
chance into one corporate entity to be controlled, administered and supervised by the
Government.

(b) To establish and operate clubs and casinos, for amusement and recreation, including
sports gaming pools, (basketball, football, lotteries, etc.) and such other forms of amusement
and recreation including games of chance, which may be allowed by law within the territorial
jurisdiction of the Philippines and which will: (1) generate sources of additional revenue to
fund infrastructure and socio-civic projects, such as flood control programs, beautification,
sewerage and sewage projects, Tulungan ng Bayan Centers, Nutritional Programs,
Population Control and such other essential public services; (2) create recreation and
integrated facilities which will expand and improve the country's existing tourist attractions;
and (3) minimize, if not totally eradicate, all the evils, malpractices and corruptions that are
normally prevalent on the conduct and operation of gambling clubs and casinos without
direct government involvement. (Section 1, P.D. 1869)

To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its
Charter's repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent
therewith, are accordingly repealed, amended or modified.

It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of
Internal Revenue and the Bureau of Customs. In 1989 alone, PAGCOR earned P3.43 Billion, and
directly remitted to the National Government a total of P2.5 Billion in form of franchise tax,
government's income share, the President's Social Fund and Host Cities' share. In addition,
PAGCOR sponsored other socio-cultural and charitable projects on its own or in cooperation with
various governmental agencies, and other private associations and organizations. In its 3 1/2 years
of operation under the present administration, PAGCOR remitted to the government a total of P6.2
Billion. As of December 31, 1989, PAGCOR was employing 4,494 employees in its nine (9) casinos
nationwide, directly supporting the livelihood of Four Thousand Four Hundred Ninety-Four (4,494)
families.
But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is "null
and void" for being "contrary to morals, public policy and public order," monopolistic and tends
toward "crony economy", and is violative of the equal protection clause and local autonomy as well
as for running counter to the state policies enunciated in Sections 11 (Personal Dignity and Human
Rights), 12 (Family) and 13 (Role of Youth) of Article II, Section 1 (Social Justice) of Article XIII and
Section 2 (Educational Values) of Article XIV of the 1987 Constitution.

This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most deliberate
consideration by the Court, involving as it does the exercise of what has been described as "the
highest and most delicate function which belongs to the judicial department of the government."
(State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146 SCRA 323).

As We enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of
the government We need not be reminded of the time-honored principle, deeply ingrained in our
jurisprudence, that a statute is presumed to be valid. Every presumption must be indulged in favor of
its constitutionality. This is not to say that We approach Our task with diffidence or timidity. Where it
is clear that the legislature or the executive for that matter, has over-stepped the limits of its authority
under the constitution, We should not hesitate to wield the axe and let it fall heavily, as fall it must, on
the offending statute (Lozano v. Martinez, supra).

In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice Zaldivar
underscored the

. . . thoroughly established principle which must be followed in all cases where questions of
constitutionality as obtain in the instant cases are involved. All presumptions are indulged in
favor of constitutionality; one who attacks a statute alleging unconstitutionality must prove its
invalidity beyond a reasonable doubt; that a law may work hardship does not render it
unconstitutional; that if any reasonable basis may be conceived which supports the statute, it
will be upheld and the challenger must negate all possible basis; that the courts are not
concerned with the wisdom, justice, policy or expediency of a statute and that a liberal
interpretation of the constitution in favor of the constitutionality of legislation should be
adopted. (Danner v. Hass, 194 N.W. 2nd 534, 539; Spurbeck v. Statton, 106 N.W. 2nd 660,
663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734, 739 [1970]; Peralta v.
Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs of Ordona v. Reyes, 125 SCRA
220, 241-242 [1983] cited in Citizens Alliance for Consumer Protection v. Energy Regulatory
Board, 162 SCRA 521, 540)

Of course, there is first, the procedural issue. The respondents are questioning the legal personality
of petitioners to file the instant petition.

Considering however the importance to the public of the case at bar, and in keeping with the Court's
duty, under the 1987 Constitution, to determine whether or not the other branches of government
have kept themselves within the limits of the Constitution and the laws and that they have not
abused the discretion given to them, the Court has brushed aside technicalities of procedure and
has taken cognizance of this petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas
Inc. v. Tan, 163 SCRA 371)

With particular regard to the requirement of proper party as applied in the cases before us,
We hold that the same is satisfied by the petitioners and intervenors because each of them
has sustained or is in danger of sustaining an immediate injury as a result of the acts or
measures complained of. And even if, strictly speaking they are not covered by the definition,
 it is still within the wide discretion of the Court to waive the requirement and so remove the
impediment to its addressing and resolving the serious constitutional questions raised.

In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to
question the constitutionality of several executive orders issued by President Quirino
although they were involving only an indirect and general interest shared in common with the
public. The Court dismissed the objection that they were not proper parties and ruled that
"the transcendental importance to the public of these cases demands that they be settled
promptly and definitely, brushing aside, if we must technicalities of procedure." We have
since then applied the exception in many other cases. (Association of Small Landowners in
the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).

Having disposed of the procedural issue, We will now discuss the substantive issues raised.

Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of
gambling does not mean that the Government cannot regulate it in the exercise of its police power.

The concept of police power is well-established in this jurisdiction. It has been defined as the "state
authority to enact legislation that may interfere with personal liberty or property in order to promote
the general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an imposition or
restraint upon liberty or property, (2) in order to foster the common good. It is not capable of an exact
definition but has been, purposely, veiled in general terms to underscore its all-comprehensive
embrace. (Philippine Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386).

Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it
could be done, provides enough room for an efficient and flexible response to conditions and
circumstances thus assuming the greatest benefits. (Edu v. Ericta, supra)

It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the
charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood
and sovereignty. It is a fundamental attribute of government that has enabled it to perform the most
vital functions of governance. Marshall, to whom the expression has been credited, refers to it
succinctly as the plenary power of the state "to govern its citizens". (Tribe, American Constitutional
Law, 323, 1978). The police power of the State is a power co-extensive with self-protection and is
most aptly termed the "law of overwhelming necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil.
660, 708) It is "the most essential, insistent, and illimitable of powers." (Smith Bell & Co. v. National,
40 Phil. 136) It is a dynamic force that enables the state to meet the agencies of the winds of
change.

What was the reason behind the enactment of P.D. 1869?

P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an
appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st
whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling
operations in one corporate entity the PAGCOR, was beneficial not just to the Government but to
society in general. It is a reliable source of much needed revenue for the cash strapped
Government. It provided funds for social impact projects and subjected gambling to "close scrutiny,
regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With the
creation of PAGCOR and the direct intervention of the Government, the evil practices and
corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies
at the bottom of the enactment of PD 1896.
Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose
taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local
autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as
the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees,
charges or levies of whatever nature, whether National or Local."

(2) Income and other taxes. a) Franchise Holder: No tax of any kind or form, income or
otherwise as well as fees, charges or levies of whatever nature, whether National or Local,
shall be assessed and collected under this franchise from the Corporation; nor shall any form
or tax or charge attach in any way to the earnings of the Corporation, except a franchise tax
of five (5%) percent of the gross revenues or earnings derived by the Corporation from its
operations under this franchise. Such tax shall be due and payable quarterly to the National
Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind,
nature or description, levied, established or collected by any municipal, provincial or national
government authority (Section 13 [2]).

Their contention stated hereinabove is without merit for the following reasons:

(a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes
(Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality
of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show an intent to confer that
power or the municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to
tax" therefore must always yield to a legislative act which is superior having been passed upon by
the state itself which has the "inherent power to tax" (Bernas, the Revised [1973] Philippine
Constitution, Vol. 1, 1983 ed. p. 445).

(b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that
"municipal corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January
18, 1957) which has the power to "create and abolish municipal corporations" due to its "general
legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541).
Congress, therefore, has the power of control over Local governments (Hebron v. Reyes, G.R. No.
9124, July 2, 1950). And if Congress can grant the City of Manila the power to tax certain matters, it
can also provide for exemptions or even take back the power.

(c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early
as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses
or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government,
thus:

Sec. 1. Any provision of law to the contrary notwithstanding, the authority of chartered cities
and other local governments to issue license, permit or other form of franchise to operate,
maintain and establish horse and dog race tracks, jai-alai and other forms of gambling is
hereby revoked.

Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish, horse and dog
race tracks, jai-alai and other forms of gambling shall be issued by the national government
upon proper application and verification of the qualification of the applicant . . .

Therefore, only the National Government has the power to issue "licenses or permits" for the
operation of gambling. Necessarily, the power to demand or collect license fees which is a
consequence of the issuance of "licenses or permits" is no longer vested in the City of Manila.
(d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR
is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of
stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II,
PD 1869) it also exercises regulatory powers thus:

Sec. 9. Regulatory Power. The Corporation shall maintain a Registry of the affiliated
entities, and shall exercise all the powers, authority and the responsibilities vested in the
Securities and Exchange Commission over such affiliating entities mentioned under the
preceding section, including, but not limited to amendments of Articles of Incorporation and
By-Laws, changes in corporate term, structure, capitalization and other matters concerning
the operation of the affiliated entities, the provisions of the Corporation Code of the
Philippines to the contrary notwithstanding, except only with respect to original incorporation.

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the Government.
Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local
taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local
government.

The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC Culloch v. Marland, 4 Wheat
316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of
power on the part of the States to touch, in that way (taxation) at least, the instrumentalities
of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or
political subdivision can regulate a federal instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to seriously burden it in the
accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis
supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool
for regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which
has the inherent power to wield it.

(e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D.
1869. This is a pointless argument. Article X of the 1987 Constitution (on Local Autonomy) provides:

Sec. 5. Each local government unit shall have the power to create its own source of revenue
and to levy taxes, fees, and other charges subject to such guidelines and limitation as the
congress may provide, consistent with the basic policy on local autonomy. Such taxes, fees
and charges shall accrue exclusively to the local government. (emphasis supplied)
The power of local government to "impose taxes and fees" is always subject to "limitations" which
Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed
or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to
the exercise of the power of local governments to impose taxes and fees. It cannot therefore be
violative but rather is consistent with the principle of local autonomy.

Besides, the principle of local autonomy under the 1987 Constitution simply means
"decentralization" (III Records of the 1987 Constitutional Commission, pp. 435-436, as cited in
Bernas, The Constitution of the Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It does
not make local governments sovereign within the state or an "imperium in imperio."

Local Government has been described as a political subdivision of a nation or state which is
constituted by law and has substantial control of local affairs. In a unitary system of
government, such as the government under the Philippine Constitution, local governments
can only be an intra sovereign subdivision of one sovereign nation, it cannot be
an imperium in imperio. Local government in such a system can only mean a measure of
decentralization of the function of government. (emphasis supplied)

As to what state powers should be "decentralized" and what may be delegated to local government
units remains a matter of policy, which concerns wisdom. It is therefore a political question. (Citizens
Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 539).

What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State
concern and hence, it is the sole prerogative of the State to retain it or delegate it to local
governments.

As gambling is usually an offense against the State, legislative grant or express charter
power is generally necessary to empower the local corporation to deal with the subject. . . .
In the absence of express grant of power to enact, ordinance provisions on this subject
which are inconsistent with the state laws are void. (Ligan v. Gadsden, Ala App. 107 So. 733
Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99, 25 PAC 974,
22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol. 3 Ibid, p. 548, emphasis
supplied)

Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution,
because "it legalized PAGCOR conducted gambling, while most gambling are outlawed together
with prostitution, drug trafficking and other vices" (p. 82, Rollo).

We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores the
well-accepted meaning of the clause "equal protection of the laws." The clause does not preclude
classification of individuals who may be accorded different treatment under the law as long as the
classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law does not
have to operate in equal force on all persons or things to be conformable to Article III, Section 1 of
the Constitution (DECS v. San Diego, G.R. No. 89572, December 21, 1989).

The "equal protection clause" does not prohibit the Legislature from establishing classes of
individuals or objects upon which different rules shall operate (Laurel v. Misa, 43 O.G. 2847). The
Constitution does not require situations which are different in fact or opinion to be treated in law as
though they were the same (Gomez v. Palomar, 25 SCRA 827).

Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection
is not clearly explained in the petition. The mere fact that some gambling activities like cockfighting
(P.D 449) horse racing (R.A. 306 as amended by RA 983), sweepstakes, lotteries and races (RA
1169 as amended by B.P. 42) are legalized under certain conditions, while others are prohibited,
does not render the applicable laws, P.D. 1869 for one, unconstitutional.

If the law presumably hits the evil where it is most felt, it is not to be overthrown because
there are other instances to which it might have been applied. (Gomez v. Palomar, 25 SCRA
827)

The equal protection clause of the 14th Amendment does not mean that all occupations
called by the same name must be treated the same way; the state may do what it can to
prevent which is deemed as evil and stop short of those cases in which harm to the few
concerned is not less than the harm to the public that would insure if the rule laid down were
made mathematically exact. (Dominican Hotel v. Arizona, 249 US 2651).

Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away
from monopolies and crony economy and toward free enterprise and privatization" suffice it to state
that this is not a ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the
government's policies then it is for the Executive Department to recommend to Congress its repeal
or amendment.

The judiciary does not settle policy issues. The Court can only declare what the law is and
not what the law should be. Under our system of government, policy issues are within the
1wphi1

domain of the political branches of government and of the people themselves as the
repository of all state power. (Valmonte v. Belmonte, Jr., 170 SCRA 256).

On the issue of "monopoly," however, the Constitution provides that:

Sec. 19. The State shall regulate or prohibit monopolies when public interest so requires. No
combinations in restraint of trade or unfair competition shall be allowed. (Art. XII, National
Economy and Patrimony)

It should be noted that, as the provision is worded, monopolies are not necessarily prohibited by the
Constitution. The state must still decide whether public interest demands that monopolies be
regulated or prohibited. Again, this is a matter of policy for the Legislature to decide.

On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12 (Family) and 13
(Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational
Values) of Article XIV of the 1987 Constitution, suffice it to state also that these are merely
statements of principles and, policies. As such, they are basically not self-executing, meaning a law
should be passed by Congress to clearly define and effectuate such principles.

In general, therefore, the 1935 provisions were not intended to be self-executing principles
ready for enforcement through the courts. They were rather directives addressed to the
executive and the legislature. If the executive and the legislature failed to heed the directives
of the articles the available remedy was not judicial or political. The electorate could express
their displeasure with the failure of the executive and the legislature through the language of
the ballot. (Bernas, Vol. II, p. 2)

Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387;
Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA
287). Therefore, for PD 1869 to be nullified, it must be shown that there is a clear and unequivocal
breach of the Constitution, not merely a doubtful and equivocal one. In other words, the grounds for
nullity must be clear and beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition
this Court to declare a law, or parts thereof, unconstitutional must clearly establish the basis for such
a declaration. Otherwise, their petition must fail. Based on the grounds raised by petitioners to
challenge the constitutionality of P.D. 1869, the Court finds that petitioners have failed to overcome
the presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D. 1869
remains a wise legislation considering the issues of "morality, monopoly, trend to free enterprise,
privatization as well as the state principles on social justice, role of youth and educational values"
being raised, is up for Congress to determine.

As this Court held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board, 162
SCRA 521

Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in
its favor the presumption of validity and constitutionality which petitioners Valmonte and the
KMU have not overturned. Petitioners have not undertaken to identify the provisions in the
Constitution which they claim to have been violated by that statute. This Court, however, is
not compelled to speculate and to imagine how the assailed legislation may possibly offend
some provision of the Constitution. The Court notes, further, in this respect that petitioners
have in the main put in question the wisdom, justice and expediency of the establishment of
the OPSF, issues which are not properly addressed to this Court and which this Court may
not constitutionally pass upon. Those issues should be addressed rather to the political
departments of government: the President and the Congress.

Parenthetically, We wish to state that gambling is generally immoral, and this is precisely so when
the gambling resorted to is excessive. This excessiveness necessarily depends not only on the
financial resources of the gambler and his family but also on his mental, social, and spiritual outlook
on life. However, the mere fact that some persons may have lost their material fortunes, mental
control, physical health, or even their lives does not necessarily mean that the same are directly
attributable to gambling. Gambling may have been the antecedent, but certainly not necessarily the
cause. For the same consequences could have been preceded by an overdose of food, drink,
exercise, work, and even sex.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.

Fernan, C.J., Narvasa, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Bidin, Sarmiento, Grio-Aquino,
Medialdea, Regalado and Davide, Jr., JJ., concur.

Separate Opinions

PADILLA, J., concurring:

I concur in the result of the learned decision penned by my brother Mr. Justice Paras. This means
that I agree with the decision insofar as it holds that the prohibition, control, and regulation of the
entire activity known as gambling properly pertain to "state policy." It is, therefore, the political
departments of government, namely, the legislative and the executive that should decide on what
government should do in the entire area of gambling, and assume full responsibility to the people for
such policy.

The courts, as the decision states, cannot inquire into the wisdom, morality or expediency of policies
adopted by the political departments of government in areas which fall within their authority, except
only when such policies pose a clear and present danger to the life, liberty or property of the
individual. This case does not involve such a factual situation.

However, I hasten to make of record that I do not subscribe to gambling in any form. It demeans the
human personality, destroys self-confidence and eviscerates one's self-respect, which in the long run
will corrode whatever is left of the Filipino moral character. Gambling has wrecked and will continue
to wreck families and homes; it is an antithesis to individual reliance and reliability as well as
personal industry which are the touchstones of real economic progress and national development.

Gambling is reprehensible whether maintained by government or privatized. The revenues realized

by the government out of "legalized" gambling will, in the long run, be more than offset and negated
by the irreparable damage to the people's moral values.

Also, the moral standing of the government in its repeated avowals against "illegal gambling" is
fatally flawed and becomes untenable when it itself engages in the very activity it seeks to eradicate.

One can go through the Court's decision today and mentally replace the activity referred to therein
as gambling, which is legal only because it is authorized by law and run by the government, with the
activity known as prostitution. Would prostitution be any less reprehensible were it to be authorized
by law, franchised, and "regulated" by the government, in return for the substantial revenues it would
yield the government to carry out its laudable projects, such as infrastructure and social
amelioration? The question, I believe, answers itself. I submit that the sooner the legislative
department outlaws all forms of gambling, as a fundamental state policy, and the sooner the
executive implements such policy, the better it will be for the nation.

Melencio-Herrera, J., concur.

32Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 88291 May 31, 1991

ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the
President; HON. VICENTE R. JAYME, in his capacity as Secretary of the Department
of Finance; HON. SALVADOR MISON, in his capacity as Commissioner, Bureau of
Customs; HON. JOSE U. ONG, in his capacity as Commissioner of Internal Revenue;
NATIONAL POWER CORPORATION; the FISCAL INCENTIVES REVIEW BOARD;
Caltex (Phils.) Inc.; Pilipinas Shell Petroleum Corporation; Philippine National Oil
Corporation; and Petrophil Corporation, respondents.
Villamor & Villamor Law Offices for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex (Phils.), Inc.

DECISION
GANCAYCO, J.:p
This petition seeks to nullify certain decisions, orders, rulings, and resolutions of
respondents Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue,
Commissioner of Customs and the Fiscal Incentives Review Board FIRB for exempting the
National Power Corporation (NPC) from indirect tax and duties.
The relevant facts are not in dispute.
On November 3, 1986, Commonwealth Act No. 120 created the NPC as a public
corporation to undertake the development of hydraulic power and the production of power
from other sources. 1
On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges
under
Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities.
On September 10, 1971, Republic Act No. 6395 revised the charter of the NPC wherein
Congress declared as a national policy the total electrification of the Philippines through the
development of power from all sources to meet the needs of industrial development and
rural electrification which should be pursued coordinately and supported by all
instrumentalities and agencies of the government, including its financial institutions. 2 The
corporate existence of NPC was extended to carry out this policy, specifically to undertake
the development of hydro electric generation of power and the production of electricity from
nuclear, geothermal and other sources, as well as the transmission of electric power on a
nationwide basis. 3 Being a non-profit corporation, Section 13 of the law provided in detail
the exemption of the NPC from all taxes, duties, fees, imposts and other charges by the
government and its instrumentalities.
On January 22, 1974, Presidential Decree No. 380 amended section 13, paragraphs (a)
and (d) of Republic Act No. 6395 by specifying, among others, the exemption of NPC from
such taxes, duties, fees, imposts and other charges imposed directly or indirectly, on all
petroleum products used by NPC in its operation. Presidential Decree No. 938 dated May
27, 1976 further amended the aforesaid provision by integrating the tax exemption in
general terms under one paragraph.
On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges
granted in favor of government-owned or controlled corporations including their
subsidiaries. 4 However, said law empowered the President and/or the then Minister of
Finance, upon recommendation of the FIRB to restore, partially or totally, the exemption
withdrawn, or otherwise revise the scope and coverage of any applicable tax and duty.
Pursuant to said law, on February 7, 1985, the FIRB issued Resolution No. 10-85 restoring
the tax and duty exemption privileges of NPC from June 11, 1984 to June 30, 1985. On
January 7, 1986, the FIRB issued resolution No. 1-86 indefinitely restoring the NPC tax and
duty exemption privileges effective July 1, 1985.
However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and
duty incentives granted to government and private entities which had been restored under
Presidential Decree Nos. 1931 and 1955 but it gave the authority to FIRB to restore, revise
the scope and prescribe the date of effectivity of such tax and/or duty exemptions.
On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPCs tax and duty
exemption privileges effective March 10, 1987. On October 5, 1987, the President, through
respondent Executive Secretary Macaraig, Jr., confirmed and approved FIRB Resolution
No. 17-87.
As alleged in the petition, the following are the background facts:
The following are the facts relevant to NPCs questioned claim for refunds of taxes and
duties originally paid by respondents Caltex, Petrophil and Shell for specific and ad
valorem taxes to the BIR; and for Customs duties and ad valorem taxes paid by PNOC,
Shell and Caltex to the Bureau of Customs on its crude oil importation.
Many of the factual statements are reproduced from the Senate Committee on
Accountability of Public Officers and Investigations (Blue Ribbon) Report No. 474 dated
January 12, 1989 and approved by the Senate on April 21, 1989 (copy attached hereto as
Annex A) and are identified in quotation marks:
1. Since May 27, 1976 when P.D. No. 938 was issued until June 11, 1984 when P.D. No.
1931 was promulgated abolishing the tax exemptions of all government-owned or-controlled
corporations, the oil firms never paid excise or specific and ad valorem taxes for petroleum
products sold and delivered to the NPC. This non-payment of taxes therefore spanned a
period of eight (8) years. (par. 23, p. 7, Annex A)
During this period, the Bureau of Internal Revenue was not collecting specific taxes on the
purchases of NPC of petroleum products from the oil companies on the erroneous belief
that the National Power Corporation (NPC) was exempt from indirect taxes as reflected in
the letter of Deputy Commissioner of Internal Revenue (DCIR) Romulo Villa to the NPC
dated October 29, 1980 granting blanket authority to the NPC to purchase petroleum
products from the oil companies without payment of specific tax (copy of this letter is
attached hereto as petitioners Annex B).
2. The oil companies started to pay specific and ad valorem taxes on their sales of oil
products to NPC only after the promulgation of P.D. No. 1931 on June 11, 1984,
withdrawing all exemptions granted in favor of government-owned or-controlled
corporations and empowering the FIRB to recommend to the President or to the Minister of
Finance the restoration of the exemptions which were withdrawn. Specifically, Caltex paid
the total amount of P58,020,110.79 in specific and ad valorem taxes for deliveries of
petroleum products to NPC covering the period from October 31, 1984 to April 27, 1985.
(par. 23, p. 7, Annex A)
3. Caltex billings to NPC until June 10, 1984 always included customs duty without the tax
portion. Beginning June 11, 1984, when P.D. 1931 was promulgated abolishing NPCs tax
exemptions, Caltexs billings to NPC always included both duties and taxes. (Caturla, tsn,
Oct. 10, 1988, pp. 1-5) (par. 24, p, 7, Annex A)
4. For the sales of petroleum products delivered to NPC during the period from October,
1984 to April, 1985, NPC was billed a total of P522,016,77.34 (sic) including both duties and
taxes, the specific tax component being valued at P58,020,110.79. (par. 25, p. 8, Annex
A).
5. Fiscal Incentives Review Board (FIRB) Resolution 10-85, dated February 7, 1985,
certified true copy of which is hereto attached as Annex C, restored the tax exemption
privileges of NPC effective retroactively to June 11, 1984 up to June 30, 1985. The first
paragraph of said resolution reads as follows:
1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National
Power Corporation under C.A. No. 120, as amended, are restored up to June 30, 1985.
Because of this restoration (Annex G) the NPC applied on September 11, 1985 with the
BIR for a refund of Specific Taxes paid on petroleum products . . . in the total amount of
P58,020,110.79. (par. 26, pp. 8-9, Annex A)
6. In a letter to the president of the NPC dated May 8, 1985 (copy attached as petitioners
Annex D), Acting BIR Commissioner Ruben Ancheta declared:
FIRB Resolution No. 10-85 serves as sufficient basis to allow NPC to purchase petroleum
products from the oil companies free of specific and ad valorem taxes, during the period in
question.
The period in question is June 1 1, 1 984 to June 30, 1 985.
7. On June 6, 1985The president of the NPC, Mr. Gabriel Itchon, wrote Mr. Cesar Virata,
Chairman of the FIRB (Annex E), requesting the FIRB to resolve conflicting rulings on the
tax exemption privileges of the National Power Corporation (NPC). These rulings involve
FIRB Resolutions No. 1-84 and 10-85. (par. 40, p. 12, Annex A)
8. In a letter to the President of NPC (Annex F), dated June 26, 1985, Minister Cesar
Virata confirmed the ruling of May 8, 1985 of Acting BIR Commissioner Ruben Ancheta,
(par. 41, p. 12, Annex A)
9. On October 22, 1985, however, under BIR Ruling No. 186-85, addressed to Hanil
Development Co., Ltd., a Korean contractor of NPC for its infrastructure projects, certified
true copy of which is attached hereto as petitioners Annex E, BIR Acting Commissioner
Ruben Ancheta ruled:
In Reply please be informed that after a re-study of Section 13, R.A. 6395, as amended by
P.D. 938, this Office is of the opinion, and so holds, that the scope of the tax exemption
privilege enjoyed by NPC under said section covers only taxes for which it is directly liable
and not on taxes which are only shifted to it. (Phil. Acetylene vs. C.I.R. et al., G.R. L-19707,
Aug. 17, 1967) Since contractors tax is directly payable by the contractor, not by NPC, your
request for exemption, based on the stipulation in the aforesaid contract that NPC shall
assume payment of your contractors tax liability, cannot be granted for lack of legal basis.
(Annex H) (emphasis added)
Said BIR ruling clearly states that NPCs exemption privileges covers (sic) only taxes for
which it is directly liable and does not cover taxes which are only shifted to it or for indirect
taxes. The BIR, through Ancheta, reversed its previous position of May 8, 1985 adopted by
Ancheta himself favoring NPCs indirect tax exemption privilege.
10. Furthermore, in a BIR Ruling, unnumbered, dated June 30, 1986, addressed to Caltex
(Annex F), the BIR Commissioner declared that PALs tax exemption is limited to taxes for
which PAL is directly liable, and that the payment of specific and ad valorem taxes on
petroleum products is a direct liability of the manufacturer or producer thereof. (par. 51, p.
15, Annex A)
11. On January 7, 1986, FIRB Resolution No. 1-86 was issued restoring NPCs tax
exemptions retroactively from July 1, 1985 to a indefinite period, certified true copy of which
is hereto attached as petitioners Annex H.
12. NPCs total refund claim was P468.58 million but only a portion thereof i.e. the
P58,020,110.79 (corresponding to Caltex) was approved and released by way of a Tax
Credit Memo (Annex Q) dated July 7, 1986, certified true copy of which [is) attached
hereto as petitioners Annex F, which was assigned by NPC to Caltex. BIR Commissioner
Tan approved the Deed of Assignment on July 30, 1987, certified true copy of which is
hereto attached as petitioners Annex G). (pars. 26, 52, 53, pp. 9 and 15, Annex A)
The Deed of Assignment stipulated among others that NPC is assigning the tax credit to
Caltex in partial settlement of its outstanding obligations to the latter while Caltex, in turn,
would apply the assigned tax credit against its specific tax payments for two (2) months.
(per memorandum dated July 28, 1986 of DCIR Villa, copy attached as petitioner Annex
G)
13. As a result of the favorable action taken by the BIR in the refund of the P58.0 million tax
credit assigned to Caltex, the NPC reiterated its request for the release of the balance of its
pending refunds of taxes paid by respondents Petrophil, Shell and Caltex covering the
period from June 11, 1984 to early part of 1986 amounting to P410.58 million. (The claim of
the first two (2) oil companies covers the period from June 11, 1984 to early part of 1986;
while that of Caltex starts from July 1, 1985 to early 1986). This request was denied on
August 18, 1986, under BIR Ruling 152-86 (certified true copy of which is attached hereto
as petitioners Annex I). The BIR ruled that NPCs tax free privilege to buy petroleum
products covered only the period from June 11, 1984 up to June 30, 1985. It further
declared that, despite FIRB No. 1-86, NPC had already lost its tax and duty exemptions
because it only enjoys special privilege for taxes for which it is directly liable. This ruling, in
effect, denied the P410 Million tax refund application of NPC (par. 28, p. 9, Annex A)
14. NPC filed a motion for reconsideration on September 18, 1986. Until now the BIR has
not resolved the motion. (Benigna, II 3, Oct. 17, 1988, p. 2; Memorandum for the
Complainant, Oct. 26, 1988, p. 15). (par. 29, p. 9, Annex A)
15. On December 22, 1986, in a 2nd Indorsement to the Hon. Fulgencio S. Factoran, Jr.,
BIR Commissioner Tan, Jr. (certified true copy of which is hereto attached and made a part
hereof as petitioners Annex J), reversed his previous position and states this time that all
deliveries of petroleum products to NPC are tax exempt, regardless of the period of delivery.
16. On December 17, 1986, President Corazon C. Aquino enacted Executive Order No. 93,
entitled Withdrawing All Tax and Duty Incentives, Subject to Certain Exceptions, Expanding
the Powers of the Fiscal Incentives Review Board and Other Purposes.
17. On June 24, 1987, the FIRB issued Resolution No. 17-87, which restored NPCs tax
exemption privilege and included in the exemption those pertaining to its domestic
purchases of petroleum and petroleum products, and the restorations were made to retroact
effective March 10, 1987, a certified true copy of which is hereto attached and made a part
hereof as Annex K.
18. On August 6, 1987, the Hon. Sedfrey A. Ordoez, Secretary of Justice, issued Opinion
No. 77, series of 1987, opining that the power conferred upon Fiscal Incentives Review
Board by Section 2a (b), (c) and (d) of Executive order No. 93 constitute undue delegation
of legislative power and, therefore, [are] unconstitutional, a copy of which is hereto
attached and made a part hereof as Petitioners Annex L.
19. On October 5, 1987, respondent Executive Secretary Macaraig, Jr. in a Memorandum to
the Chairman of the FIRB a certified true copy of which is hereto attached and made a part
hereof as petitioners Annex M, confirmed and approved FIRB Res. No. 17-87 dated June
24, 1987, allegedly pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93.
20. Secretary Vicente Jayme in a reply dated May 20, 1988 to Secretary Catalino Macaraig,
who by letter dated May 2, 1988 asked him to rule on whether or not, as the law now
stands, the National Power Corporation is still exempt from taxes, duties . . . on its local
purchases of . . . petroleum products . . . declared that NPC under the provisions of its
Revised Charter retains its exemption from duties and taxes imposed on the petroleum
products purchased locally and used for the generation of electricity, a certified true copy of
which is attached hereto as petitioners Annex N. (par. 30, pp. 9-10, Annex A)
21. Respondent Executive Secretary came up likewise with a confirmatory letter dated June
1 5, 1988 but without the usual official form of By the Authority of the President, a certified
true copy of which is hereto attached and made a part hereof as Petitioners Annex O.
22. The actions of respondents Finance Secretary and the Executive Secretary are based
on the RESOLUTION No. 17-87 of FIRB restoring the tax and duty exemption of the
respondent NPC pertaining to its domestic purchases of petroleum products (petitioners
Annex K supra).
23. Subsequently, the newspapers particularly, the Daily Globe, in its issue of July 11, 1988
reported that the Office of the President and the Department of Finance had ordered the
BIR to refund the tax payments of the NPC amounting to Pl.58 Billion which includes the
P410 Million Tax refund already rejected by BIR Commissioner Tan, Jr., in his BIR Ruling
No. 152-86. And in a letter dated July 28, 1988 of Undersecretary Marcelo B. Fernando to
BIR Commissioner Tan, Jr. the Pl.58 Billion tax refund was ordered released to NPC (par.
31, p. 1 0, Annex A)
24. On August 8, 1988, petitioner wrote both Undersecretary Fernando and Commissioner
Tan requesting them to hold in abeyance the release of the Pl.58 billion and await the
outcome of the investigation in regard to Senate Resolution No. 227, copies attached as
Petitioners Annexes P and P-1 (par. 32, p. 10, Annex A).
Reacting to this letter of the petitioner, Undersecretary Fernando wrote Commissioner Tan
of the BIR dated August, 1988 requesting him to hold in abeyance the release of the tax
refunds to NPC until after the termination of the Blue Ribbon investigation.
25. In the Bureau of Customs, oil companies import crude oil and before removal thereof
from customs custody, the corresponding customs duties and ad valorem taxes are paid.
Bunker fuel oil is one of the petroleum products processed from the crude oil; and same is
sold to NPC. After the sale, NPC applies for tax credit covering the duties and ad valorem
exemption under its Charter. Such applications are processed by the Bureau of Customs
and the corresponding tax credit certificates are issued in favor of NPC which, in turn
assigns it to the oil firm that imported the crude oil. These certificates are eventually used by
the assignee-oil firms in payment of their other duty and tax liabilities with the Bureau of
Customs. (par. 70, p. 19, Annex A)
A lesser amount totaling P740 million, covering the period from 1985 to the present, is being
sought by respondent NPC for refund from the Bureau of Customs for duties paid by the oil
companies on the importation of crude oil from which the processed products sold locally by
them to NPC was derived. However, based on figures submitted to the Blue Ribbon
Committee of the Philippine Senate which conducted an investigation on this matter as
mandated by Senate Resolution No. 227 of which the herein petitioner was the sponsor, a
much bigger figure was actually refunded to NPC representing duties and ad valorem taxes
paid to the Bureau of Customs by the oil companies on the importation of crude oil from
1979 to 1985.
26. Meantime, petitioner, as member of the Philippine Senate introduced P.S. Res. No. 227,
entitled:
Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, To conduct a
Formal and Extensive Inquiry into the Reported Massive Tax Manipulations and Evasions
by Oil Companies, particularly Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were
Made Possible By Their Availing of the Non-Existing Exemption of National Power
Corporation (NPC) from Indirect Taxes, Resulting Recently in Their Obtaining A Tax Refund
Totalling P1.55 Billion From the Department of Finance, Their Refusal to Pay Since 1976
Customs Duties Amounting to Billions of Pesos on Imported Crude Oil Purportedly for the
Use of the National Power Corporation, the Non-Payment of Surtax on Windfall Profits from
Increases in the Price of Oil Products in August 1987 amounting Maybe to as Much as Pl.2
Billion Surtax Paid by Them in 1984 and For Other Purposes.
27. Acting on the above Resolution, the Blue Ribbon Committee of the Senate did conduct a
lengthy formal inquiry on the matter, calling all parties interested to the witness stand
including representatives from the different oil companies, and in due time submitted its
Committee Report No. 474 . . . The Blue Ribbon Committee recommended the following
courses of action.
1. Cancel its approval of the tax refund of P58,020,110.70 to the National Power
Corporation (NPC) and its approval of Tax Credit memo covering said amount (Annex P
hereto), dated July 7, 1986, and cancel its approval of the Deed of Assignment (Annex Q
hereto) by NPC to Caltex, dated July 28, 1986, and collect from Caltex its tax liabilities
which were erroneously treated as paid or settled with the use of the tax credit certificate
that NPC assigned to said firm.:
1.1. NPC did not have any indirect tax exemption since May 27, 1976 when PD 938 was
issued. Therefore, the grant of a tax refund to NPC in the amount of P58 million was illegal,
and therefore, null and void. Such refund was a nullity right from the beginning. Hence, it
never transferred any right in favor of NPC.
2. Stop the processing and/or release of Pl.58 billion tax refund to NPC and/or oil
companies on the same ground that the NPC, since May 27, 1976 up to June 17, 1987 was
never granted any indirect tax exemption. So, the P1.58 billion represent taxes legally and
properly paid by the oil firms.
3. Start collection actions of specific or excise and ad valorem taxes due on petroleum
products sold to NPC from May 27, 1976 (promulgation of PD 938) to June 17, 1987
(issuance of EO 195).
B. For the Bureau of Customs (BOC) to do the following:
1. Start recovery actions on the illegal duty refunds or duty credit certificates for purchases
of petroleum products by NPC and allegedly granted under the NPC charter covering the
years 1978-1988 . . .
28. On March 30, 1989, acting on the request of respondent Finance Secretary for
clearance to direct the Bureau of Internal Revenue and of Customs to proceed with the
processing of claims for tax credits/refunds of the NPC, respondent Executive Secretary
rendered his ruling, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, the clearance is hereby GRANTED and, accordingly,
unless restrained by proper authorities, that department and/or its line-tax bureaus may now
proceed with the processing of the claims of the National Power Corporation for duty and
tax free exemption and/or tax credits/ refunds, if there be any, in accordance with the ruling
of that Department dated May 20,1988, as confirmed by this Office on June 15, 1988 . . . 5
Hence, this petition for certiorari, prohibition and mandamus with prayer for a writ of
preliminary injunction and/or restraining order, praying among others that:
1. Upon filing of this petition, a temporary restraining order forthwith be issued against
respondent FIRB Executive Secretary Macaraig, and Secretary of Finance Jayme
restraining them and other persons acting for, under, and in their behalf from enforcing their
resolution, orders and ruling, to wit:
A. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioners Annex K);
B. Memorandum-Order of the Office of the President dated October 5, 1987 (petitioners
Annex M);
C. Order of the Executive Secretary dated June 15, 1988 (petitioners Annex O);
D. Order of the Executive Secretary dated March 30, l989 (petitioners Annex Q); and
E. Ruling of the Finance Secretary dated May 20, 1988 (petitioners Annex N).
2. Said temporary restraining order should also include respondent Commissioners of
Customs Mison and Internal Revenue Ong restraining them from processing and releasing
any pending claim or application by respondent NPC for tax and duty refunds.
3. Thereafter, and during the pendency of this petition, to issue a writ or preliminary
injunction against above-named respondents and all persons acting for and in their behalf.
4. A decision be rendered in favor of the petitioner and against the respondents:
A. Declaring that respondent NPC did not enjoy indirect tax exemption privilege since May
27, 1976 up to the present;
B. Nullifying the setting aside the following:
1. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioners Annex K);
2. Memorandum-Order of the Office of the President dated October 5, 1987 (petitioners
Annex M);
3. Order of the Executive Secretary dated June 15, 1988 (petitioners Annex O);
4. Order of the Executive Secretary dated March 30, 1989 (petitioners Annex Q);
5. Ruling of the Finance Secretary dated May 20, 1988 (petitioners Annex N
6. Tax Credit memo dated July 7, 1986 issued to respondent NPC representing tax refund
for P58,020,110.79 (petitioners Annex F);
7. Deed of Assignment of said tax credit memo to respondent Caltex dated July 30, 1987
(petitioners Annex G);
8. Application of the assigned tax credit of Caltex in payment of its tax liabilities with the
Bureau of Internal Revenue and
9. Illegal duty and tax refunds issued by the Bureau of Customs to respondent NPC by way
of tax credit certificates from 1979 up to the present.
C. Declaring as illegal and null and void the pending claims for tax and duty refunds by
respondent NPC with the Bureau of Customs and the Bureau of Internal Revenue;
D. Prohibiting respondents Commissioner of Customs and Commissioner of Internal
Revenue from enforcing the abovequestioned resolution, orders and ruling of respondents
Executive Secretary, Secretary of Finance, and FIRB by processing and releasing
respondent NPCs tax and duty refunds;
E. Ordering the respondent Commissioner of Customs to deny as being null and void the
pending claims for refund of respondent NPC with the Bureau of Customs covering the
period from 1985 to the present; to cancel and invalidate the illegal payment made by
respondents Caltex, Shell and PNOC by using the tax credit certificates assigned to them
by NPC and to recover from respondents Caltex, Shell and PNOC all the amounts
appearing in said tax credit certificates which were used to settle their duty and tax liabilities
with the Bureau of Customs.
F. Ordering respondent Commissioner of Internal Revenue to deny as being null and void
the pending claims for refund of respondent NPC with the Bureau of Internal Revenue
covering the period from June 11, 1984 to June 17, 1987.
PETITIONER prays for such other relief and remedy as may be just and equitable in the
premises. 6
The issues raised in the petition are the following:
To determine whether respondent NPC is legally entitled to the questioned tax and duty
refunds, this Honorable Court must resolve the following issues:
Main issue
Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption
with the enactment of P.D. No. 938 on May 27, 1976 which amended P.D. No. 380, issued
on January 11, 1974.
Corollary issues
1. Whether or not FIRB Resolution No. 10-85 dated February 7, 1985 which restored NPCs
tax exemption privilege effective June 11, 1984 to June 30, 1985 and FIRB Resolution No.
1-86 dated January 7, 1986 restoring NPCs tax exemption privilege effective July 1, 1985
included the restoration of indirect tax exemption to NPC and
2. Whether or not FIRB could validly and legally issue Resolution No. 17-87 dated June 24,
1987 which restored NPCs tax exemption privilege effective March 10, 1987; and if said
Resolution was validly issued, the nature and extent of the tax exemption privilege restored
to NPC. 7
In a resolution dated June 6, 1989, the Court, without giving due course to the petition,
required respondents to comment thereon, within ten (10) days from notice. The
respondents having submitted their comment, on October 10, 1989 the Court required
petitioner to file a consolidated reply to the same. After said reply was filed by petitioner on
November 15, 1989 the Court gave due course to the petition, considering the comments of
respondents as their answer to the petition, and requiring the parties to file simultaneously
their respective memoranda within twenty (20) days from notice. The parties having
submitted their respective memoranda, the petition was deemed submitted for resolution.
First the preliminary issues.
Public respondents allege that petitioner does not have the standing to challenge the
questioned orders and resolution.
In the petition it is alleged that petitioner is instituting this suit in his capacity as a taxpayer
and a duly-elected Senator of the Philippines. Public respondent argues that petitioner
must show he has sustained direct injury as a result of the action and that it is not sufficient
for him to have a mere general interest common to all members of the public. 8
The Court however agrees with the petitioner that as a taxpayer he may file the instant
petition following the ruling in Lozada when it involves illegal expenditure of public money.
The petition questions the legality of the tax refund to NPC by way of tax credit certificates
and the use of said assigned tax credits by respondent oil companies to pay for their tax
and duty liabilities to the BIR and Bureau of Customs.
Assuming petitioner has the personality to file the petition, public respondents also allege
that the proper remedy for petitioner is an appeal to the Court of Tax Appeals under Section
7 of R.A. No. 125 instead of this petition. However Section 11 of said law provides
Sec. 11. Who may appeal; effect of appealAny person, association or corporation
adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the
Collector of Customs (Commissioner of Customs) or any provincial or City Board of
Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after
receipt of such decision or ruling.
From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the
Commissioner of Internal Revenue, the Commissioner of Customs or any provincial or city
Board of Assessment Appeal who may appeal to the Court of Tax Appeals. Petitioner does
not fall under this category.
Public respondents also contend that mandamus does not lie to compel the Commissioner
of Internal Revenue to impose a tax assessment not found by him to be proper. It would be
tantamount to a usurpation of executive
functions. 9
Even in Meralco, this Court recognizes the situation when mandamus can control the
discretion of the Commissioners of Internal Revenue and Customs when the exercise of
discretion is tainted with arbitrariness and grave abuse as to go beyond statutory authority. 10
Public respondents then assert that a writ of prohibition is not proper as its function is to
prevent an unlawful exercise of jurisdiction 11 or to prevent the oppressive exercise of legal
authority. 12 Precisely, petitioner questions the lawfulness of the acts of public respondents in
this case.
Now to the main issue.
It may be useful to make a distinction, for the purpose of this disposition, between a direct
tax and an indirect tax. A direct tax is a tax for which a taxpayer is directly liable on the
transaction or business it engages in. Examples are the custom duties and ad
valorem taxes paid by the oil companies to the Bureau of Customs for their importation of
crude oil, and the specific and ad valorem taxes they pay to the Bureau of Internal Revenue
after converting the crude oil into petroleum products.
On the other hand, indirect taxes are taxes primarily paid by persons who can shift the
burden upon someone else . 13 For example, the excise and ad valorem taxes that oil
companies pay to the Bureau of Internal Revenue upon removal of petroleum products from
its refinery can be shifted to its buyer, like the NPC, by adding them to the cash and/or
selling price.
The main thrust of the petition is that under the latest amendment to the NPC charter by
Presidential Decree No. 938, the exemption of NPC from indirect taxation was revoked and
repealed. While petitioner concedes that NPC enjoyed broad exemption privileges from
both direct and indirect taxes on the petroleum products it used, under Section 13 of
Republic Act No, 6395 and more so under Presidential Decree No. 380, however, by the
deletion of the phrases directly or indirectly and on all petroleum products used by the
Corporation in the generation, transmission, utilization and sale of electric power he
contends that the exemption from indirect taxes was withdrawn by P.D. No. 938.
Petitioner further states that the exemption of NPC provided in Section 13 of Presidential
Decree No. 938 regarding the payments of all forms of taxes, etc. cannot be interpreted to
include indirect tax exemption. He cites Philippine Aceytelene Co. Inc. vs. Commissioner of
Internal Revenue. 14 Petitioner emphasizes the principle in taxation that the exception
contained in the tax statutes must be strictly construed against the one claiming the
exemption, and that the rule that a tax statute granting exemption must be strictly construed
against the one claiming the exemption is similar to the rule that a statute granting taxing
power is to be construed strictly, with doubts resolved against its existence. 15 Petitioner cites
rulings of the BIR that the phrase exemption from all taxes, etc. from all forms of taxes
and in lieu of all taxes covers only taxes for which the taxpayer is directly liable. 16
On the corollary issues. First, FIRB Resolution Nos. 10-85 and 10-86 issued under
Presidential Decree No. 1931, the relevant provision of which are to wit:
P.D. No. 1931 provides as follows:
Sec. 1. The provisions of special or general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes . . . heretofore granted in favor of
government-owned or controlled corporations are hereby withdrawn. (Emphasis supplied.)
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon
the recommendation of the Fiscal Incentives Review Board . . . is hereby empowered to
restore, partially or totally, the exemptions withdrawn by Section 1 above . . . (Emphasis
supplied.)
The relevant provisions of FIRB resolution Nos. 10-85 and 1-86 are the following:
Resolution. No. 10-85
BE IT RESOLVED AS IT IS HEREBY RESOLVED, That:
1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National
Power Corporation under C.A. No. 120 as amended are restored up to June 30, 1985.
2. Provided, That to restoration does not apply to the following:
a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-84;
b. commercially-funded importations; and
c. interest income derived from any investment source.
3. Provided further, That in case of importations funded by international financing
agreements, the NPC is hereby required to furnish the FIRB on a periodic basis the
particulars of items received or to be received through such arrangements, for purposes of
tax and duty exemptions privileges. 17
Resolution No. 1-86
BE IT RESOLVED AS IT IS HEREBY RESOLVED: That:
1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National
Power Corporation (NPC) under Commonwealth Act No. 120, as amended, are
restored: Provided, That importations of fuel oil (crude oil equivalent), and coal of the herein
grantee shall be subject to the basic and additional import duties; Provided, further, that the
following shall remain fully taxable:
a. Commercially-funded importations; and
b. Interest income derived by said grantee from bank deposits and yield or any other
monetary benefits from deposit substitutes, trust funds and other similar arrangements.
2. The NPC as a government corporation is exempt from the real property tax on land and
improvements owned by it provided that the beneficial use of the property is not transferred
to another pursuant to the provisions of Sec. 10(a) of the Real Property Tax Code, as
amended. 18
Petitioner does not question the validity and enforceability of FIRB Resolution Nos. 10-85
and 1-86. Indeed, they were issued in compliance with the requirement of Section 2, P.D.
No. 1931, whereby the FIRB should make the recommendation subject to the approval of
the President of the Philippines and/or the Minister of Finance. While said Resolutions do
not appear to have been approved by the President, they were nevertheless approved by
the Minister of Finance who is also duly authorized to approve the same. In fact it was the
Minister of Finance who signed and promulgated said resolutions. 19
The observation of Mr. Justice Sarmiento in the dissenting opinion that FIRB Resolution
Nos. 10-85 and 1-86 which were promulgated by then Acting Minister of Finance Alfredo de
Roda, Jr. and Minister of Finance Cesar E.A Virata, as Chairman of FIRB respectively,
should be separately approved by said Minister of Finance as required by P.D. 1931 is, a
superfluity. An examination of the said resolutions which are reproduced in full in the
dissenting opinion show that the said officials signed said resolutions in the dual capacity of
Chairman of FIRB and Minister of Finance.
Mr. Justice Sarmiento also makes reference to the case National Power Corporation
vs. Province of Albay, 20 wherein the Court observed that under P.D. No. 776 the power of
the FIRB was only recommendatory and requires the approval of the President to be valid.
Thus, in said case the Court held that FIRB Resolutions Nos. 10-85 and 1-86 not having
been approved by the President were not valid and effective while the validity of FIRB 17-87
was upheld as it was duly approved by the Office of the President on October 5, 1987.
However, under Section 2 of P.D. No. 1931 of June 11, 1984, hereinabove reproduced,
which amended P.D. No. 776, it is clearly provided for that such FIRB resolution, may be
approved by the President of the Philippines and/or the Minister of Finance. To repeat, as
FIRB Resolutions Nos. 10-85 and 1-86 were duly approved by the Minister of Finance,
hence they are valid and effective. To this extent, this decision modifies or supersedes the
Courts earlier decision in Albay afore-referred to.
Petitioner, however, argues that under both FIRB resolutions, only the tax and duty
exemption privileges enjoyed by the NPC under its charter, C.A. No. 120, as amended, are
restored, that is, only its direct tax exemption privilege; and that it cannot be interpreted to
cover indirect taxes under the principle that tax exemptions are construed stricissimi
juris against the taxpayer and liberally in favor of the taxing authority.
Petitioner argues that the release by the BIR of the P58.0 million refund to respondent NPC
by way of a tax credit certificate 21 which was assigned to respondent Caltex through a deed
of assignment approved by the BIR 22 is patently illegal. He also contends that the pending
claim of respondent NPC in the amount of P410.58 million with respondent BIR for the sale
and delivery to it of bunker fuel by respondents Petrophil, Shell and Caltex from July 1,
1985 up to 1986, being illegal, should not be released.
Now to the second corollary issue involving the validity of FIRB Resolution No. 17-87 issued
on June 24, 1987. It was issued under authority of Executive Order No. 93 dated December
17, 1986 which grants to the FIRB among others, the power to recommend the restoration
of the tax and duty exemptions/incentives withdrawn thereunder.
Petitioner stresses that on August 6, 1987 the Secretary of Justice rendered Opinion No. 77
to the effect that the powers conferred upon the FIRB by Section 2(a), (b), and (c) and (4) of
Executive Order No. 93 constitute undue delegation of legislative power and is, therefore,
unconstitutional. Petitioner observes that the FIRB did not merely recommend but
categorically restored the tax and duty exemption of the NPC so that the memorandum of
the respondent Executive Secretary dated October 5, 1987 approving the same is a
surplusage.
Further assuming that FIRB Resolution No. 17-87 to have been legally issued, following the
doctrine in Philippine Aceytelene, petitioner avers that the restoration cannot cover indirect
taxes and it cannot create new indirect tax exemption not otherwise granted in the NPC
charter as amended by Presidential Decree No. 938.
The petition is devoid of merit.
The NPC is a non-profit public corporation created for the general good and
welfare 23 wholly owned by the government of the Republic of the Philippines. 24 From the
very beginning of its corporate existence, the NPC enjoyed preferential tax treatment 25 to
enable the Corporation to pay the indebtedness and obligation and in furtherance and
effective implementation of the policy enunciated in Section one of Republic Act No.
6395 26 which provides:
Sec. 1. Declaration of PolicyCongress hereby declares that (1) the comprehensive
development, utilization and conservation of Philippine water resources for all beneficial
uses, including power generation, and (2) the total electrification of the Philippines through
the development of power from all sources to meet the need of rural electrification are
primary objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government including its financial institutions.
From the changes made in the NPC charter, the intention to strengthen its preferential tax
treatment is obvious.
Under Republic Act No. 358, its exemption is provided as follows:
Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities.
Under Republic Act No. 6395:
Sec. 13. Non-profit Character of the Corporation; Exemption from all
Taxes, Duties, Fees, Imposts and other Charges by Government and Governmental
Instrumentalities. The Corporation shall be non-profit and shall devote all its returns from
its capital investment, as well as excess revenues from its operation, for expansion. To
enable the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the Corporation
is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the
generation, transmission, utilization, and sale of electric power. (Emphasis supplied.)
Under Presidential Decree No. 380:
Sec. 13. Non-profit Character of the Corporation: Exemption from all
Taxes, Duties, Fees, Imposts and other Charges by the Government and Government
Instrumentalities. The Corporation shall be non-profit and shall devote all its returns from
its capital investment as well as excess revenues from its operation, for expansion. To
enable the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the Corporation,
including its subsidiaries, is hereby declared, exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and services fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other governmental agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operation and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly
by the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum produced used by the Corporation in the
generation, transmission, utilization, and sale of electric power. (Emphasis supplied.)
Under Presidential Decree No. 938:
Sec. 13. Non-profit Character of the Corporation: Exemption from All
Taxes, Duties, Fees, Imposts and Other Charges by the Government and Government
Instrumentalities.The Corporation shall be non-profit and shall devote all its returns from
its capital investment as well as excess revenues from its operation, for expansion. To
enable the Corporation to pay the indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section One of this Act, the
Corporation, including its subsidiaries hereby declared exempt from the payment of all
forms of taxes, duties, fees, imposts as well as costs and service fees including filing
fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. (Emphasis supplied.)
It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms,
as to cover all taxes, duties, fees, imposts, charges, etc. . . . However, the amendment
under Republic Act No. 6395 enumerated the details covered by the exemption.
Subsequently, P.D. No. 380, made even more specific the details of the exemption of NPC
to cover, among others, both direct and indirect taxes on all petroleum products used in its
operation. Presidential Decree No. 938 amended the tax exemption by simplifying the same
law in general terms. It succinctly exempts NPC from all forms of taxes, duties, fees,
imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas
bonds, in any court or administrative proceedings.
The use of the phrase all forms of taxes demonstrate the intention of the law to give NPC
all the tax exemptions it has been enjoying before. The rationale for this exemption is that
being non-profit the NPC shall devote all its returns from its capital investment as well as
excess revenues from its operation, for expansion. To enable the Corporation to pay the
indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, . . . 27
The preamble of P.D. No. 938 states
WHEREAS, in the application of the tax exemption provision of the Revised Charter, the
non-profit character of the NPC has not been fully utilized because of restrictive
interpretations of the taxing agencies of the government on said provisions. . . . (Emphasis
supplied.)
It is evident from the foregoing that the lawmaker did not intend that the said provisions of
P.D. No. 938 shall be construed strictly against NPC. On the contrary, the law mandates that
it should be interpreted liberally so as to enhance the tax exempt status of NPC.
Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation
of statutes granting tax exemptions to NPC.
Moreover, it is a recognized principle that the rule on strict interpretation does not apply in
the case of exemptions in favor of a government political subdivision or instrumentality. 28
The basis for applying the rule of strict construction to statutory provisions granting tax
exemptions or deductions, even more obvious than with reference to the affirmative or
levying provisions of tax statutes, is to minimize differential treatment and foster impartiality,
fairness, and equality of treatment among tax payers.
The reason for the rule does not apply in the case of exemptions running to the benefit of
the government itself or its agencies. In such case the practical effect of an exemption is
merely to reduce the amount of money that has to be handled by government in the course
of its operations. For these reasons, provisions granting exemptions to government
agencies may be construed liberally, in favor of non tax liability of such agencies. 29
In the case of property owned by the state or a city or other public corporations, the express
exemption should not be construed with the same degree of strictness that applies to
exemptions contrary to the policy of the state, since as to such property exemption is the
rule and taxation the exception. 30
The contention of petitioner that the exemption of NPC from indirect taxes under Section 13
of R.A. No. 6395 and P.D. No. 380, is deemed repealed by P.D. No. 938 when the reference
to it was deleted is not well-taken.
Repeal by implication is not favored unless it is manifest that the legislature so intended. As
laws are presumed to be passed with deliberation and with knowledge of all existing ones
on the subject, it is logical to conclude that in passing a statute it is not intended to interfere
with or abrogate a former law relating to the same subject matter, unless the repugnancy
between the two is not only irreconcilable but also clear and convincing as a result of the
language used, or unless the latter Act fully embraces the subject matter of the
earlier. 31 The first effort of a court must always be to reconcile or adjust the provisions of
one statute with those of another so as to give sensible effect to both provisions. 32
The legislative intent must be ascertained from a consideration of the statute as a whole,
and not of an isolated part or a particular provision alone. 33 When construing a statute, the
reason for its enactment should be kept in mind and the statute should be construed with
reference to its intended scope and purpose 34 and the evil sought to be remedied.35
The NPC is a government instrumentality with the enormous task of undertaking
development of hydroelectric generation of power and production of electricity from other
sources, as well as the transmission of electric power on a nationwide basis, to improve the
quality of life of the people pursuant to the State policy embodied in Section E, Article II of
the 1987 Constitution.
It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax
exemption of NPC from all forms of taxes including indirect taxes as provided for under R.A.
No. 6895 and P.D. No. 380 if it is to attain its goals.
Further, the construction of P.D. No. 938 by the Office charged with its implementation
should be given controlling weight. 36
Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the Secretary of
Finance of June 26, 1985 confirming said ruling, the letters of the BIR of August 18, 1986,
and December 22, 1986, the letter of the Secretary of Finance of February 19, 1987, the
Memorandum of the Executive Secretary of October 9, 1987, by authority of the President,
confirming and approving FIRB Resolution No. 17-87, the letter of the Secretary of Finance
of May 20, 1988 to the Executive Secretary rendering his opinion as requested by the latter,
and the latters reply of June 15, 1988, it was uniformly held that the grant of tax exemption
to NPC under C.A. No. 120, as amended, included exemption from payment of all taxes
relative to NPCs petroleum purchases including indirect taxes. 37 Thus, then Secretary of
Finance Vicente Jayme in his letter of May 20, 1988 to the Executive Secretary Macaraig
aptly stated the justification for this tax exemption of NPC
The issue turns on the effect to the exemption of NPC from taxes of the deletion of the
phrase taxes imposed indirectly on oil products and its exemption from all forms of
taxes. It is suggested that the change in language evidenced an intention to exempt NPC
only from taxes directly imposed on or payable by it; since taxes on fuel-oil purchased by it;
since taxes on fuel-oil purchased by NPC locally are levied on and paid by its oil suppliers,
NPC thereby lost its exemption from those taxes. The principal authority relied on is the
1967 case of Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20
SCRA 1056.
First of all, tracing the changes made through the years in the Revised Charter, the
strengthening of NPCs preferential tax treatment was clearly the intention. To the extent
that the explanatory whereas clauses may disclose the intent of the law-maker, the
changes effected by P.D. 938 can only be read as being expansive rather than
restrictive, including its version of Section 13.
Our Tax Code does not recognize that there are taxes directly imposed and those imposed
indirectly. The textbook distinction between a direct and an indirect tax may be based on the
possibility of shifting the incidence of the tax. A direct tax is one which is demanded from the
very person intended to be the payor, although it may ultimately be shifted to another. An
example of a direct tax is the personal income tax. On the other hand, indirect taxes are
those which are demanded from one person in the expectation and intention that he shall
indemnify himself at the expense of another. An example of this type of tax is the sales tax
levied on sales of a commodity.
The distinction between a direct tax and one indirectly imposed (or an indirect tax) is really
of no moment. What is more relevant is that when an indirect tax is paid by those upon
whom the tax ultimately falls, it is paid not as a tax but as an additional part of the cost or of
the market price of the commodity.
This distinction was made clear by Chief Justice Castro in the Philippine Acetylene case,
when he analyzed the nature of the percentage (sales) tax to determine whether it is a tax
on the producer or on the purchaser of the commodity. Under out Tax Code, the sales tax
falls upon the manufacturer or producer. The phrase pass on the tax was criticized as
being inaccurate. Justice Castro says that the tax remains on the manufacturer alone. The
purchaser does not pay the tax; he pays an amount added to the price because of the tax.
Therefore, the tax is not passed on and does not for that reason become an indirect tax
on the purchaser. It is eminently possible that the law maker in enacting P.D. 938 in 1976
may have used lessons from the analysis of Chief Justice Castro in 1967 Philippine
Acetylene case.
When P.D. 938 which exempted NPC from all forms of taxes was issued in May 1976, the
so-called oil crunch had already drastically pushed up crude oil Prices from about $1.00 per
bbl in 1971 to about $10 and a peak (as it turned out) of about $34 per bbl in 1981 . In 1974-
78, NPC was operating the Meralco thermal plants under a lease agreement. The power
generated by the leased plants was sold to Meralco for distribution to its customers. This
lease and sale arrangement was entered into for the benefit of the consuming public, by
reducing the burden on the swiftly rising world crude oil prices. This objective was achieved
by the use of NPCs tax umbrella under its Revised Charterthe exemption from specific
taxes on locally purchased fuel oil. In this context, I cannot interpret P.D. 938 to have
withdrawn the exemption from tax on fuel oil to which NPC was already entitled and which
exemption Government in fact was utilizing to soften the burden of high crude prices.
There is one other consideration which I consider pivotal. The taxes paid by oil companies
on oil products sold to NPC, whether paid to them by NPC or no never entered into the
rates charged by NPC to its customers not even during those periods of uncertainty
engendered by the issuance of P.D. 1931 and E. 0. 93 on NP/Cs tax status. No tax
component on the fuel have been charged or recovered by NPC through its rates.
There is an import duty on the crude oil imported by the local refineries. After the refining
process, specific and ad valorem taxes are levied on the finished products including fuel oil
or residue upon their withdrawal from the refinery. These taxes are paid by the oil
companies as the manufacturer thereof.
In selling the fuel oil to NPC, the oil companies include in their billings the duty and tax
component.NPC pays the oil companies invoices including the duty component but net of
the tax component.NPC then applies for drawback of customs duties paid and for a credit in
amount equivalent to the tax paid (by the oil companies) on the products purchased. The
tax credit is assigned to the oil companiesas payment, in effect, of the tax component
shown in the sales invoices. (NOTE: These procedures varied over timeThere were
instances when NPC paid the tax component that was shifted to it and then applied for tax
credit. There were also side issues raised because of P.D. 1931 and E.O. 93 which
withdrew all exemptions of government corporations. In these latter instances, the
resolutions of the Fiscal Incentives Review Board (FIRB) come into play. These incidents
will not be touched upon for purposes of this discussion).
NPC rates of electricity are structured such that changes in its cost of fuel are automatically
(without need of fresh approvals) reflected in the subsequent months billing rates.
This Fuel Cost Adjustment clause protects NPCs rate of return. If NPC should ever accept
liability to the tax and duty component on the oil products, such amount will go into its fuel
cost and be passed on to its customers through corresponding increases in rates . Since
1974, when NPC operated the oil-fired generating stations leased from Meralco (which
plants it bought in 1979), until the present time, no tax on fuel oil ever went into NPCs
electric rates.
That the exemption of NPC from the tax on fuel was not withdrawn by P.D. 938 is
impressed upon me by yet another circumstance. It is conceded that NPC at the very
least, is exempt from taxes to which it is directly liable. NPC therefore could very well have
imported its fuel oil or crude residue for burning at its thermal plants. There would have
been no question in such a case as to its exemption from all duties and taxes, even under
the strictest interpretation that can be put forward. However, at the time P.D. 938 was
issued in 1976, there were already operating in the Philippines three oil refineries. The
establishment of these refineries in the Philippines involved heavy investments, were
economically desirable and enabled the country to import crude oil and process / refine the
same into the various petroleum products at a savings to the industry and the public. The
refining process produced as its largest output, in volume, fuel oil or residue, whose
conventional economic use was for burning in electric or steam generating plants. Had
there been no use locally for the residue, the oil refineries would have become largely
unviable.
Again, in this circumstances, I cannot accept that P.D. 938 would have in effect forced NPC
to by-pass the local oil refineries and import its fossil fuel requirements directly in order to
avail itself of its exemption from direct taxes. The oil refineries had to keep operating both
for economic development and national security reasons. In fact, the restoration by the
FIRB of NPCs exemption after P.D. 1931 and E.O. 93 expressly excluded direct fuel oil
importations, so as not to prejudice the continued operations of the local oil refineries.
To answer your query therefore, it is the opinion of this Department that NPC under the
provisions of its Revised Charter retains its exemption from duties and taxes imposed on
the petroleum products purchased locally and used for the generation of electricity.
The Department in issuing this ruling does so pursuant to its power and function to
supervise and control the collection of government revenues by the application and
implementation of revenue laws. It is prepared to take the measures supplemental to this
ruling necessary to carry the same into full effect.
As presented rather extensively above, the NPC electric power rates did not carry the taxes
and duties paid on the fuel oil it used. The point is that while these levies were in fact paid
to the government, no part thereof was recovered from the sale of electricity produced. As a
consequence, as of our most recent information, some P1.55 B in claims represent
amounts for which the oil suppliers and NPC are out-of-pocket. There would have to be
specific order to the Bureaus concerned for the resumption of the processing of these
claims. 38
In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of
Finance, the said opinion ruling of the latter was confirmed and its implementation was
directed. 39
The Court finds and so holds that the foregoing reasons adduced in the aforestated letter of
the Secretary of Finance as confirmed by the then Executive Secretary are well-taken.
When the NPC was exempted from all forms of taxes, duties, fees, imposts and other
charges, under P.D. No. 938, it means exactly what it says, i.e., all forms of taxes including
those that were imposed directly or indirectly on petroleum products used in its operation.
Reference is made in the dissenting opinion to contrary rulings of the BIR that the
exemption of the NPC extends only to taxes for which it is directly liable and not to taxes
merely shifted to it. However, these rulings are predicated on Philippine Acytelene.
The doctrine in Philippine Acytelene decided in 1967 by this Court cannot apply to the
present case. It involved the sales tax of products the plaintiff sold to NPC from June 2,
1953 to June 30,1958 when NPC was enjoying tax exemption from all taxes under
Commonwealth Act No. 120, as amended by Republic Act No. 358 issued on June 4, 1949
hereinabove reproduced.
In said case, this Court held, that the sales tax is due from the manufacturer and not the
buyer, so plaintiff cannot claim exemptions simply because the NPC, the buyer, was
exempt.
However, on September 10, 1971, Republic Act No. 6395 was passed as the revised
charter of NPC whereby Section 13 thereof was amended by emphasizing its non-profit
character and expanding the extent of its tax exemption.
As petitioner concedes, Section 13(d) aforestated of this amendment under Republic Act
No. 6345 spells out clearly the exemption of the NPC from indirect taxes. And as
hereinabove stated, in P.D. No. 380, the exemption of NPC from indirect taxes was
emphasized when it was specified to include those imposed directly and indirectly.
Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated under Section 13
defining the same in general terms to cover all forms of taxes, duties, fees, imposts, etc.
which, as hereinabove discussed, logically includes exemption from indirect taxes on
petroleum products used in its operation.
This is the status of the tax exemptions the NPC was enjoying when P.D. No. 1931 was
passed, on the authority of which FIRB Resolution Nos. 10-85 and 1-86 were issued, and
when Executive Order No. 93 was promulgated, by which FIRB Resolution 17-87 was
issued.
Thus, the ruling in Philippine Acetylene cannot apply to this case due to the different
environmental circumstances. As a matter of fact, the amendments of Section 13, under
R.A. No. 6395, P.D. No, 380 and P.D. No. 838 appear to have been brought about by the
earlier inconsistent rulings of the tax agencies due to the doctrine in Philippine Acetylene, so
as to leave no doubt as to the exemption of the NPC from indirect taxes on petroleum
products it uses in its operation. Effectively, said amendments superseded if not abrogated
the ruling in Philippine Acetylene that the tax exemption of NPC should be limited to direct
taxes only.
In the light of the foregoing discussion the first corollary issue must consequently be
resolved in the affirmative, that is, FIRB Resolution No. 10-85 dated February 7, 1985 and
FIRB Resolution No. 1-86 dated January 7, 1986 which restored NPCs tax exemption
privileges included the restoration of the indirect tax exemption of the NPC on petroleum
products it used.
On the second corollary issue as to the validity of FIRB resolution No. 17-87 dated June 24,
1987 which restored NPCs tax exemption privilege effective March 10, 1987, the Court
finds that the same is valid and effective.
It provides as follows:
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption
privileges of the National Power Corporation, including those pertaining to its domestic
purchases of petroleum and petroleum products, granted under the terms and conditions of
Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers,
objectives and functions, and for other purposes), as amended, are restored effective March
10, 1987, subject to the following conditions:
1. The restoration of the tax and duty exemption privileges does not apply to the following:
1.1. Importation of fuel oil (crude equivalent) and coal;
1.2. Commercially-funded importations (i.e., importations which include but are not limited to
those financed by the NPCs own internal funds, domestic borrowings from any source
whatsoever, borrowing from foreign-based private financial institutions, etc.); and
1.3. Interest income derived from any source.
2. The NPC shall submit to the FIRB a report of its expansion program, including details of
disposition of relieved tax and duty payments for such expansion on an annual basis or as
often as the FIRB may require it to do so. This report shall be in addition to the usual FIRB
reporting requirements on incentive availment. 40
Executive Order No. 93 provides as follows
Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax
and duty incentives granted to government and private entities are hereby withdrawn,
except:
a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective international agreements to which the Government of the
Republic of the Philippines is a signatory;
c) those enjoyed-by enterprises registered with:
(i) the Board of Investments pursuant to Presidential Decree No. 1789, as amended;
(ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66, as
amended;
(iii) the Philippine Veterans Investment Development Corporation Industrial Authority
pursuant to Presidential Decree No. 538, as amended;
d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of
Instruction No. 1416;
e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
f) those approved by the President upon the recommendation of the Fiscal Incentives
Review Board.
Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as
amended, is hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;
b) revise the scope and coverage of tax and/of duty exemption that may be restored.
c) impose conditions for the restoration of tax and/or duty exemption;
d) prescribe the date or period of effectivity of the restoration of tax and/or duty exemption;
e) formulate and submit to the President for approval, a complete system for the grant of
subsidies to deserving beneficiaries, in lieu of or in combination with the restoration of tax
and duty exemptions or preferential treatment in taxation, indicating the source of funding
therefor, eligible beneficiaries and the terms and conditions for the grant thereof taking into
consideration the international commitments of the Philippines and the necessary
precautions such that the grant of subsidies does not become the basis for countervailing
action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall
take into account any or all of the following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation effort;
c) nature of the activity the beneficiary is engaged;
d) in general, the greater national interest to be served.
True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of
the view that the powers conferred upon the FIRB by Sections 2(a), (b), (c), and (d) of
Executive Order No. 93 constitute undue delegation of legislative power and is therefore
unconstitutional. However, he was overruled by the respondent Executive Secretary in a
letter to the Secretary of Finance dated March 30, 1989. The Executive Secretary, by
authority of the President, has the power to modify, alter or reverse the construction of a
statute given by a department secretary. 41
A reading of Section 3 of said law shows that it set the policy to be the greater national
interest. The standards of the delegated power are also clearly provided for.
The required standard need not be expressed. In Edu vs. Ericta 42 and in De la Llana
vs. Alba 43 this Court held: The standard may be either express or implied. If the former, the
non-delegated objection is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act considered as a
whole.
In People vs. Rosenthal 44 the broad standard of public interest was deemed sufficient.
In Calalang vs. Williams, 45, it was public welfare and in Cervantes vs. Auditor General, 46 it
was the purpose of promotion of simplicity, economy and efficiency. And, implied from the
purpose of the law as a whole, national security was considered sufficient standard 47and
so was protection of fish fry or fish eggs. 48
The observation of petitioner that the approval of the President was not even required in
said Executive Order of the tax exemption privilege approved by the FIRB unlike in previous
similar issuances, is not well-taken. On the contrary, under Section l(f) of Executive Order
No. 93, aforestated, such tax and duty exemptions extended by the FIRB must be approved
by the President. In this case, FIRB Resolution No. 17-87 was approved by the respondent
Executive Secretary, by authority of the President, on October 15, 1987. 49
Mr. Justice Isagani A. Cruz commenting on the delegation of legislative power stated
The latest in our jurisprudence indicates that delegation of legislative power has become the
rule and its non-delegation the exception. The reason is the increasing complexity of
modern life and many technical fields of governmental functions as in matters pertaining to
tax exemptions. This is coupled by the growing inability of the legislature to cope directly
with the many problems demanding its attention. The growth of society has ramified its
activities and created peculiar and sophisticated problems that the legislature cannot be
expected reasonably to comprehend. Specialization even in legislation has become
necessary. To many of the problems attendant upon present day undertakings, the
legislature may not have the competence, let alone the interest and the time, to provide the
required direct and efficacious, not to say specific solutions. 50
Thus, in the case of Tablarin vs. Gutierrez, 51 this Court enunciated the rationale in favor of
delegation of legislative functions
One thing however, is apparent in the development of the principle of separation of powers
and that is that the maxim of delegatus non potest delegare or delegati potestas non potest
delegare, adopted this practice (Delegibus et Consuetudiniis Anglia edited by G.E.
Woodline, Yale University Press, 1922, Vol. 2, p. 167) but which is also recognized in
principle in the Roman Law d. 17.18.3) has been made to adapt itself to the complexities of
modern government, giving rise to the adoption, within certain limits, of the principle of
subordinate legislation, not only in the United States and England but in practically all
modern governments. (People vs. Rosenthal and Osmea, 68 Phil. 318,
1939). Accordingly, with the growing complexities of modern life, the multiplication of the
subjects of governmental regulation, and the increased difficulty of administering the
laws, there is a constantly growing tendency toward the delegation of greater power by the
legislative, and toward the approval of the practice by the Courts. (Emphasis supplied.)
The legislative authority could not or is not expected to state all the detailed situations
wherein the tax exemption privileges of persons or entities would be restored. The task may
be assigned to an administrative body like the FIRB.
Moreover, all presumptions are indulged in favor of the constitutionality and validity of the
statute. Such presumption can be overturned if its invalidity is proved beyond reasonable
doubt. Otherwise, a liberal interpretation in favor of constitutionality of legislation should be
adopted. 52
E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the
FIRB And as above discussed, the tax exemption privilege that was restored to NPC by
FIRB Resolution No. 17-87 of June 1987 includes exemption from indirect taxes and duties
on petroleum products used in its operation.
Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has
been upheld in Albay.53
In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos. 1931 and 1955
issued by President Marcos in 1984 are invalid as they were presumably promulgated
under the infamous Amendment No. 6 and that as they cover tax exemption, under Section
17(4), Article VIII of the 1973 Constitution, the same cannot be passed without the
concurrence of the majority of all the members of the Batasan Pambansa. And, even
conceding that the reservation of legislative power in the President was valid, it is opined
that it was not validly exercised as there is no showing that such presidential encroachment
was justified under the conditions then existing. Consequently, it is concluded that Executive
Order No. 93, which was intended to implement said decrees, is also illegal. The authority
of the President to sub-delegate to the FIRB powers delegated to him is also questioned.
In Albay, 54 as above stated, this Court upheld the validity of P.D. Nos. 776 and 1931. The
latter decree withdrew tax exemptions of government-owned or controlled corporations
including their subsidiaries but authorized the FIRB to restore the same. Nevertheless,
in Albay, as above-discussed, this Court ruled that the tax exemptions under FIRB
Resolution Nos. 10-85 and 1-86 cannot be enforced as said resolutions were only
recommendatory and were not duly approved by the President of the Philippines as
required by P.D. No. 776. 55 The Court also sustained in Albay the validity of Executive Order
No. 93, and of the tax exemptions restored under FIRB Resolution No. 17-87 which was
issued pursuant thereto, as it was duly approved by the President as required by said
executive order.
Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987
Constitution, it is provided that:
All existing laws, decrees, executive orders, proclamation, letters of instructions, and other
executive issuances not inconsistent with this constitution shall remain operative until
amended, repealed or revoked.
Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown that they are
inconsistent with the Constitution.
Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order No. 93 are not
valid and are unconstitutional, the result would be the same, as then the latest applicable
law would be P.D. No. 938 which amended the NPC charter by granting exemption to NPC
from all forms of taxes. As above discussed, this exemption of NPC covers direct and
indirect taxes on petroleum products used in its operation. This is as it should be, if We are
to hold as invalid and inoperative the withdrawal of such tax exemptions under P.D. No.
1931 as well as under Executive Order No. 93 and the delegation of the power to restore
these exemptions to the FIRB.
The Court realizes the magnitude of the consequences of this decision. To reiterate,
in Albay this Court ruled that the NPC is liable for real estate taxes as of June 11, 1984 (the
date of promulgation of P.D. No. 1931) when NPC had ceased to enjoy tax exemption
privileges since FIRB Resolution Nos. 1085 and 1-86 were not validly issued. The real
estate tax liability of NPC from June 11, 1984 to December 1, 1990 is estimated to amount
to P7.49 billion plus another P4.76 billion in fuel import duties the firm had earlier paid to the
government which the NPC now proposed to pass on to the consumers by another 33-
centavo increase per kilowatt hour in power rates on top of the 17-centavo increase per
kilowatt hour that took effect just over a week ago., 56 Hence, another case has been filed in
this Court to stop this proposed increase without a hearing.
As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86 were issued, P.D.
No. 776 dated August 24, 1975 was already amended by P.D. No. 1931 , 57 wherein it is
provided that such FIRB resolutions may be approved not only by the President of the
Philippines but also by the Minister of Finance. Such resolutions were promulgated by the
Minister of Finance in his own right and also in his capacity as FIRB Chairman. Thus, a
separate approval thereof by the Minister of Finance or by the President is unnecessary.
As earlier stated a reexamination of the ruling in Albay on this aspect is therefore called for
and consequently, Albay must be considered superseded to this extent by this decision.
This is because P.D. No. 938 which is the latest amendment to the NPC charter granting the
NPC exemption from all forms of taxes certainly covers real estate taxes which are direct
taxes.
This tax exemption is intended not only to insure that the NPC shall continue to generate
electricity for the country but more importantly, to assure cheaper rates to be paid by the
consumers.
The allegation that this is in effect allowing tax evasion by oil companies is not quite correct.
There are various arrangements in the payment of crude oil purchased by NPC from oil
companies. Generally, the custom duties paid by the oil companies are added to the selling
price paid by NPC. As to the specific and ad valorem taxes, they are added a part of the
sellers price, but NPC pays the price net of tax, on condition that NPC would seek a tax
refund to the oil companies. No tax component on fuel had been charged or recovered by
NPC from the consumers through its power rates. 58 Thus, this is not a case of tax evasion
of the oil companies but of tax relief for the NPC. The billions of pesos involved in these
exemptions will certainly inure to the ultimate good and benefit of the consumers who are
thereby spared the additional burden of increased power rates to cover these taxes paid or
to be paid by the NPC if it is held liable for the same.
The fear of the serious implication of this decision in that NPCs suppliers, importers and
contractors may claim the same privilege should be dispelled by the fact that (a) this
decision particularly treats of only the exemption of the NPC from all taxes, duties, fees,
imposts and all other charges imposed by the government on the petroleum products it
used or uses for its operation; and (b) Section 13(d) of R.A. No. 6395 and Section 13(d) of
P.D. No. 380, both specifically exempt the NPC from all taxes, duties, fees, imposts and all
other charges imposed by the government on all petroleum products used in its operation
only, which is the very exemption which this Court deems to be carried over by the passage
of P.D. No. 938. As a matter of fact in Section 13(d) of P.D. No. 380 it is specified that the
aforesaid exemption from taxes, etc. covers those directly or indirectly imposed by the
Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities on said petroleum products. The exemption therefore from
direct and indirect tax on petroleum products used by NPC cannot benefit the suppliers,
importers and contractors of NPC of other products or services.
The Court realizes the laudable objective of petitioner to improve the revenue of the
government. The amount of revenue received or expected to be received by this tax
exemption is, however, not going to any of the oil companies. There would be no loss to the
government. The said amount shall accrue to the benefit of the NPC, a government
corporation, so as to enable it to sustain its tremendous task of providing electricity for the
country and at the least cost to the consumers. Denying this tax exemption would mean
hampering if not paralyzing the operations of the NPC. The resulting increased revenue in
the government will also mean increased power rates to be shouldered by the consumers if
the NPC is to survive and continue to provide our power requirements. 59The greater interest
of the people must be paramount.
WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.
SO ORDERED.
Narvasa, Melencio-Herrera, Feliciano, Bidin, Medialdea and Regalado, JJ., concur.
Fernan C.J., No part.
Paras, J., I dissent, but the NPC should be refunded not by the consuming public but by the
oil companies for ultimately these oil companies get the benefit of the alleged tax
exemption.
Padilla, J., took no part.
READ CASE DIGEST HERE.
Footnotes
1 Section 1, Com. Act No. 120 (1936).
2 Section 1, Rep. Act No. 6395 (1971).
3 Section 2, Rep. Act No. 6395 (1971).
4 Section 1, Pres. Decree No. 1931 (1984).
5 Pages 7 to 19, rollo.
6 Pages 49 to 52, rollo.
7 Page 19, rollo.
8 Citing Ex parte Levit 302 U.S. 633; Tileson vs. Ullman, 318 U.S. 446; Lozada vs.
Commission on Elections, 120 SCRA 337 (1983).
9 Citing Meralco Securities Corporation vs. Savellano, 117 SCRA 804 (1982).
10 Ibid., page 812.
11 Citing Strong vs. Castro, 137 SCRA 322 (1985).
12 Citing Fortun vs. Labang, 104 SCRA 607 (1981).
13 51 Am. Jur. Section 21; 61 C.J. Section 6, note 57(e), p. 73.
14 20 SCRA 1056 (1967).
15 Citing United Garment Co., Inc. vs. Court of Tax Appeals, 4 SCRA 304 (1962);
and Butuan Sawmill, Inc. vs. City of Butuan, 16 SCRA 755 (1966).
16 See page 27 of Petition.
17 Annex C, petition, page 123, Rollo.
18 Annex H, petition; page 135, Rollo.
19 Annexes C and I to the Petition.
20 G.R. No. 87479 promulgated on June 4, 1990.
21 Annex 3 to the Petition (tax credit memo).
22 Annex F to the Petition.
23 Section 1, Commonwealth Act No. 120; Sections 2 and 13, Republic Act No. 6395 in
relation to Section 3, Act No. 1495.
24 Section 5, Republic Act No. 6395.
25 Section 4, Republic Act No. 120; Section 2, Republic Act No. 358; Section 13, Republic
Act No. 6395; Section 10, Presidential Decree No. 380.
26 Section 13, Republic Act No. 6395, as amended by Presidential Decrees Nos. 380 and
938.
27 Section 13, P.D. No. 938.
28 2 Cooley on the Law of Taxation, 4th edition, 1414 (1927).
29 C. Dallas Sands, Statutes and Statutory Construction, Vol. 3, p. 207, citing Crosby vs.
U.S., 292 F. Supp. 314; Pasadena vs. Los Angeles Country, 187 P. 418 and other cases.
30 Com. vs. City of Richmond, 116 Va. 69, 81 S.E. 69.
31 U.S. vs. Palacio, 33 Phil. 208 (1916); Commissioner of Customs vs. Esso Standard
Eastern, Inc., 66 SCRA 113 (1975).
32 Larga vs. Ranada, Jr., 164 SCRA 18 (1988).
33 Aboitiz Shipping Corp. vs. City of Cebu, 12 SCRA 449 (1965); and Aisporna vs. Court of
Appeals, 113 SCRA 459 (1982).
34 Statutory Construction by E.T. Crawford, pages 604 to 605, cited in Commissioner of
Internal Revenue vs. Filipinas Compania de Seguros, 107 Phil. 1055 (1960).
35 Luzon Stevedoring Corporation vs. Court of Tax Appeals, 163 SCRA 647 (1988).
36 Pascual vs. Director of Lands, 10 SCRA 354 (1964); Solaria vs. Buenviaje, 81 SCRA 722
(1978); La Suerte Cigar and Cigarette Factory vs. Court of Tax Appeals, 134 SCRA 29
(1985).
37 Annexes 7, 8, T, V, W and 17.
38 Annex N; emphasis supplied.
39 Annex O to the Petition.
40 Annex K to the Petition; page 176, Rollo.
41 Annex Q to petition, citing University of the East vs. U.E. Faculty Association, 117 SCRA
554, 572 (1982).
42 35 SCRA 481 (1970).
43 112 SCRA 294 (1982).
44 68 Phil. 328 (1939).
45 70 Phil. 726 (1940).
46 91 Phil. 359 (1952).
47 Hirabayashi vs. United States, 320 U.S. 99.
48 Araneta vs. Gatmaitan, 101 Phil. 328 (1957); see also Justice Isagani A. Cruz, Philippine
Political Law, 1984 Ed., pages 105 to 106.
49 Annex M to the Petition.
50 Pages 82 to 83, Philippine Political Law, Isagani A. Cruz, 1989 ed.
51 152 SCRA 730 (1987).
52 Victoriano vs. Elizalde Rope Workers Union, 59 SCRA 54, 66 (1974).
53 Supra.
54 Supra.
55 P.D. No. 1955 was issued effective October 15, 1984 providing for the withdrawal of tax
exemptions of private business enterprises and/or persons engaged in any economic
activity. It is not relevant to this case which involves a government corporation.
56 See March 5, 1991 issue of the Philippine Daily Inquirer and other newspapers of same
day as well as the March 10, 1991 issue of the Manila Bulletin.
57 Please see Sec. 5 of P.D. No. 1931 which provide that all other laws, decrees, etc.
inconsistent with the same decree are thereby repealed, amended or modified
accordingly.
58 See letter opinion of Secretary of Finance Vicente Jayme dated May 20, 1988.
59 NPC Vice-President Cris Herrera said the average rate increase to be passed to
consumers is P0.23 per year. (Please see Daily Inquirer of March 5, 1991; Napocor wants
new power rate increase).
READ CASE DIGEST HERE.
Justice Cruz: Dissenting Opinion
Justice Sarmiento: Dissenting Opinion

33[G.R. No. 130716. December 9, 1998]

FRANCISCO I. CHAVEZ, petitioner, vs. PRESIDENTIAL COMMISSION

ON GOOD GOVERNMENT (PCGG) and MAGTANGGOL
GUNIGUNDO, (in his capacity as chairman of the PCGG), respondents.
GLORIA A. JOPSON, CELNAN A. JOPSON, SCARLET A. JOPSON,
and TERESA A. JOPSON, petitioners-in-intervention.

DECISION
PANGANIBAN, J:

Petitioner asks this Court to define the nature and the extent of the peoples constitutional
right to information on matters of public concern. Does this right include access to the terms of
government negotiations prior to their consummation or conclusion? May the government,
through the Presidential Commission on Good Government (PCGG), be required to reveal the
proposed terms of a compromise agreement with the Marcos heirs as regards their alleged ill-
gotten wealth? More specifically, are the General Agreement and Supplemental Agreement,
both dated December 28, 1993 and executed between the PCGG and the Marcos heirs, valid and
binding?

The Case

These are the main questions raised in this original action seeking (1) to prohibit and
[e]njoin respondents [PCGG and its chairman] from privately entering into, perfecting and/or
executing any agreement with the heirs of the late President Ferdinand E. Marcos x x x relating
to and concerning the properties and assets of Ferdinand Marcos located in the Philippines
and/or abroad -- including the so-called Marcos gold hoard; and (2) to [c]ompel
respondent[s] to make public all negotiations and agreement, be they ongoing or perfected, and
all documents related to or relating to such negotiations and agreement between the PCGG and
the Marcos heirs.[1]

The Facts

Petitioner Francisco I. Chavez, as taxpayer, citizen and former government official who
initiated the prosecution of the Marcoses and their cronies who committed unmitigated plunder
of the public treasury and the systematic subjugation of the countrys economy, alleges that
what impelled him to bring this action were several news reports [2] bannered in a number of
broadsheets sometime in September 1997. These news items referred to (1) the alleged
discovery of billions of dollars of Marcos assets deposited in various coded accounts in Swiss
banks; and (2) the reported execution of a compromise, between the government (through
PCGG) and the Marcos heirs, on how to split or share these assets.
Petitioner, invoking his constitutional right to information [3] and the correlative duty of the
state to disclose publicly all its transactions involving the national interest, [4] demands that
respondents make public any and all negotiations and agreements pertaining to PCGGs task of
recovering the Marcoses ill-gotten wealth. He claims that any compromise on the alleged
billions of ill-gotten wealth involves an issue of paramount public interest, since it has a
debilitating effect on the countrys economy that would be greatly prejudicial to the national
interest of the Filipino people. Hence, the people in general have a right to know the transactions
or deals being contrived and effected by the government.
Respondents, on the other hand, do not deny forging a compromise agreement with the
Marcos heirs. They claim, though, that petitioners action is premature, because there is no
showing that he has asked the PCGG to disclose the negotiations and the Agreements. And even
if he has, PCGG may not yet be compelled to make any disclosure, since the proposed terms and
conditions of the Agreements have not become effective and binding.
Respondents further aver that the Marcos heirs have submitted the subject Agreements to the
Sandiganbayan for its approval in Civil Case No. 141, entitled Republic v. Heirs of Ferdinand E.
Marcos, and that the Republic opposed such move on the principal grounds that (1) said
Agreements have not been ratified by or even submitted to the President for approval, pursuant
to Item No. 8 of the General Agreement; and (2) the Marcos heirs have failed to comply with
their undertakings therein, particularly the collation and submission of an inventory of their
assets. The Republic also cited an April 11, 1995 Resolution in Civil Case No. 0165, in which
the Sandiganbayan dismissed a similar petition filed by the Marcoses attorney-in-fact.
Furthermore, then President Fidel V. Ramos, in his May 4, 1998 Memorandum[5] to then
PCGG Chairman Magtanggol Gunigundo, categorically stated:

This is to reiterate my previous position embodied in the Palace Press Release of 6

April 1995 that I have not authorized you to approve the Compromise Agreements of
December 28, 1993 or any agreement at all with the Marcoses, and would have
disapproved them had they been submitted to me.

The Full Powers of Attorney of March 1994 and July 4, 1994, did not authorize you
to approve said Agreements, which I reserve for myself as President of the Republic
of the Philippines.

The assailed principal Agreement[6] reads:

GENERAL AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement entered into this 28th day of December, 1993, by and between -

The Republic of the Philippines, through the Presidential Commission on

Good Government (PCGG), a governmental agency vested with authority
defined under Executive Orders Nos. 1, 2 and 14, with offices at the
Philcomcen Building, Pasig, Metro Manila, represented by its Chairman
referred to as the FIRST PARTY,

-- and --

Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and

Ferdinand R. Marcos, Jr., all of legal age, and with address at c/o No. 154
Lopez Rizal St., Mandaluyong, Metro Manila, and Imelda Romualdez
Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr., and Irene Marcos
Araneta, hereinafter collectively referred to as the PRIVATE PARTY.

W I T N E S S E T H:

WHEREAS, the PRIVATE PARTY has been impelled by their sense of nationalism
and love of country and of the entire Filipino people, and their desire to set up a
foundation and finance impact projects like installation of power plants in selected
rural areas and initiation of other community projects for the empowerment of the
people;

WHEREAS, the FIRST PARTY has obtained a judgment from the Swiss Federal
Tribunal of December 21, 1990, that the $356 million belongs in principle to the
Republic of the Philippines provided certain conditionalities are met, but even after 7
years, the FIRST PARTY has not been able to procure a final judgment of conviction
against the PRIVATE PARTY;

WHEREAS, the FIRST PARTY is desirous of avoiding a long-drawn out litigation

which, as proven by the past 7 years, is consuming money, time and effort, and is
counter-productive and ties up assets which the FIRST PARTY could otherwise utilize
for its Comprehensive Agrarian Reform Program, and other urgent needs;

WHEREAS, His Excellency, President Fidel V. Ramos, has adopted a policy of unity
and reconciliation in order to bind the nations wounds and start the process of
rebuilding this nation as it goes on to the twenty-first century;

WHEREAS, this Agreement settles all claims and counterclaims which the parties
may have against one another, whether past, present, or future, matured or inchoate.

NOW, THEREFORE, for and in consideration of the mutual covenants set forth
herein, the parties agree as follows:

1. The parties will collate all assets presumed to be owned by, or held by other parties for the
benefit of, the PRIVATE PARTY for purposes of determining the totality of the assets
covered by the settlement. The subject assets shall be classified by the nature thereof,
namely: (a) real estate; (b) jewelry; (c) paintings and other works of art; (d) securities; (e)
funds on deposit; (f) precious metals, if any, and (g) miscellaneous assets or assets which
could not appropriately fall under any of the preceding classification. The list shall be based
on the full disclosure of the PRIVATE PARTY to insure its accuracy.
2. Based on the inventory, the FIRST PARTY shall determine which shall be ceded to the
FIRST PARTY, and which shall be assigned to/retained by the PRIVATE PARTY. The assets
of the PRIVATE PARTY shall be net of, and exempt from, any form of taxes due the
Republic of the Philippines. However, considering the unavailability of all pertinent and
relevant documents and information as to balances and ownership, the actual specification of
assets to be retained by the PRIVATE PARTY shall be covered by supplemental agreements
which shall form part of this Agreement.
3. Foreign assets which the PRIVATE PARTY shall fully disclose but which are held by
trustees, nominees, agents or foundations are hereby waived over by the PRIVATE PARTY
in favor of the FIRST PARTY. For this purpose, the parties shall cooperate in taking the
appropriate action, judicial and/or extrajudicial, to recover the same for the FIRST PARTY.
4. All disclosures of assets made by the PRIVATE PARTY shall not be used as evidence by the
FIRST PARTY in any criminal, civil, tax or administrative case, but shall be valid and
 binding against said PARTY for use by the FIRST PARTY in withdrawing any account
and/or recovering any asset. The PRIVATE PARTY withdraws any objection to the
withdrawal by and/or release to the FIRST PARTY by the Swiss banks and/or Swiss
authorities of the $356 million, its accrued interests, and/or any other account; over which
the PRIVATE PARTY waives any right, interest or participation in favor of the FIRST
PARTY. However, any withdrawal or release of any account aforementioned by the FIRST
PARTY shall be made in the presence of any authorized representative of the PRIVATE
PARTY.
5. The trustees, custodians, safekeepers, depositaries, agents, nominees, administrators,
lawyers, or any other party acting in similar capacity in behalf of the PRIVATE PARTY are
hereby informed through this General Agreement to insure that it is fully implemented and
this shall serve as absolute authority from both parties for full disclosure to the FIRST
PARTY of said assets and for the FIRST PARTY to withdraw said account and/or assets and
any other assets which the FIRST PARTY on its own or through the help of the PRIVATE
PARTY/their trustees, etc., may discover.
6. Any asset which may be discovered in the future as belonging to the PRIVATE PARTY or is
being held by another for the benefit of the PRIVATE PARTY and which is not included in
the list per No. 1 for whatever reason shall automatically belong to the FIRST PARTY, and
the PRIVATE PARTY in accordance with No. 4 above, waives any right thereto.
7. This Agreement shall be binding on, and inure to the benefit of, the parties and their
respective legal representatives, successors and assigns and shall supersede any other prior
agreement.
8. The PARTIES shall submit this and any other implementing Agreements to the President of
the Philippines for approval. In the same manner, the PRIVATE PARTY shall provide the
FIRST PARTY assistance by way of testimony or deposition on any information it may have
that could shed light on the cases being pursued by the FIRST PARTY against other
parties. The FIRST PARTY shall desist from instituting new suits already subject of this
Agreement against the PRIVATE PARTY and cause the dismissal of all other cases pending
in the Sandiganbayan and in other courts.
9. In case of violation by the PRIVATE PARTY of any of the conditions herein contained, the
PARTIES shall be restored automatically to the status quo ante the signing of this
Agreement.

For purposes of this Agreement, the PRIVATE PARTY shall be represented by Atty.
Simeon M. Mesina, Jr., as their only Attorney-in-Fact.

IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of
December, 1993, in Makati, Metro Manila.

PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT

By:

[Sgd.] MAGTANGGOL C. GUNIGUNDO

 Chairman

ESTATE OF FERDINAND E. MARCOS, IMELDA R.

MARCOS, MA. IMELDA MARCOS-MANOTOC,
FERDINAND R. MARCOS, JR., & IRENE MARCOS-
ARANETA

By:

[Sgd.]IMELDA ROMUALDEZ-MARCOS

[Sgd.] MA. IMELDA MARCOS-MANOTOC

FERDINAND R. MARCOS, JR.[7]

[Sgd.] IRENE MARCOS-ARANETA

Assisted by:

[Sgd.] ATTY. SIMEON M. MESINA, JR.

Counsel & Attorney-in-Fact

Petitioner also denounces this supplement to the above Agreement: [8]

SUPPLEMENTAL AGREEMENT

This Agreement entered into this 28th day of December, 1993, by and between --

The Republic of the Philippines, through the Presidential Commission on

Good Government (PCGG), a governmental agency vested with authority
defined under Executive Orders Nos. 1, 2 and 14, with offices at the
Philcomcen Building, Pasig, Metro Manila, represented by its Chairman
Magtanggol C. Gunigundo, hereinafter referred to as the FIRST PARTY,
-- and --
Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and
Ferdinand R. Marcos, Jr., all of legal age, and with address at c/o No. 154
Lopez Rizal St., Mandaluyong, Metro Manila, and Imelda Romualdez
Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr., and Irene Marcos
Araneta, hereinafter collectively referred to as the PRIVATE PARTY.
W I T N E S S E T H:
 The parties in this case entered into a General Agreement dated Dec. 28,
1993;
The PRIVATE PARTY expressly reserve their right to pursue their interest
and/or sue over local assets located in the Philippines against parties other
than the FIRST PARTY.
The parties hereby agree that all expenses related to the recovery and/or
withdrawal of all assets including lawyers fees, agents fees, nominees
service fees, bank charges, traveling expenses and all other expenses related
thereto shall be for the account of the PRIVATE PARTY.

In consideration of the foregoing, the parties hereby agree that the PRIVATE PARTY
shall be entitled to the equivalent of 25% of the amount that may be eventually
withdrawn from said $356 million Swiss deposits.

IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of
December, 1993, in Makati, Metro Manila.

PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT

By:

[Sgd.] MAGTANGGOL C. GUNIGUNDO

Chairman

ESTATE OF FERDINAND E. MARCOS, IMELDA R.

MARCOS, MA. IMELDA MARCOS-MANOTOC,
FERDINAND R. MARCOS, JR., & IRENE MARCOS-
ARANETA

By:

[Sgd.] IMELDA ROMUALDEZ-MARCOS

[Sgd.] MA. IMELDA MARCOS-MANOTOC

FERDINAND R. MARCOS, JR.[9]

[Sgd.] IRENE MARCOS-ARANETA

Assisted by:
 [Sgd.] ATTY. SIMEON M. MESINA, JR.
Counsel & Attorney-in-Fact

Acting on a motion of petitioner, the Court issued a Temporary Restraining Order [10] dated
March 23, 1998, enjoining respondents, their agents and/or representatives from entering into,
or perfecting and/or executing any agreement with the heirs of the late President Ferdinand E.
Marcos relating to and concerning their ill-gotten wealth.

Issues

The Oral Argument, held on March 16, 1998, focused on the following issues:

(a) Procedural:

(1) Whether or not the petitioner has the personality or legal standing to file the
instant petition; and

(2) Whether or not this Court is the proper court before which this action may be
filed.

(b) Substantive:

(1) Whether or not this Court could require the PCGG to disclose to the public the
details of any agreement, perfected or not, with the Marcoses; and

(2) Whether or not there exist any legal restraints against a compromise agreement between the
Marcoses and the PCGG relative to the Marcoses ill-gotten wealth.[11]

After their oral presentations, the parties filed their respective memoranda.
On August 19, 1998, Gloria, Celnan, Scarlet and Teresa, all surnamed Jopson, filed before
the Court a Motion for Intervention, attaching thereto their Petition in Intervention. They aver
that they are among the 10,000 claimants whose right to claim from the Marcos Family and/or
the Marcos Estate is recognized by the decision in In re Estate of Ferdinand Marcos, Human
Rights Litigation, Maximo Hilao, et al., Class Plaintiffs No. 92-15526, U.S. Court of Appeals for
the 9th Circuit US App. Lexis 14796, June 16, 1994 and the Decision of the Swiss Supreme
Court of December 10, 1997. As such, they claim to have personal and direct interest in the
subject matter of the instant case, since a distribution or disposition of the Marcos properties may
adversely affect their legitimate claims. In a minute Resolution issued on August 24, 1998, the
Court granted their motion to intervene and required the respondents to comment thereon. The
September 25, 1998 Comment[12] of the solicitor general on said motion merely reiterated his
aforecited arguments against the main petition.[13]
 The Courts Ruling

The petition is imbued with merit.

First Procedural Issue: Petitioners Standing

Petitioner, on the one hand, explains that as a taxpayer and citizen, he has the legal
personality to file the instant petition. He submits that since ill-gotten wealth belongs to the
Filipino people and [is], in truth and in fact, part of the public treasury, any compromise in
relation to it would constitute a diminution of the public funds, which can be enjoined by a
taxpayer whose interest is for a full, if not substantial, recovery of such assets.
Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of the
Marcoses is an issue of transcendental importance to the public. He asserts that ordinary
taxpayers have a right to initiate and prosecute actions questioning the validity of acts or orders
of government agencies or instrumentalities, if the issues raised are of paramount public
interest; and if they immeasurably affect the social, economic, and moral well-being of the
people.
Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest,
when the proceeding involves the assertion of a public right, [14] such as in this case. He invokes
several decisions[15] of this Court which have set aside the procedural matter of locus
standi, when the subject of the case involved public interest.
On the other hand, the solicitor general, on behalf of respondents, contends that petitioner
has no standing to institute the present action, because no expenditure of public funds is involved
and said petitioner has no actual interest in the alleged agreement. Respondents further insist
that the instant petition is premature, since there is no showing that petitioner has requested
PCGG to disclose any such negotiations and agreements; or that, if he has, the Commission has
refused to do so.
Indeed, the arguments cited by petitioner constitute the controlling decisional rule as regards
his legal standing to institute the instant petition. Access to public documents and records is a
public right, and the real parties in interest are the people themselves.[16]
In Taada v. Tuvera,[17] the Court asserted that when the issue concerns a public right and the
object of mandamus is to obtain the enforcement of a public duty, the people are regarded as the
real parties in interest; and because it is sufficient that petitioner is a citizen and as such is
interested in the execution of the laws, he need not show that he has any legal or special interest
in the result of the action.[18] In the aforesaid case, the petitioners sought to enforce their right to
be informed on matters of public concern, a right then recognized in Section 6, Article IV of the
1973 Constitution,[19] in connection with the rule that laws in order to be valid and enforceable
must be published in the Official Gazette or otherwise effectively promulgated. In ruling for the
petitioners legal standing, the Court declared that the right they sought to be enforced is a
public right recognized by no less than the fundamental law of the land.
 Legaspi v. Civil Service Commission,[20] while reiterating Taada, further declared that when
a mandamus proceeding involves the assertion of a public right, the requirement of personal
interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general
public which possesses the right.[21]
Further, in Albano v. Reyes,[22] we said that while expenditure of public funds may not have
been involved under the questioned contract for the development, the management and the
operation of the Manila International Container Terminal, public interest [was] definitely
involved considering the important role [of the subject contract] x x x in the economic
development of the country and the magnitude of the financial consideration involved. We
concluded that, as a consequence, the disclosure provision in the Constitution would constitute
sufficient authority for upholding the petitioners standing.
Similarly, the instant petition is anchored on the right of the people to information and
access to official records, documents and papers -- a right guaranteed under Section 7, Article III
of the 1987 Constitution. Petitioner, a former solicitor general, is a Filipino citizen. Because of
the satisfaction of the two basic requisites laid down by decisional law to sustain petitioners
legal standing, i.e. (1) the enforcement of a public right (2) espoused by a Filipino citizen, we
rule that the petition at bar should be allowed.
In any event, the question on the standing of Petitioner Chavez is rendered moot by the
intervention of the Jopsons, who are among the legitimate claimants to the Marcos wealth. The
standing of the Jopsons is not seriously contested by the solicitor general. Indeed, said
petitioners-intervenors have a legal interest in the subject matter of the instant case, since a
distribution or disposition of the Marcoses ill-gotten properties may adversely affect the
satisfaction of their claims.

Second Procedural Issue:The Courts Jurisdiction

Petitioner asserts that because this petition is an original action for mandamus and one that is
not intended to delay any proceeding in the Sandiganbayan, its having been filed before this
Court was proper. He invokes Section 5, Article VIII of the Constitution, which confers upon the
Supreme Court original jurisdiction over petitions for prohibition and mandamus.
The solicitor general, on the other hand, argues that the petition has been erroneously
brought before this Court, since there is neither a justiciable controversy nor a violation of
petitioners rights by the PCGG. He alleges that the assailed agreements are already the very lis
mota in Sandiganbayan Civil Case No. 0141, which has yet to dispose of the issue; thus, this
petition is premature. Furthermore, respondents themselves have opposed the Marcos heirs
motion, filed in the graft court, for the approval of the subject Agreements. Such opposition
belies petitioners claim that the government, through respondents, has concluded a settlement
with the Marcoses as regards their alleged ill-gotten assets.
In Taada and Legaspi, we upheld therein petitioners resort to a mandamus proceeding,
seeking to enforce a public right as well as to compel performance of a public duty mandated by
no less than the fundamental law.[23] Further, Section 5, Article VIII of the Constitution, expressly
confers upon the Supreme Court original jurisdiction over petitions
for certiorari, prohibition, mandamus, quo warranto and habeas corpus.
Respondents argue that petitioner should have properly sought relief before the
Sandiganbayan, particularly in Civil Case No. 0141, in which the enforcement of the
compromise Agreements is pending resolution. There may seem to be some merit in such
argument, if petitioner is merely seeking to enjoin the enforcement of the compromise and/or to
compel the PCGG to disclose to the public the terms contained in said Agreements. However,
petitioner is here seeking the public disclosure of all negotiations and agreement, be they
ongoing or perfected, and documents related to or relating to such negotiations and agreement
between the PCGG and the Marcos heirs.
In other words, this petition is not confined to the Agreements that have already been drawn,
but likewise to any other ongoing or future undertaking towards any settlement on the alleged
Marcos loot. Ineluctably, the core issue boils down to the precise interpretation, in terms of
scope, of the twin constitutional provisions on public transactions. This broad and prospective
relief sought by the instant petition brings it out of the realm of Civil Case No. 0141.

First Substantive Issue:

Public Disclosure of Terms of Any Agreement, Perfected or Not

In seeking the public disclosure of negotiations and agreements pertaining to a compromise

settlement with the Marcoses as regards their alleged ill-gotten wealth, petitioner invokes the
following provisions of the Constitution:

Sec. 7 [Article III]. The right of the people to information on matters of public
concern shall be recognized. Access to official records, and to documents, and papers
pertaining to official acts, transactions, or decisions, as well as to government research
data used as basis for policy development, shall be afforded the citizen, subject to
such limitations as may be provided by law.

Sec. 28 [Article II]. Subject to reasonable conditions prescribed by law, the State
adopts and implements a policy of full public disclosure of all its transactions
involving public interest.

Respondents opposite view is that the above constitutional provisions refer to completed
and operative official acts, not to those still being considered. As regards the assailed
Agreements entered into by the PCGG with the Marcoses, there is yet no right of action that has
accrued, because said Agreements have not been approved by the President, and the Marcos heirs
have failed to fulfill their express undertaking therein. Thus, the Agreements have not become
effective. Respondents add that they are not aware of any ongoing negotiation for another
compromise with the Marcoses regarding their alleged ill-gotten assets.
The information and the transactions referred to in the subject provisions of the
Constitution have as yet no defined scope and extent. There are no specific laws prescribing the
exact limitations within which the right may be exercised or the correlative state duty may be
obliged. However, the following are some of the recognized restrictions: (1) national security
matters and intelligence information, (2) trade secrets and banking transactions, (3) criminal
matters, and (4) other confidential information.

Limitations to the Right: (1) National Security Matters

At the very least, this jurisdiction recognizes the common law holding that there is a
governmental privilege against public disclosure with respect to state secrets regarding military,
diplomatic and other national security matters.[24] But where there is no need to protect such state
secrets, the privilege may not be invoked to withhold documents and other information,
[25]
provided that they are examined in strict confidence and given scrupulous protection.
Likewise, information on inter-government exchanges prior to the conclusion of treaties and
executive agreements may be subject to reasonable safeguards for the sake of national interest.[26]

(2) Trade Secrets and Banking Transactions

The drafters of the Constitution also unequivocally affirmed that, aside from national
security matters and intelligence information, trade or industrial secrets (pursuant to the
Intellectual Property Code[27]and other related laws) as well as banking transactions (pursuant to
the Secrecy of Bank Deposits Act[28]) are also exempted from compulsory disclosure.[29]

(3) Criminal Matters

Also excluded are classified law enforcement matters, such as those relating to the
apprehension, the prosecution and the detention of criminals, [30] which courts may not inquire
into prior to such arrest, detention and prosecution. Efforts at effective law enforcement would
be seriously jeopardized by free public access to, for example, police information regarding
rescue operations, the whereabouts of fugitives, or leads on covert criminal activities.

(4) Other Confidential Information

The Ethical Standards Act[31] further prohibits public officials and employees from using or
divulging confidential or classified information officially known to them by reason of their
office and not made available to the public.[32]
Other acknowledged limitations to information access include diplomatic correspondence,
closed door Cabinet meetings and executive sessions of either house of Congress, as well as the
internal deliberations of the Supreme Court.[33]
Scope: Matters of Public Concern and Transactions Involving Public Interest

In Valmonte v. Belmonte Jr.,[34] the Court emphasized that the information sought must be
matters of public concern, access to which may be limited by law. Similarly, the state policy
of full public disclosure extends only to transactions involving public interest and may also
be subject to reasonable conditions prescribed by law. As to the meanings of the terms public
interest and public concern, the Court, in Legaspi v. Civil Service Commission,[35] elucidated:

In determining whether or not a particular information is of public concern there is

no rigid test which can be applied. Public concern like public interest is a term that
eludes exact definition. Both terms embrace a broad spectrum of subjects which the
public may want to know, either because these directly affect their lives, or simply
because such matters naturally arouse the interest of an ordinary citizen. In the final
analysis, it is for the courts to determine on a case by case basis whether the matter at
issue is of interest or importance, as it relates to or affects the public.

Considered a public concern in the above-mentioned case was the legitimate concern of
citizens to ensure that government positions requiring civil service eligibility are occupied only
by persons who are eligibles. So was the need to give the general public adequate notification
of various laws that regulate and affect the actions and conduct of citizens, as held
in Taada. Likewise did the public nature of the loanable funds of the GSIS and the public
office held by the alleged borrowers (members of the defunct Batasang Pambansa) qualify the
information sought in Valmonte as matters of public interest and concern. In Aquino-Sarmiento
v. Morato,[36] the Court also held that official acts of public officers done in pursuit of their
official functions are public in character; hence, the records pertaining to such official acts and
decisions are within the ambit of the constitutional right of access to public records.
Under Republic Act No. 6713, public officials and employees are mandated to provide
information on their policies and procedures in clear and understandable language, [and] ensure
openness of information, public consultations and hearings whenever appropriate x x x, except
when otherwise provided by law or when required by the public interest. In particular, the
law mandates free public access, at reasonable hours, to the annual performance reports of
offices and agencies of government and government-owned or controlled corporations; and the
statements of assets, liabilities and financial disclosures of all public officials and employees.[37]
In general, writings coming into the hands of public officers in connection with their official
functions must be accessible to the public, consistent with the policy of transparency of
governmental affairs. This principle is aimed at affording the people an opportunity to determine
whether those to whom they have entrusted the affairs of the government are honestly, faithfully
and competently performing their functions as public servants. [38] Undeniably, the essence of
democracy lies in the free flow of thought;[39] but thoughts and ideas must be well-informed so
that the public would gain a better perspective of vital issues confronting them and, thus, be able
to criticize as well as participate in the affairs of the government in a responsible, reasonable and
effective manner. Certainly, it is by ensuring an unfettered and uninhibited exchange of ideas
among a well-informed public that a government remains responsive to the changes desired by
the people.[40]
The Nature of the Marcoses Alleged Ill-Gotten Wealth

We now come to the immediate matter under consideration.

Upon the departure from the country of the Marcos family and their cronies in February
1986, the new government headed by President Corazon C. Aquino was specifically mandated to
[r]ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and
[to] protect the interest of the people through orders of sequestration or freezing of assets or
accounts.[41] Thus, President Aquinos very first executive orders (which partook of the nature of
legislative enactments) dealt with the recovery of these alleged ill-gotten properties.
Executive Order No. 1, promulgated on February 28, 1986, only two (2) days after the
Marcoses fled the country, created the PCGG which was primarily tasked to assist the President
in the recovery of vast government resources allegedly amassed by former President Marcos, his
immediate family, relatives and close associates both here and abroad.
Under Executive Order No. 2, issued twelve (12) days later, all persons and entities who had
knowledge or possession of ill-gotten assets and properties were warned and, under pain of
penalties prescribed by law, prohibited from concealing, transferring or dissipating them or from
otherwise frustrating or obstructing the recovery efforts of the government.
On May 7, 1986, another directive (EO No. 14) was issued giving additional powers to the
PCGG which, taking into account the overriding considerations of national interest and national
survival, required it to achieve expeditiously and effectively its vital task of recovering ill-gotten
wealth.
With such pronouncements of our government, whose authority emanates from the people,
there is no doubt that the recovery of the Marcoses alleged ill-gotten wealth is a matter of public
concern and imbued with public interest.[42] We may also add that ill-gotten wealth, by its very
nature, assumes a public character. Based on the aforementioned Executive Orders, ill-gotten
wealth refers to assets and properties purportedly acquired, directly or indirectly, by former
President Marcos, his immediate family, relatives and close associates through or as a result of
their improper or illegal use of government funds or properties; or their having taken undue
advantage of their public office; or their use of powers, influences or relationships, resulting in
their unjust enrichment and causing grave damage and prejudice to the Filipino people and the
Republic of the Philippines. Clearly, the assets and properties referred to supposedly originated
from the government itself. To all intents and purposes, therefore, they belong to the people. As
such, upon reconveyance they will be returned to the public treasury, subject only to the
satisfaction of positive claims of certain persons as may be adjudged by competent
courts. Another declared overriding consideration for the expeditious recovery of ill-gotten
wealth is that it may be used for national economic recovery.
We believe the foregoing disquisition settles the question of whether petitioner has a right to
respondents disclosure of any agreement that may be arrived at concerning the Marcoses
purported ill-gotten wealth.

Access to Information on Negotiating Terms

 But does the constitutional provision likewise guarantee access to information
regarding ongoing negotiations or proposals prior to the final agreement? This same clarification
was sought and clearly addressed by the constitutional commissioners during their deliberations,
which we quote hereunder:[43]

MR. SUAREZ. And when we say transactions which should be distinguished from
contracts, agreements, or treaties or whatever, does the Gentleman refer to the steps
leading to the consummation of the contract, or does he refer to the contract itself?

MR. OPLE. The transactions used here, I suppose, is generic and, therefore, it can
cover both steps leading to a contract, and already a consummated contract, Mr.
Presiding Officer.

MR. SUAREZ. This contemplates inclusion of negotiations leading to the

consummation of the transaction?

MR. OPLE. Yes, subject to reasonable safeguards on the national interest.

Considering the intent of the framers of the Constitution, we believe that it is

incumbent upon the PCGG and its officers, as well as other government representatives, to
disclose sufficient public information on any proposed settlement they have decided to take
up with the ostensible owners and holders of ill-gotten wealth. Such information, though,
must pertain to definite propositions of the government, not necessarily to intra-agency or inter-
agency recommendations or communications[44] during the stage when common assertions are
still in the process of being formulated or are in the exploratory stage. There is a need, of
course, to observe the same restrictions on disclosure of information in general, as discussed
earlier -- such as on matters involving national security, diplomatic or foreign relations,
intelligence and other classified information.

Second Substantive Issue: Legal Restraints on a Marcos-PCGG Compromise

Petitioner lastly contends that any compromise agreement between the government and the
Marcoses will be a virtual condonation of all the alleged wrongs done by them, as well as an
unwarranted permission to commit graft and corruption.
Respondents, for their part, assert that there is no legal restraint on entering into a
compromise with the Marcos heirs, provided the agreement does not violate any law.

Prohibited Compromises

In general, the law encourages compromises in civil cases, except with regard to the
following matters: (1) the civil status of persons, (2) the validity of a marriage or a legal
separation, (3) any ground for legal separation, (4) future support, (5) the jurisdiction of courts,
and (6) future legitime.[45] And like any other contract, the terms and conditions of a compromise
must not be contrary to law, morals, good customs, public policy or public order. [46] A
compromise is binding and has the force of law between the parties, [47] unless the consent of a
party is vitiated -- such as by mistake, fraud, violence, intimidation or undue influence -- or when
there is forgery, or if the terms of the settlement are so palpably unconscionable. In the latter
instances, the agreement may be invalidated by the courts.[48]

Effect of Compromise on Civil Actions

One of the consequences of a compromise, and usually its primary object, is to avoid or to
end a litigation.[49] In fact, the law urges courts to persuade the parties in a civil case to agree to a
fair settlement.[50] As an incentive, a court may mitigate damages to be paid by a losing party who
shows a sincere desire to compromise.[51]
In Republic & Campos Jr. v. Sandiganbayan,[52] which affirmed the grant by the PCGG of
civil and criminal immunity to Jose Y. Campos and family, the Court held that in the absence of
an express prohibition, the rule on compromises in civil actions under the Civil Code is
applicable to PCGG cases. Such principle is pursuant to the objectives of EO No. 14,
particularly the just and expeditious recovery of ill-gotten wealth, so that it may be used to
hasten economic recovery. The same principle was upheld in Benedicto v. Board of
Administrators of Television Stations RPN, BBC and IBC [53] and Republic v. Benedicto,[54] which
ruled in favor of the validity of the PCGG compromise agreement with Roberto S. Benedicto.

Immunity from Criminal Prosecution

However, any compromise relating to the civil liability arising from an

offense does not automatically terminate the criminal proceeding against or extinguish the
criminal liability of the malefactor.[55] While a compromise in civil suits is expressly authorized
by law, there is no similar general sanction as regards criminal liability. The authority must be
specifically conferred. In the present case, the power to grant criminal immunity was conferred
on PCGG by Section 5 of EO No. 14, as amended by EO No. 14-A, which provides:

SECTION 5. The Presidential Commission on Good Government is authorized to

grant immunity from criminal prosecution to any person who provides information or
testifies in any investigation conducted by such Commission to establish the unlawful
manner in which any respondent, defendant or accused has acquired or accumulated
the property or properties in question in any case where such information or testimony
is necessary to ascertain or prove the latters guilt or his civil liability. The immunity
thereby granted shall be continued to protect the witness who repeats such testimony
before the Sandiganbayan when required to do so by the latter or by the Commission.
 The above provision specifies that the PCGG may exercise such authority under these
conditions: (1) the person to whom criminal immunity is granted provides information or
testifies in an investigation conducted by the Commission; (2) the information or testimony
pertains to the unlawful manner in which the respondent, defendant or accused acquired or
accumulated ill-gotten property; and (3) such information or testimony is necessary to ascertain
or prove guilt or civil liability of such individual. From the wording of the law, it can be easily
deduced that the person referred to is a witness in the proceeding, not the principal respondent,
defendant or accused.
Thus, in the case of Jose Y. Campos, the grant of both civil and criminal immunity to him
and his family was [i]n consideration of the full cooperation of Mr. Jose Y. Campos [with] this
Commission, his voluntary surrender of the properties and assets [--] disclosed and declared by
him to belong to deposed President Ferdinand E. Marcos [--] to the Government of the Republic
of the Philippines[;] his full, complete and truthful disclosures[;] and his commitment to pay a
sum of money as determined by the Philippine Government. [56] Moreover, the grant of criminal
immunity to the Camposes and the Benedictos was limited to acts and omissions prior to
February 25, 1996. At the time such immunity was granted, no criminal cases have yet been
filed against them before the competent courts.

Validity of the PCGG-Marcos Compromise Agreements

Going now to the subject General and Supplemental Agreements between the PCGG and the
Marcos heirs, a cursory perusal thereof reveals serious legal flaws. First, the Agreements do not
conform to the above requirements of EO Nos. 14 and 14-A. We believe that criminal
immunity under Section 5 cannot be granted to the Marcoses, who are the principal
defendants in the spate of ill-gotten wealth cases now pending before the
Sandiganbayan. As stated earlier, the provision is applicable mainly to witnesses who provide
information or testify against a respondent, defendant or accused in an ill-gotten wealth case.
While the General Agreement states that the Marcoses shall provide the [government]
assistance by way of testimony or deposition on any information [they] may have that could shed
light on the cases being pursued by the [government] against other parties, [57] the clause does not
fully comply with the law. Its inclusion in the Agreement may have been only an afterthought,
conceived in pro forma compliance with Section 5 of EO No. 14, as amended. There is no
indication whatsoever that any of the Marcos heirs has indeed provided vital information against
any respondent or defendant as to the manner in which the latter may have unlawfully acquired
public property.
Second, under Item No. 2 of the General Agreement, the PCGG commits to exempt from all
forms of taxes the properties to be retained by the Marcos heirs. This is a clear violation of the
Constitution. The power to tax and to grant tax exemptions is vested in the Congress and, to a
certain extent, in the local legislative bodies.[58] Section 28 (4), Article VI of the Constitution,
specifically provides: No law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress. The PCGG has absolutely no
power to grant tax exemptions, even under the cover of its authority to compromise ill-
gotten wealth cases.
 Even granting that Congress enacts a law exempting the Marcoses from paying taxes on
their properties, such law will definitely not pass the test of the equal protection clause under the
Bill of Rights. Any special grant of tax exemption in favor only of the Marcos heirs will
constitute class legislation. It will also violate the constitutional rule that taxation shall be
uniform and equitable.[59]
Neither can the stipulation be construed to fall within the power of the commissioner of
internal revenue to compromise taxes. Such authority may be exercised only when (1) there
is reasonable doubt as to the validity of the claim against the taxpayer, and (2) the taxpayers
financial position demonstrates a clear inability to pay.[60] Definitely, neither requisite is present
in the case of the Marcoses, because under the Agreement they are effectively conceding the
validity of the claims against their properties, part of which they will be allowed to retain. Nor
can the PCGG grant of tax exemption fall within the power of the commissioner to abate or
cancel a tax liability. This power can be exercised only when (1) the tax appears to be unjustly
or excessively assessed, or (2) the administration and collection costs involved do not justify the
collection of the tax due.[61] In this instance, the cancellation of tax liability is done even before
the determination of the amount due. In any event, criminal violations of the Tax Code, for
which legal actions have been filed in court or in which fraud is involved, cannot be
compromised.[62]
Third, the government binds itself to cause the dismissal of all cases against the Marcos
heirs, pending before the Sandiganbayan and other courts. [63] This is a direct encroachment on
judicial powers, particularly in regard to criminal jurisdiction. Well-settled is the doctrine that
once a case has been filed before a court of competent jurisdiction, the matter of its dismissal or
pursuance lies within the full discretion and control of the judge. In a criminal case, the manner
in which the prosecution is handled, including the matter of whom to present as witnesses, may
lie within the sound discretion of the government prosecutor; [64] but the court decides, based on
the evidence proffered, in what manner it will dispose of the case. Jurisdiction, once acquired by
the trial court, is not lost despite a resolution, even by the justice secretary, to withdraw the
information or to dismiss the complaint.[65] The prosecutions motion to withdraw or to dismiss is
not the least binding upon the court. On the contrary, decisional rules require the trial court to
make its own evaluation of the merits of the case, because granting such motion is equivalent to
effecting a disposition of the case itself.[66]
Thus, the PCGG, as the government prosecutor of ill-gotten wealth cases, cannot
guarantee the dismissal of all such criminal cases against the Marcoses pending in the
courts, for said dismissal is not within its sole power and discretion.
Fourth, the government also waives all claims and counterclaims, whether past, present, or
future, matured or inchoate, against the Marcoses.[67] Again, this all-encompassing stipulation is
contrary to law. Under the Civil Code, an action for future fraud may not be waived. [68] The
stipulation in the Agreement does not specify the exact scope of future claims against the
Marcoses that the government thereby relinquishes. Such vague and broad statement may well
be interpreted to include all future illegal acts of any of the Marcos heirs, practically giving them
a license to perpetrate fraud against the government without any liability at all. This is a
palpable violation of the due process and equal protection guarantees of the Constitution. It
effectively ensconces the Marcoses beyond the reach of the law. It also sets a dangerous
precedent for public accountability. It is a virtual warrant for public officials to amass public
funds illegally, since there is an open option to compromise their liability in exchange for
only a portion of their ill-gotten wealth.
Fifth, the Agreements do not provide for a definite or determinable period within which the
parties shall fulfill their respective prestations. It may take a lifetime before the Marcoses submit
an inventory of their total assets.
Sixth, the Agreements do not state with specificity the standards for determining which
assets shall be forfeited by the government and which shall be retained by the Marcoses. While
the Supplemental Agreement provides that the Marcoses shall be entitled to 25 per cent of the
$356 million Swiss deposits (less government recovery expenses), such sharing arrangement
pertains only to the said deposits. No similar splitting scheme is defined with respect to the other
properties. Neither is there, anywhere in the Agreements, a statement of the basis for the 25-75
percent sharing ratio. Public officers entering into an arrangement appearing to be manifestly
and grossly disadvantageous to the government, in violation of the Anti-Graft and Corrupt
Practices Act,[69] invite their indictment for corruption under the said law.
Finally, the absence of then President Ramos approval of the principal Agreement, an
express condition therein, renders the compromise incomplete and unenforceable. Nevertheless,
as detailed above, even if such approval were obtained, the Agreements would still not be valid.
From the foregoing disquisition, it is crystal clear to the Court that the General and
Supplemental Agreements, both dated December 28, 1993, which the PCGG entered into
with the Marcos heirs, are violative of the Constitution and the laws aforementioned.
WHEREFORE, the petition is GRANTED. The General and Supplemental Agreements
dated December 28, 1993, which PCGG and the Marcos heirs entered into are hereby
declared NULL AND VOIDfor being contrary to law and the Constitution. Respondent PCGG,
its officers and all government functionaries and officials who are or may be
directly or indirectly involved in the recovery of the alleged ill-gotten wealth of the
Marcoses and their associates are DIRECTED to disclose to the public the terms of any proposed
compromise settlement, as well as the final agreement, relating to such alleged ill-gotten wealth,
in accordance with the discussions embodied in this Decision. No pronouncement as to costs.
SO ORDERED.
Davide Jr. C.J. (Chairman), Melo, and Quisumbing JJ., concur.
Vitug, J., please see separate opinion.

[1]
Petition, p. 3; rollo, p. 4.
[2]
Annexed to the Petition were the following news articles:
1. Estrella Torres, $2-B FM Hoard Found, Today, September 25, 1997, p.1.
2. Govt Working Out Secret Deal on Marcos Gold, The Manila Times, September 25, 1997, p.1.
3. Estrella Torres, FVR Man Has FM Money, Today, September 27, 1997, p.1.
4. Donna Cueto and Cathy Caares, Swiss, RP Execs Plotted Gold Sale, Philippine Daily Inquirer, September 28,
1997.
5. Jocelyn Montemayor, Coded Swiss Accounts Traced to Palace Boys? The Manila Times, September 29,
1997.
[3]
7, Art. III, 1987 Constitution.
[4]
28, Art. II, ibid.
[5]
The solicitor generals Manifestation, dated August 11, 1998.
[6]
Rollo, pp. 213-216.
[7]
It appears that Ferdinand R. Marcos Jr. did not sign the General Agreement.
[8]
Rollo, pp. 217-218.
[9]
It appears that Ferdinand R. Marcos Jr. did not sign the Supplemental Agreement either.
[10]
Rollo, pp. 159-160.
[11]
Resolution dated March 16, 1998, pp. 1-2; ibid., pp. 147-148.
[12]
Rollo, pp. 396-403.
[13]
This case was deemed submitted for resolution on September 28, 1998, when the Court received the solicitor
generals Comment on the Motion and Petition for Intervention.
[14]
Citing Legaspi v. Civil Service Commission, 150 SCRA 530, 536, May 29, 1987.
[15]
Such as Avelino v. Cuenco, 83 Phil 17 (1949); Basco v. PAGCOR, 197 SCRA 52, May 14, 1991; Kapatiran ng
Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371, June 30, 1988.
[16]
Joaquin G. Bernas, SJ, The Constitution of the Republic of the Philippines: A Commentary, 1996 ed., p. 334.
[17]
136 SCRA 27, 36-37, April 24, 1985, per Escolin, J.
[18]
Quoting from Severino v. Governor General, 16 Phil 366, 378 (1910).
[19]
Section 6. The right of the people to information on matters of public concern shall be recognized, access to
official records, and to documents and papers pertaining to official acts, transactions, or decisions shall be afforded
the citizens subject to such limitation as may be provided by law.
[20]
Supra, per Cortes, J.
[21]
Also in Gonzales v. Chavez, 205 SCRA 816, 847, February 4, 1992. Cf. Oposa v. Factoran, 224 SCRA 792, July
30, 1993.
[22]
175 SCRA 264, 273, July 11, 1989, per Paras, J.
[23]
See also Valmonte v. Belmonte Jr., 170 SCRA 256, February 13, 1989.
IV RECORD OF THE CONSTITUTIONAL COMMISSION 921-922, 931 (1986) [hereafter, RECORD ];
[24]

Almonte v. Vasquez, 244 SCRA 286, 295, 297, May 23, 1995.
[25]
Almonte, ibid.
[26]
V RECORD 25.
[27]
RA No. 8293, approved on June 6, 1997.
[28]
RA No. 1405, as amended.
[29]
V RECORD 25. See also Vol. I, p. 709.
[30]
66 Am Jur 27, Records and Recording Laws.
[31]
RA No. 6713, enacted on February 20, 1989.
[32]
7 (c), ibid.
[33]
Legaspi, supra.
[34]
Supra, p. 266.
[35]
Supra, p. 541. Also quoted in Valmonte v. Belmonte Jr., supra.
[36]
203 SCRA 515, 522-23, November 13, 1991.
[37]
5(b) & 8, RA No. 6713.
[38]
66 Am Jur 19, Records and Recording Laws, citing MacEwan v. Holm, 266 Or 27, 359 P2d 413, 85 ALR2d
1086.
[39]
See Legaspi, supra, p. 540.
[40]
16A Am Jur 2d 315-317, 497.
[41]
1 (d), Art. II of Proclamation No. 3 (known as the Provisional or Freedom Constitution), promulgated on March
25, 1986.
[42]
Republic v. Provident International Resources Corp., 269 SCRA 316, 325, March 7, 1997; Republic v. Palanca,
182 SCRA 911, 918, February 28, 1990; Republic v. Lobregat et al., 376 SCRA 388, January 23, 1995.
[43]
V RECORD 25 (1986).
[44]
66 Am Jur 2d 39.
[45]
Art. 2035, Civil Code; Republic v. Sandiganbayan, Benedict, et al., 226 SCRA 314, 327, September 10, 1993.
[46]
Art. 2028 in rel. to Art. 1306, Civil Code; Republic v. Benedicto, ibid., citing First Philippine Holdings Corp. v.
Sandiganbayan, 202 SCRA 212, September 30, 1991; Heirs of Gabriel Capili v. Court of Appeals, 234 SCRA 110,
115, July 14, 1994.
[47]
Sanchez v. Court of Appeals, GR No. 108947, September 29, 1997.
[48]
Art. 2038 in rel. to Art. 1330, Civil Code; Domingo v. Court of Appeals, 255 SCRA 189, 199-200, March 20,
1996; Unicane Workers Union, CLUP v. NLRC, 261 SCRA 573, September 9, 1996; Del Rosario v. Madayag, 247
SCRA 767, 770, August 28, 1995.
[49]
Domingo v. Court of Appeals, supra; Del Rosario v. Madayag, supra; Osmea v. Commission on Audit, 238
SCRA 463, 471, November 29, 1994.
[50]
Art. 2029, Civil Code.
[51]
Art. 2031, ibid.
[52]
173 SCRA 72, 84, May 4, 1989.
[53]
207 SCRA 659, 667, March 31, 1992.
[54]
Supra, pp. 319 & 324.
[55]
Art. 2034, Civil Code.
[56]
Republic & Campos Jr. v. Sandiganbayan, supra, p. 83.
[57]
General Agreement, par. 8.
[58]
Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667, September 11, 1996.
[59]
28 (1), Art. VI, Constitution. Commissioner of Internal Revenue v. Court of Appeals, 261 SCRA 236, August
29, 1996; Tolentino v. Secretary of Finance, 249 SCRA 628, October 30, 1995; Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371, 383, June 30, 1988, citing City of Baguio v. De Leon, 134 Phil.
912, 919-920 (1968).
[60]
204 (1), National Internal Revenue Code, as amended by 3, RA 7646.
[61]
204 (2), NIRC.
[62]
Par. 2, ibid.
[63]
General Agreement, par. 8.
[64]
People v. Nazareno, 260 SCRA 256, August 1, 1996; People v. Porras, 255 SCRA 514, March 29, 1996.
[65]
Ledesma v. Court of Appeals, GR No. 113216, September 5, 1997, pp. 21-22.
[66]
Ibid., p. 23, citing Crespo v. Mogul, 151 SCRA 462, June 30, 1987; Marcelo v. Court of Appeals, 235 SCRA 39,
August 4, 1994; Martinez v. Court of Appeals, 237 SCRA 575, October 13, 1994; and Roberts Jr. v. Court of
Appeals, 254 SCRA 307, March 5, 1996.
[67]
Last Whereas clause of the General Agreement.
[68]
Art. 1171.
[69]
Specifically 3 (g) of RA 3019.

34[G. R. No. 140835. August 14, 2000]

RAMON A. GONZALES, petitioner, vs. HON. ANDRES R. NARVASA, as

Chairman, PREPARATORY COMMISSION ON CONSTITUTIONAL
REFORMS; HON. RONALDO B. ZAMORA, as Executive
Secretary; COMMISSION ON AUDIT; ROBERTO AVENTAJADO,
as Presidential Consultant on Council of Economic
Advisers/Economic Affairs; ANGELITO C. BANAYO, as
Presidential Adviser for/on Political Affairs; VERONICA
IGNACIO-JONES, as Presidential Assistant/ Appointment
Secretary (In charge of appointments), respondents.

DECISION
GONZAGA-REYES, J.:

In this petition for prohibition and mandamus filed on December 9, 1999, petitioner
Ramon A. Gonzales, in his capacity as a citizen and taxpayer, assails the
constitutionality of the creation of the Preparatory Commission on Constitutional Reform
(PCCR) and of the positions of presidential consultants, advisers and assistants.
Petitioner asks this Court to enjoin the PCCR and the presidential consultants, advisers
and assistants from acting as such, and to enjoin Executive Secretary Ronaldo B.
Zamora from enforcing their advice and recommendations. In addition, petitioner seeks
to enjoin the Commission on Audit from passing in audit expenditures for the PCCR and
the presidential consultants, advisers and assistants. Finally, petitioner prays for an
order compelling respondent Zamora to furnish petitioner with information on certain
matters.
On January 28, 2000, respondent Hon. Andres R. Narvasa, impleaded in his
capacity as Chairman of the PCCR, filed his Comment to the Petition. The rest of the
respondents, who are being represented in this case by the Solicitor General, filed their
Comment with this Court on March 7, 2000. Petitioner then filed a Consolidated Reply
on April 24, 2000, whereupon this case was considered submitted for decision.
I. Preparatory Commission on Constitutional Reform
The Preparatory Commission on Constitutional Reform (PCCR) was created by
President Estrada on November 26, 1998 by virtue of Executive Order No. 43 (E.O. No.
43) in order to study and recommend proposed amendments and/or revisions to the
1987 Constitution, and the manner of implementing the same. [1] Petitioner disputes the
constitutionality of the PCCR on two grounds. First, he contends that it is a public office
which only the legislature can create by way of a law. [2] Secondly, petitioner asserts that
by creating such a body the President is intervening in a process from which he is totally
excluded by the Constitution the amendment of the fundamental charter. [3]
It is alleged by respondents that, with respect to the PCCR, this case has become
moot and academic. We agree.
An action is considered moot when it no longer presents a justiciable controversy
because the issues involved have become academic or dead. [4] Under E.O. No. 43, the
PCCR was instructed to complete its task on or before June 30, 1999. [5] However, on
February 19, 1999, the President issued Executive Order No. 70 (E.O. No. 70), which
extended the time frame for the completion of the commissions work, viz

SECTION 6. Section 8 is hereby amended to read as follows:

Time Frame. The Commission shall commence its work on 01 January

1999 and complete the same on or before 31 December 1999. The
Commission shall submit its report and recommendations to the President
within fifteen (15) working days from 31 December 1999.

The PCCR submitted its recommendations to the President on December 20, 1999 and
was dissolved by the President on the same day. It had likewise spent the funds allotted
to it.[6]Thus, the PCCR has ceased to exist, having lost its raison detre. Subsequent
events have overtaken the petition and the Court has nothing left to resolve.
The staleness of the issue before us is made more manifest by the impossibility of
granting the relief prayed for by petitioner. Basically, petitioner asks this Court to enjoin
the PCCR from acting as such.[7] Clearly, prohibition is an inappropriate remedy since
the body sought to be enjoined no longer exists. It is well established that prohibition is
a preventive remedy and does not lie to restrain an act that is already fait accompli.[8] At
this point, any ruling regarding the PCCR would simply be in the nature of an advisory
opinion, which is definitely beyond the permissible scope of judicial power.
 In addition to the mootness of the issue, petitioners lack of standing constitutes
another obstacle to the successful invocation of judicial power insofar as the PCCR is
concerned.
The question in standing is whether a party has alleged such a personal stake in the
outcome of the controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court so largely depends for illumination of
difficult constitutional questions.[9] In assailing the constitutionality of E.O. Nos. 43 and
70, petitioner asserts his interest as a citizen and taxpayer. [10] A citizen acquires standing
only if he can establish that he has suffered some actual or threatened injury as a result
of the allegedly illegal conduct of the government; the injury is fairly traceable to the
challenged action; and the injury is likely to be redressed by a favorable action.
[11]
In Kilosbayan, Incorporated v. Morato,[12]we denied standing to petitioners who were
assailing a lease agreement between the Philippine Charity Sweepstakes Office and the
Philippine Gaming Management Corporation, stating that,

in Valmonte v. Philippine Charity Sweepstakes Office, G.R. No. 78716, Sept.

22, 1987, standing was denied to a petitioner who sought to declare a form of
lottery known as Instant Sweepstakes invalid because, as the Court held,

Valmonte brings the suit as a citizen, lawyer, taxpayer and father of three (3)
minor children. But nowhere in his petition does petitioner claim that his rights
and privileges as a lawyer or citizen have been directly and personally injured
by the operation of the Instant Sweepstakes. The interest of the person
assailing the constitutionality of a statute must be direct and personal. He
must be able to show, not only that the law is invalid, but also that he has
sustained or in immediate danger of sustaining some direct injury as a result
of its enforcement, and not merely that he suffers thereby in some indefinite
way. It must appear that the person complaining has been or is about to be
denied some right or privilege to which he is lawfully entitled or that he is
about to be subjected to some burdens or penalties by reason of the statute
complained of.

We apprehend no difference between the petitioner in Valmonte and the

present petitioners. Petitioners do not in fact show what particularized interest
they have for bringing this suit. It does not detract from the high regard for
petitioners as civic leaders to say that their interest falls short of that required
to maintain an action under Rule 3, d 2.

Coming now to the instant case, petitioner has not shown that he has sustained or
is in danger of sustaining any personal injury attributable to the creation of the PCCR. If
at all, it is only Congress, not petitioner, which can claim any injury in this case since,
according to petitioner, the President has encroached upon the legislatures powers to
create a public office and to propose amendments to the Charter by forming the
PCCR. Petitioner has sustained no direct, or even any indirect, injury. Neither does he
claim that his rights or privileges have been or are in danger of being violated, nor that
he shall be subjected to any penalties or burdens as a result of the PCCRs
activities. Clearly, petitioner has failed to establish his locus standi so as to enable him
to seek judicial redress as a citizen.
A taxpayer is deemed to have the standing to raise a constitutional issue when it is
established that public funds have been disbursed in alleged contravention of the law or
the Constitution.[13], Thus payers action is properly brought only when there is an
exercise by Congress of its taxing or spending power. [14] This was our ruling in a recent
case wherein petitioners Telecommunications and Broadcast Attorneys of the
Philippines (TELEBAP) and GMA Network, Inc. questioned the validity of section 92 of
B.P. No. 881 (otherwise knows as the Omnibus Election Code) requiring radio and
television stations to give free air time to the Commission on Elections during the
campaign period.[15] The Court held that petitioner TELEBAP did not have any interest as
a taxpayer since the assailed law did not involve the taxing or spending power of
Congress.[16]
Many other rulings have premised the grant or denial of standing to taxpayers upon
whether or not the case involved a disbursement of public funds by the
legislature. In Sanidad v. Commission on Elections,[17] the petitioners therein were
allowed to bring a taxpayers suit to question several presidential decrees promulgated
by then President Marcos in his legislative capacity calling for a national referendum,
with the Court explaining that

...[i]t is now an ancient rule that the valid source of a statute Presidential
Decrees are of such nature may be contested by one who will sustain a direct
injury as a result of its enforcement.At the instance of taxpayers, laws
providing for the disbursement of public funds may be enjoined, upon the
theory that the expenditure of public funds by an officer of the State for the
purpose of executing an unconstitutional act constitutes a misapplication of
such funds. The breadth of Presidential Decree No. 991 carries an
appropriation of Five Million Pesos for the effective implementation of its
purposes. Presidential Decree No. 1031 appropriates the sum of Eight Million
Pesos to carry out its provisions. The interest of the aforenamed petitioners as
taxpayers in the lawful expenditure of these amounts of public money
sufficiently clothes them with that personality to litigate the validity of the
Decrees appropriating said funds.

In still another case, the Court held that petitioners the Philippine Constitution
Association, Inc., a non-profit civic organization - had standing as taxpayers to question
the constitutionality of Republic Act No. 3836 insofar as it provides for retirement
gratuity and commutation of vacation and sick leaves to Senators and Representatives
and to the elective officials of both houses of Congress. [18] And in Pascual v. Secretary
of Public Works,[19] the Court allowed petitioner to maintain a taxpayers suit assailing the
constitutional soundness of Republic Act No. 920 appropriating P85,000 for the
construction, repair and improvement of feeder roads within private property. All these
cases involved the disbursement of public funds by means of a law.
Meanwhile, in Bugnay Construction and Development Corporation v. Laron,[20] the
Court declared that the trial court was wrong in allowing respondent Ravanzo to bring
an action for injunction in his capacity as a taxpayer in order to question the legality of
the contract of lease covering the public market entered into between the City of
Dagupan and petitioner. The Court declared that Ravanzo did not possess the requisite
standing to bring such taxpayers suit since [o]n its face, and there is no evidence to the
contrary, the lease contract entered into between petitioner and the City shows that no
public funds have been or will be used in the construction of the market building.
Coming now to the instant case, it is readily apparent that there is no exercise by
Congress of its taxing or spending power. The PCCR was created by the President by
virtue of E.O. No. 43, as amended by E.O. No. 70. Under section 7 of E.O. No. 43, the
amount of P3 million is appropriated for its operational expenses to be sourced from the
funds of the Office of the President. The relevant provision states -

Appropriations. The initial amount of Three Million Pesos (P3,000,000.00)

is hereby appropriated for the operational expenses of the Commission to
be sourced from funds of the Office of the President, subject to the usual
accounting and auditing rules and regulations. Additional amounts shall be
released to the Commission upon submission of requirements for
expenditures.

The appropriations for the PCCR were authorized by the President, not by Congress. In
fact, there was no an appropriation at all. In a strict sense, appropriation has been
defined as nothing more than the legislative authorization prescribed by the Constitution
that money may be paid out of the Treasury, while appropriation made by law refers to
the act of the legislature setting apart or assigning to a particular use a certain sum to
be used in the payment of debt or dues from the State to its creditors. [21] The funds used
for the PCCR were taken from funds intended for the Office of the President, in the
exercise of the Chief Executives power to transfer funds pursuant to section 25 (5) of
article VI of the Constitution.
In the final analysis, it must be stressed that the Court retains the power to decide
whether or not it will entertain a taxpayers suit. [22] In the case at bar, there being no
exercise by Congress of its taxing or spending power, petitioner cannot be allowed to
question the creation of the PCCR in his capacity as a taxpayer, but rather, he must
establish that he has a personal and substantial interest in the case and that he has
sustained or will sustain direct injury as a result of its enforcement. [23] In other words,
petitioner must show that he is a real party in interest - that he will stand to be benefited
or injured by the judgment or that he will be entitled to the avails of the suit. [24] Nowhere
in his pleadings does petitioner presume to make such a representation.
II. Presidential Consultants, Advisers, Assistants
 The second issue raised by petitioner concerns the presidential consultants.
Petitioner alleges that in 1995 and 1996, the President created seventy (70) positions in
the Office of the President and appointed to said positions twenty (20) presidential
consultants, twenty-two (22) presidential advisers, and twenty-eight (28) presidential
assistants.[25] Petitioner asserts that, as in the case of the PCCR, the President does not
have the power to create these positions. [26]
Consistent with the abovementioned discussion on standing, petitioner does not
have the personality to raise this issue before the Court. First of all, he has not proven
that he has sustained or is in danger of sustaining any injury as a result of the
appointment of such presidential advisers. Secondly, petitioner has not alleged the
necessary facts so as to enable the Court to determine if he possesses a taxpayers
interest in this particular issue. Unlike the PCCR which was created by virtue of an
executive order, petitioner does not allege by what official act, whether it be by means of
an executive order, administrative order, memorandum order, or otherwise, the
President attempted to create the positions of presidential advisers, consultants and
assistants. Thus, it is unclear what act of the President petitioner is assailing. In support
of his allegation, petitioner merely annexed a copy of the Philippine Government
Directory (Annex C) listing the names and positions of such presidential consultants,
advisers and assistants to his petition. However, appointment is obviously not
synonymous with creation. It would be improvident for this Court to entertain this issue
given the insufficient nature of the allegations in the Petition.
III. Right to Information
Finally, petitioner asks us to issue a writ of mandamus ordering Executive Secretary
Ronaldo B. Zamora to answer his letter (Annex D) dated October 4, 1999 requesting for
the names of executive officials holding multiple positions in government, copies of their
appointments, and a list of the recipients of luxury vehicles seized by the Bureau of
Customs and turned over to Malacanang.[27]
The right to information is enshrined in Section 7 of the Bill of Rights which provides
that

The right of the people to information on matters of public concern shall be

recognized. Access to official records, and to documents, and papers
pertaining to official acts, transactions, or decisions, as well as to government
research data used as basis for policy development, shall be afforded the
citizen, subject to such limitations as may be provided by law.

Under both the 1973[28] and 1987 Constitution, this is a self-executory provision
which can be invoked by any citizen before the courts. This was our ruling in Legaspi v.
Civil Service Commission,[29] wherein the Court classified the right to information as a
public right and when a [m]andamus proceeding involves the assertion of a public right,
the requirement of personal interest is satisfied by the mere fact that the petitioner is a
citizen, and therefore, part of the general public which possesses the right. However,
Congress may provide for reasonable conditions upon the access to information. Such
limitations were embodied in Republic Act No. 6713, otherwise knows as the Code of
Conduct and Ethical Standards for Public Officials and Employees, which took effect on
March 25, 1989. This law provides that, in the performance of their duties, all public
officials and employees are obliged to respond to letters sent by the public within fifteen
(15) working days from receipt thereof and to ensure the accessibility of all public
documents for inspection by the public within reasonable working hours, subject to the
reasonable claims of confidentiality.[30]
Elaborating on the significance of the right to information, the Court said in Baldoza
v. Dimaano[31] that [t]he incorporation of this right in the Constitution is a recognition of
the fundamental role of free exchange of information in a democracy. There can be no
realistic perception by the public of the nations problems, nor a meaningful democratic
decisionmaking if they are denied access to information of general interest. Information
is needed to enable the members of society to cope with the exigencies of the times.
The information to which the public is entitled to are those concerning matters of public
concern, a term which embrace[s] a broad spectrum of subjects which the public may
want to know, either because these directly affect their lives, or simply because such
matters naturally arouse the interest of an ordinary citizen. In the final analysis, it is for
the courts to determine in a case by case basis whether the matter at issue is of interest
or importance, as it relates to or affects the public.[32]
Thus, we agree with petitioner that respondent Zamora, in his official capacity as
Executive Secretary, has a constitutional and statutory duty to answer petitioners letter
dealing with matters which are unquestionably of public concern that is, appointments
made to public offices and the utilization of public property. With regard to petitioners
request for copies of the appointment papers of certain officials, respondent Zamora is
obliged to allow the inspection and copying of the same subject to the reasonable
limitations required for the orderly conduct of official business. [33]
WHEREFORE, the petition is dismissed, with the exception that respondent Zamora
is ordered to furnish petitioner with the information requested.
SO ORDERED.
Davide, Jr., C.J., Melo, Vitug, Kapunan, Mendoza, Panganiban, Quisumbing,
Purisima, Pardo, Buena, Ynares-Santiago, and De Leon, Jr., JJ., concur.
Bellosillo, J., abroad, on official business.
Puno, J., vote to dismiss on the ground that the case is moot.

[1]
E.O. No. 43, sec. 1.
[2]
Petition, 11-18
[3]
Ibid., 18-22.
[4]
Santiago v. Court of Appeals, 285 SCRA 16 (1998); Garcia v. Commission on Elections, 258 SCRA 754 (1996).
[5]
E.O. No. 43, sec. 8.
[6]
Comment of respondent Narvasa, 7-9.
[7]
Petition, 29-30.
[8]
Aguinaldo v. Commission on Elections, 308 SCRA 770 (1998).
[9]
Kilosbayan, Incorporated v. Morato, 246 SCRA 540 (1995), citing Baker v. Carr, 369 U.S. 186, 7 L.Ed.2d 633
(1962).
[10]
Petition, 2.
[11]
Telecommunications and Broadcast Attorneys of the Philippines, Inc. v. Commission on Elections, 289 SCRA
337 (1998).
[12]
246 SCRA 540 (1995).
[13]
The Anti-Graft League of the Philippines, Inc. v. San Juan, 260 SCRA 250 (1996).
[14]
Flast v. Cohen, 392 US 83, 20 L Ed 2d 947, 88 S Ct 1942.
[15]
Telecommunications and Broadcast Attorneys of the Philippines, Inc. v. Commission on Elections, 289 SCRA
337 (1998).
[16]
See also The Anti-Graft League of the Philippines, Inc. vs. San Juan, 260 SCRA 250 (1996); Kilosbayan,
Incorporated v. Morato, 246 SCRA 540 (1995); Dumlao v. Comelec, 95 SCRA 392 (1980).
[17]
73 SCRA 333 (1976).
[18]
Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA 479 (1965).
[19]
110 Phil 331 (1960).
[20]
176 SCRA 251 (1989).
[21]
Gonzales v. Raquiza, 180 SCRA 254 (1989).
[22]
Dumlao v. Commission on Elections, 95 SCRA 392 (1980), citing Tan v. Macapagal, 43 SCRA 677(1972);
Sanidad v. Commission on Elections, 73 SCRA 333 (1976).
[23]
People v. Vera, 65 Phil 50 (1937).
[24]
Rules of Court, Rule 3, sec. 2; Board of Optometry v. Colet, 260 SCRA 88 (1997).
[25]
Petition, 6.
[26]
Ibid., 6-7, 22.
[27]
Ibid., 1-2, 6
[28]
Sec. 6, Article III, 1973 Constitution, provided -
The right of the people to information on matters of public concern shall be recognized. Access to official records,
and to documents and papers pertaining to official acts, transactions, or decision, shall be afforded the citizen subject
to such limitations as may be provided by law.
[29]
150 SCRA 530 (1987).
[30]
Republic Act No. 6713, sec. 5 (a) and (e); see Rules Implementing the Code of Conduct and Ethical Standards for
Public Officials and Employees, Rule IV.
[31]
71 SCRA 14 (1976). See Echegaray v. Secretary of Justice, 297 SCRA 754 (1998).
[32]
Legaspi v. Civil Service Commission, 150 SCRA 530 (1987).
[33]
Lantaco, Sr. v. Llamas, 108 SCRA 502 (1981).
 35[G.R. No. 138570. October 10, 2000]

BAYAN (Bagong Alyansang Makabayan), a JUNK VFA MOVEMENT,

BISHOP TOMAS MILLAMENA (Iglesia Filipina Independiente),
BISHOP ELMER BOLOCAN (United Church of Christ of the Phil.),
DR. REYNALDO LEGASCA, MD, KILUSANG MAMBUBUKID NG
PILIPINAS, KILUSANG MAYO UNO, GABRIELA, PROLABOR, and
the PUBLIC INTEREST LAW CENTER, petitioners,
vs. EXECUTIVE SECRETARY RONALDO ZAMORA, FOREIGN
AFFAIRS SECRETARY DOMINGO SIAZON, DEFENSE
SECRETARY ORLANDO MERCADO, BRIG. GEN. ALEXANDER
AGUIRRE, SENATE PRESIDENT MARCELO FERNAN, SENATOR
FRANKLIN DRILON, SENATOR BLAS OPLE, SENATOR
RODOLFO BIAZON, and SENATOR FRANCISCO TATAD,
respondents.

[G.R. No. 138572. October 10, 2000]

PHILIPPINE CONSTITUTION ASSOCIATION, INC.(PHILCONSA),

EXEQUIEL B. GARCIA, AMADOGAT INCIONG, CAMILO L. SABIO,
AND RAMON A. GONZALES, petitioners, vs. HON. RONALDO B.
ZAMORA, as Executive Secretary, HON. ORLANDO MERCADO,
as Secretary of National Defense, and HON. DOMINGO L.
SIAZON, JR., as Secretary of Foreign Affairs, respondents.

[G.R. No. 138587. October 10, 2000]

TEOFISTO T. GUINGONA, JR., RAUL S. ROCO, and SERGIO R.

OSMEA III, petitioners, vs. JOSEPH E. ESTRADA, RONALDO B.
ZAMORA, DOMINGO L. SIAZON, JR., ORLANDO B. MERCADO,
MARCELO B. FERNAN, FRANKLIN M. DRILON, BLAS F. OPLE
and RODOLFO G. BIAZON, respondents.
 [G.R. No. 138680. October 10, 2000]

INTEGRATED BAR OF THE PHILIPPINES, Represented by its National

President, Jose Aguila Grapilon, petitioners, vs. JOSEPH
EJERCITO ESTRADA, in his capacity as President, Republic of
the Philippines, and HON. DOMINGO SIAZON, in his capacity as
Secretary of Foreign Affairs, respondents.

[G.R. No. 138698. October 10, 2000]

JOVITO R. SALONGA, WIGBERTO TAADA, ZENAIDA QUEZON-

AVENCEA, ROLANDO SIMBULAN, PABLITO V. SANIDAD, MA.
SOCORRO I. DIOKNO, AGAPITO A. AQUINO, JOKER P. ARROYO,
FRANCISCO C. RIVERA JR., RENE A.V. SAGUISAG,
KILOSBAYAN, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
(MABINI), petitioners, vs. THE EXECUTIVE SECRETARY, THE
SECRETARY OF FOREIGN AFFAIRS, THE SECRETARY OF
NATIONAL DEFENSE, SENATE PRESIDENT MARCELO B.
FERNAN, SENATOR BLAS F. OPLE, SENATOR RODOLFO G.
BIAZON, AND ALL OTHER PERSONS ACTING THEIR CONTROL,
SUPERVISION, DIRECTION, AND INSTRUCTION IN RELATION
TO THE VISITING FORCES AGREEMENT (VFA), respondents.

DECISION
BUENA, J.:

Confronting the Court for resolution in the instant consolidated petitions for certiorari
and prohibition are issues relating to, and borne by, an agreement forged in the turn of
the last century between the Republic of the Philippines and the United States of
America -the Visiting Forces Agreement.
The antecedents unfold.
On March 14, 1947, the Philippines and the United States of America forged a
Military Bases Agreement which formalized, among others, the use of installations in the
Philippine territory by United States military personnel. To further strengthen their
defense and security relationship, the Philippines and the United States entered into a
Mutual Defense Treaty on August 30, 1951. Under the treaty, the parties agreed to
respond to any external armed attack on their territory, armed forces, public vessels,
and aircraft.[1]
In view of the impending expiration of the RP-US Military Bases Agreement in 1991,
the Philippines and the United States negotiated for a possible extension of the military
bases agreement. On September 16, 1991, the Philippine Senate rejected the proposed
RP-US Treaty of Friendship, Cooperation and Security which, in effect, would have
extended the presence of US military bases in the Philippines. [2] With the expiration of
the RP-US Military Bases Agreement, the periodic military exercises conducted
between the two countries were held in abeyance. Notwithstanding, the defense and
security relationship between the Philippines and the United States of America
continued pursuant to the Mutual Defense Treaty.
On July 18, 1997, the United States panel, headed by US Defense Deputy Assistant
Secretary for Asia Pacific Kurt Campbell, met with the Philippine panel, headed by
Foreign Affairs Undersecretary Rodolfo Severino Jr., to exchange notes on the
complementing strategic interests of the United States and the Philippines in the Asia-
Pacific region. Both sides discussed, among other things, the possible elements of the
Visiting Forces Agreement (VFA for brevity). Negotiations by both panels on the VFA led
to a consolidated draft text, which in turn resulted to a final series of conferences and
negotiations[3] that culminated in Manila on January 12 and 13, 1998. Thereafter, then
President Fidel V. Ramos approved the VFA, which was respectively signed by public
respondent Secretary Siazon and Unites States Ambassador Thomas Hubbard on
February 10, 1998.
On October 5, 1998, President Joseph E. Estrada, through respondent Secretary of
Foreign Affairs, ratified the VFA.[4]
On October 6, 1998, the President, acting through respondent Executive Secretary
Ronaldo Zamora, officially transmitted to the Senate of the Philippines, [5] the Instrument
of Ratification, the letter of the President[6] and the VFA, for concurrence pursuant to
Section 21, Article VII of the 1987 Constitution. The Senate, in turn, referred the VFA to
its Committee on Foreign Relations, chaired by Senator Blas F. Ople, and its Committee
on National Defense and Security, chaired by Senator Rodolfo G. Biazon, for their joint
consideration and recommendation. Thereafter, joint public hearings were held by the
two Committees.[7]
On May 3, 1999, the Committees submitted Proposed Senate Resolution No.
443[8] recommending the concurrence of the Senate to the VFA and the creation of a
Legislative Oversight Committee to oversee its implementation. Debates then ensued.
On May 27, 1999, Proposed Senate Resolution No. 443 was approved by the
Senate, by a two-thirds (2/3) vote [9] of its members. Senate Resolution No. 443 was then
re-numbered as Senate Resolution No. 18.[10]
On June 1, 1999, the VFA officially entered into force after an Exchange of Notes
between respondent Secretary Siazon and United States Ambassador Hubbard.
The VFA, which consists of a Preamble and nine (9) Articles, provides for the
mechanism for regulating the circumstances and conditions under which US Armed
Forces and defense personnel may be present in the Philippines, and is quoted in its full
text, hereunder:

Article I
Definitions

As used in this Agreement, United States personnel means United States military
and civilian personnel temporarily in the Philippines in connection with activities
approved by the Philippine Government.

Within this definition:

1. The term military personnel refers to military members of the United States Army,
Navy, Marine Corps, Air Force, and Coast Guard.
2. The term civilian personnel refers to individuals who are neither nationals of, nor
ordinary residents in the Philippines and who are employed by the United States
armed forces or who are accompanying the United States armed forces, such as
employees of the American Red Cross and the United Services Organization.

Article II
Respect for Law

It is the duty of the United States personnel to respect the laws of the Republic of
the Philippines and to abstain from any activity inconsistent with the spirit of this
agreement, and, in particular, from any political activity in the Philippines. The
Government of the United States shall take all measures within its authority to
ensure that this is done.

Article III
Entry and Departure

1. The Government of the Philippines shall facilitate the admission of United

States personnel and their departure from the Philippines in connection with
activities covered by this agreement.

2. United States military personnel shall be exempt from passport and visa
regulations upon entering and departing the Philippines.

3. The following documents only, which shall be presented on demand, shall be

required in respect of United States military personnel who enter the
Philippines:
 (a) personal identity card issued by the appropriate United States authority
showing full name, date of birth, rank or grade and service number (if
any), branch of service and photograph;

(b) individual or collective document issued by the appropriate United States

authority, authorizing the travel or visit and identifying the individual or
group as United States military personnel; and

(c) the commanding officer of a military aircraft or vessel shall present a

declaration of health, and when required by the cognizant representative of
the Government of the Philippines, shall conduct a quarantine inspection
and will certify that the aircraft or vessel is free from quarantinable
diseases. Any quarantine inspection of United States aircraft or United
States vessels or cargoes thereon shall be conducted by the United States
commanding officer in accordance with the international health
regulations as promulgated by the World Health Organization, and
mutually agreed procedures.

4. United States civilian personnel shall be exempt from visa requirements but
shall present, upon demand, valid passports upon entry and departure of the
Philippines.

5. If the Government of the Philippines has requested the removal of any United
States personnel from its territory, the United States authorities shall be
responsible for receiving the person concerned within its own territory or
otherwise disposing of said person outside of the Philippines.

Article IV
Driving and Vehicle Registration

1. Philippine authorities shall accept as valid, without test or fee, a driving permit
or license issued by the appropriate United States authority to United States
personnel for the operation of military or official vehicles.

2. Vehicles owned by the Government of the United States need not be registered,
but shall have appropriate markings.

Article V
Criminal Jurisdiction

1. Subject to the provisions of this article:

 (a) Philippine authorities shall have jurisdiction over United States personnel with
respect to offenses committed within the Philippines and punishable under the
law of the Philippines.
(b) United States military authorities shall have the right to exercise within the
Philippines all criminal and disciplinary jurisdiction conferred on them by the
military law of the United States over United States personnel in the Philippines.
2. (a) Philippine authorities exercise exclusive jurisdiction over United States
personnel with respect to offenses, including offenses relating to the security
of the Philippines, punishable under the laws of the Philippines, but not
under the laws of the United States.
(b) United States authorities exercise exclusive jurisdiction over United States
personnel with respect to offenses, including offenses relating to the security
of the United States, punishable under the laws of the United States, but not
under the laws of the Philippines.
(c) For the purposes of this paragraph and paragraph 3 of this article, an offense
relating to security means:

(1) treason;

(2) sabotage, espionage or violation of any law relating to national

defense.

3. In cases where the right to exercise jurisdiction is concurrent, the following rules
shall apply:
(a) Philippine authorities shall have the primary right to exercise jurisdiction over all
offenses committed by United States personnel, except in cases provided for in
paragraphs 1(b), 2 (b), and 3 (b) of this Article.
(b) United States military authorities shall have the primary right to exercise
jurisdiction over United States personnel subject to the military law of the United
States in relation to.
(1) offenses solely against the property or security of the United States or
offenses solely against the property or person of United States personnel; and
(2) offenses arising out of any act or omission done in performance of official
duty.
(c) The authorities of either government may request the authorities of the other
government to waive their primary right to exercise jurisdiction in a particular
case.
(d) Recognizing the responsibility of the United States military authorities to maintain
good order and discipline among their forces, Philippine authorities will, upon
request by the United States, waive their primary right to exercise jurisdiction
except in cases of particular importance to the Philippines. If the Government of
the Philippines determines that the case is of particular importance, it shall
communicate such determination to the United States authorities within twenty
(20) days after the Philippine authorities receive the United States request.
 (e) When the United States military commander determines that an offense charged
by authorities of the Philippines against United states personnel arises out of an
act or omission done in the performance of official duty, the commander will issue
a certificate setting forth such determination. This certificate will be transmitted to
the appropriate authorities of the Philippines and will constitute sufficient proof of
performance of official duty for the purposes of paragraph 3(b)(2) of this Article. In
those cases where the Government of the Philippines believes the circumstances
of the case require a review of the duty certificate, United States military
authorities and Philippine authorities shall consult immediately. Philippine
authorities at the highest levels may also present any information bearing on its
validity. United States military authorities shall take full account of the Philippine
position. Where appropriate, United States military authorities will take
disciplinary or other action against offenders in official duty cases, and notify the
Government of the Philippines of the actions taken.
(f) If the government having the primary right does not exercise jurisdiction, it shall
notify the authorities of the other government as soon as possible.
(g) The authorities of the Philippines and the United States shall notify each other of
the disposition of all cases in which both the authorities of the Philippines and the
United States have the right to exercise jurisdiction.
4. Within the scope of their legal competence, the authorities of the Philippines and
United States shall assist each other in the arrest of United States personnel in the
Philippines and in handling them over to authorities who are to exercise jurisdiction
in accordance with the provisions of this article.
5. United States military authorities shall promptly notify Philippine authorities of the
arrest or detention of United States personnel who are subject of Philippine primary
or exclusive jurisdiction. Philippine authorities shall promptly notify United States
military authorities of the arrest or detention of any United States personnel.
6. The custody of any United States personnel over whom the Philippines is to exercise
jurisdiction shall immediately reside with United States military authorities, if they so
request, from the commission of the offense until completion of all judicial
proceedings. United States military authorities shall, upon formal notification by the
Philippine authorities and without delay, make such personnel available to those
authorities in time for any investigative or judicial proceedings relating to the offense
with which the person has been charged in extraordinary cases, the Philippine
Government shall present its position to the United States Government regarding
custody, which the United States Government shall take into full account. In the
event Philippine judicial proceedings are not completed within one year, the United
States shall be relieved of any obligations under this paragraph. The one-year
period will not include the time necessary to appeal. Also, the one-year period will
not include any time during which scheduled trial procedures are delayed because
United States authorities, after timely notification by Philippine authorities to arrange
for the presence of the accused, fail to do so.
7. Within the scope of their legal authority, United States and Philippine authorities shall
assist each other in the carrying out of all necessary investigation into offenses and
shall cooperate in providing for the attendance of witnesses and in the collection
and production of evidence, including seizure and, in proper cases, the delivery of
objects connected with an offense.
8. When United States personnel have been tried in accordance with the provisions of
this Article and have been acquitted or have been convicted and are serving, or
have served their sentence, or have had their sentence remitted or suspended, or
have been pardoned, they may not be tried again for the same offense in the
Philippines. Nothing in this paragraph, however, shall prevent United States military
authorities from trying United States personnel for any violation of rules of discipline
arising from the act or omission which constituted an offense for which they were
tried by Philippine authorities.
9. When United States personnel are detained, taken into custody, or prosecuted by
Philippine authorities, they shall be accorded all procedural safeguards established
by the law of the Philippines. At the minimum, United States personnel shall be
entitled:
(a) To a prompt and speedy trial;
(b) To be informed in advance of trial of the specific charge or charges made against
them and to have reasonable time to prepare a defense;
(c) To be confronted with witnesses against them and to cross examine such
witnesses;
(d) To present evidence in their defense and to have compulsory process for
obtaining witnesses;
(e) To have free and assisted legal representation of their own choice on the same
basis as nationals of the Philippines;
(f) To have the service of a competent interpreter; and
(g) To communicate promptly with and to be visited regularly by United States
authorities, and to have such authorities present at all judicial proceedings. These
proceedings shall be public unless the court, in accordance with Philippine laws,
excludes persons who have no role in the proceedings.
10. The confinement or detention by Philippine authorities of United States personnel
shall be carried out in facilities agreed on by appropriate Philippine and United
States authorities. United States Personnel serving sentences in the Philippines
shall have the right to visits and material assistance.
11. United States personnel shall be subject to trial only in Philippine courts of ordinary
jurisdiction, and shall not be subject to the jurisdiction of Philippine military or
religious courts.

Article VI
Claims

1. Except for contractual arrangements, including United States foreign military sales
letters of offer and acceptance and leases of military equipment, both governments
waive any and all claims against each other for damage, loss or destruction to
property of each others armed forces or for death or injury to their military and
civilian personnel arising from activities to which this agreement applies.
2. For claims against the United States, other than contractual claims and those to
which paragraph 1 applies, the United States Government, in accordance with
 United States law regarding foreign claims, will pay just and reasonable
compensation in settlement of meritorious claims for damage, loss, personal injury
or death, caused by acts or omissions of United States personnel, or otherwise
incident to the non-combat activities of the United States forces.

Article VII
Importation and Exportation

1. United States Government equipment, materials, supplies, and other property

imported into or acquired in the Philippines by or on behalf of the United States
armed forces in connection with activities to which this agreement applies, shall be
free of all Philippine duties, taxes and other similar charges. Title to such property
shall remain with the United States, which may remove such property from the
Philippines at any time, free from export duties, taxes, and other similar charges.
The exemptions provided in this paragraph shall also extend to any duty, tax, or
other similar charges which would otherwise be assessed upon such property after
importation into, or acquisition within, the Philippines. Such property may be
removed from the Philippines, or disposed of therein, provided that disposition of
such property in the Philippines to persons or entities not entitled to exemption from
applicable taxes and duties shall be subject to payment of such taxes, and duties
and prior approval of the Philippine Government.
2. Reasonable quantities of personal baggage, personal effects, and other property for
the personal use of United States personnel may be imported into and used in the
Philippines free of all duties, taxes and other similar charges during the period of
their temporary stay in the Philippines. Transfers to persons or entities in the
Philippines not entitled to import privileges may only be made upon prior approval of
the appropriate Philippine authorities including payment by the recipient of
applicable duties and taxes imposed in accordance with the laws of the Philippines.
The exportation of such property and of property acquired in the Philippines by
United States personnel shall be free of all Philippine duties, taxes, and other similar
charges.

Article VIII
Movement of Vessels and Aircraft

1. Aircraft operated by or for the United States armed forces may enter the Philippines
upon approval of the Government of the Philippines in accordance with procedures
stipulated in implementing arrangements.
2. Vessels operated by or for the United States armed forces may enter the Philippines
upon approval of the Government of the Philippines. The movement of vessels shall
be in accordance with international custom and practice governing such vessels,
and such agreed implementing arrangements as necessary.
3. Vehicles, vessels, and aircraft operated by or for the United States armed forces
shall not be subject to the payment of landing or port fees, navigation or over flight
charges, or tolls or other use charges, including light and harbor dues, while in the
Philippines. Aircraft operated by or for the United States armed forces shall observe
local air traffic control regulations while in the Philippines. Vessels owned or
 operated by the United States solely on United States Government non-commercial
service shall not be subject to compulsory pilotage at Philippine ports.

Article IX
Duration and Termination

This agreement shall enter into force on the date on which the parties have
notified each other in writing through the diplomatic channel that they have
completed their constitutional requirements for entry into force. This agreement
shall remain in force until the expiration of 180 days from the date on which
either party gives the other party notice in writing that it desires to terminate the
agreement.

Via these consolidated[11] petitions for certiorari and prohibition, petitioners - as

legislators, non-governmental organizations, citizens and taxpayers - assail the
constitutionality of the VFA and impute to herein respondents grave abuse of discretion
in ratifying the agreement.
We have simplified the issues raised by the petitioners into the following:
I

Do petitioners have legal standing as concerned citizens, taxpayers, or legislators

to question the constitutionality of the VFA?
II

Is the VFA governed by the provisions of Section 21, Article VII or of Section 25,
Article XVIII of the Constitution?
III

Does the VFA constitute an abdication of Philippine sovereignty?

a. Are Philippine courts deprived of their jurisdiction to hear and try offenses committed
by US military personnel?
b. Is the Supreme Court deprived of its jurisdiction over offenses punishable by
reclusion perpetua or higher?
IV

Does the VFA violate:

a. the equal protection clause under Section 1, Article III of the Constitution?
b. the Prohibition against nuclear weapons under Article II, Section 8?
 c. Section 28 (4), Article VI of the Constitution granting the exemption from taxes and
duties for the equipment, materials supplies and other properties imported into or
acquired in the Philippines by, or on behalf, of the US Armed Forces?

LOCUS STANDI

At the outset, respondents challenge petitioners standing to sue, on the ground that
the latter have not shown any interest in the case, and that petitioners failed to
substantiate that they have sustained, or will sustain direct injury as a result of the
operation of the VFA.[12] Petitioners, on the other hand, counter that the validity or
invalidity of the VFA is a matter of transcendental importance which justifies their
standing.[13]
A party bringing a suit challenging the constitutionality of a law, act, or statute must
show not only that the law is invalid, but also that he has sustained or in is in immediate,
or imminent danger of sustaining some direct injury as a result of its enforcement, and
not merely that he suffers thereby in some indefinite way. He must show that he has
been, or is about to be, denied some right or privilege to which he is lawfully entitled, or
that he is about to be subjected to some burdens or penalties by reason of the statute
complained of.[14]
In the case before us, petitioners failed to show, to the satisfaction of this Court, that
they have sustained, or are in danger of sustaining any direct injury as a result of the
enforcement of the VFA. As taxpayers, petitioners have not established that the VFA
involves the exercise by Congress of its taxing or spending powers. [15] On this point, it
bears stressing that a taxpayers suit refers to a case where the act complained of
directly involves the illegal disbursement of public funds derived from taxation. [16] Thus,
in Bugnay Const. & Development Corp. vs. Laron [17], we held:

x x x it is exigent that the taxpayer-plaintiff sufficiently show that he would be

benefited or injured by the judgment or entitled to the avails of the suit as a real party
in interest. Before he can invoke the power of judicial review, he must specifically
prove that he has sufficient interest in preventing the illegal expenditure of money
raised by taxation and that he will sustain a direct injury as a result of the enforcement
of the questioned statute or contract. It is not sufficient that he has merely a general
interest common to all members of the public.

Clearly, inasmuch as no public funds raised by taxation are involved in this case,
and in the absence of any allegation by petitioners that public funds are being misspent
or illegally expended, petitioners, as taxpayers, have no legal standing to assail the
legality of the VFA.
Similarly, Representatives Wigberto Taada, Agapito Aquino and Joker Arroyo, as
petitioners-legislators, do not possess the requisite locus standi to maintain the present
suit. While this Court, in Phil. Constitution Association vs. Hon. Salvador Enriquez,
[18]
sustained the legal standing of a member of the Senate and the House of
Representatives to question the validity of a presidential veto or a condition imposed on
an item in an appropriation bull, we cannot, at this instance, similarly uphold petitioners
standing as members of Congress, in the absence of a clear showing of any direct
injury to their person or to the institution to which they belong.
Beyond this, the allegations of impairment of legislative power, such as the
delegation of the power of Congress to grant tax exemptions, are more apparent than
real. While it may be true that petitioners pointed to provisions of the VFA which
allegedly impair their legislative powers, petitioners failed however to sufficiently show
that they have in fact suffered direct injury.
In the same vein, petitioner Integrated Bar of the Philippines (IBP) is stripped of
standing in these cases. As aptly observed by the Solicitor General, the IBP lacks the
legal capacity to bring this suit in the absence of a board resolution from its Board of
Governors authorizing its National President to commence the present action. [19]
Notwithstanding, in view of the paramount importance and the constitutional
significance of the issues raised in the petitions, this Court, in the exercise of its sound
discretion, brushes aside the procedural barrier and takes cognizance of the petitions,
as we have done in the early Emergency Powers Cases,[20] where we had occasion to
rule:

x x x ordinary citizens and taxpayers were allowed to question the constitutionality of

several executive orders issued by President Quirino although they were involving
only an indirect and general interest shared in common with the public. The Court
dismissed the objection that they were not proper parties and ruled
that transcendental importance to the public of these cases demands that they be
settled promptly and definitely, brushing aside, if we must, technicalities of
procedure. We have since then applied the exception in many other
cases. (Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian
Reform, 175 SCRA 343). (Underscoring Supplied)

This principle was reiterated in the subsequent cases of Gonzales vs. COMELEC,
[21]
Daza vs. Singson,[22] and Basco vs. Phil. Amusement and Gaming Corporation,
[23]
where we emphatically held:

Considering however the importance to the public of the case at bar, and in keeping
with the Courts duty, under the 1987 Constitution, to determine whether or not the
other branches of the government have kept themselves within the limits of the
Constitution and the laws and that they have not abused the discretion given to them,
the Court has brushed aside technicalities of procedure and has taken cognizance of
this petition. x x x

Again, in the more recent case of Kilosbayan vs. Guingona, Jr.,[24] thisCourt ruled
that in cases of transcendental importance, the Court may relax the standing
requirements and allow a suit to prosper even where there is no direct injury to
the party claiming the right of judicial review.
Although courts generally avoid having to decide a constitutional question based on
the doctrine of separation of powers, which enjoins upon the departments of the
government a becoming respect for each others acts, [25] this Court nevertheless resolves
to take cognizance of the instant petitions.

APPLICABLE CONSTITUTIONAL PROVISION

One focal point of inquiry in this controversy is the determination of which provision
of the Constitution applies, with regard to the exercise by the senate of its constitutional
power to concur with the VFA. Petitioners argue that Section 25, Article XVIII is
applicable considering that the VFA has for its subject the presence of foreign military
troops in the Philippines.Respondents, on the contrary, maintain that Section 21, Article
VII should apply inasmuch as the VFA is not a basing arrangement but an agreement
which involves merely the temporary visits of United States personnel engaged in joint
military exercises.
The 1987 Philippine Constitution contains two provisions requiring the concurrence
of the Senate on treaties or international agreements. Section 21, Article VII, which
herein respondents invoke, reads:

No treaty or international agreement shall be valid and effective unless concurred in

by at least two-thirds of all the Members of the Senate.

Section 25, Article XVIII, provides:

After the expiration in 1991 of the Agreement between the Republic of the Philippines
and the United States of America concerning Military Bases, foreign military bases,
troops, or facilities shall not be allowed in the Philippines except under a treaty duly
concurred in by the senate and, when the Congress so requires, ratified by a majority
of the votes cast by the people in a national referendum held for that purpose, and
recognized as a treaty by the other contracting State.

Section 21, Article VII deals with treatise or international agreements in general, in
which case, the concurrence of at least two-thirds (2/3) of all the Members of the Senate
is required to make the subject treaty, or international agreement, valid and binding on
the part of the Philippines. This provision lays down the general rule on treatise or
international agreements and applies to any form of treaty with a wide variety of subject
matter, such as, but not limited to, extradition or tax treatise or those economic in
nature. All treaties or international agreements entered into by the Philippines,
regardless of subject matter, coverage, or particular designation or appellation, requires
the concurrence of the Senate to be valid and effective.
 In contrast, Section 25, Article XVIII is a special provision that applies to treaties
which involve the presence of foreign military bases, troops or facilities in the
Philippines. Under this provision, the concurrence of the Senate is only one of the
requisites to render compliance with the constitutional requirements and to consider the
agreement binding on the Philippines.Section 25, Article XVIII further requires that
foreign military bases, troops, or facilities may be allowed in the Philippines only by
virtue of a treaty duly concurred in by the Senate, ratified by a majority of the votes cast
in a national referendum held for that purpose if so required by Congress, and
recognized as such by the other contracting state.
It is our considered view that both constitutional provisions, far from contradicting
each other, actually share some common ground. These constitutional provisions both
embody phrases in the negative and thus, are deemed prohibitory in mandate and
character. In particular, Section 21 opens with the clause No treaty x x x, and Section 25
contains the phrase shall not be allowed. Additionally, in both instances, the
concurrence of the Senate is indispensable to render the treaty or international
agreement valid and effective.
To our mind, the fact that the President referred the VFA to the Senate under
Section 21, Article VII, and that the Senate extended its concurrence under the same
provision, is immaterial. For in either case, whether under Section 21, Article VII or
Section 25, Article XVIII, the fundamental law is crystalline that the concurrence of the
Senate is mandatory to comply with the strict constitutional requirements.
On the whole, the VFA is an agreement which defines the treatment of United
States troops and personnel visiting the Philippines. It provides for the guidelines to
govern such visits of military personnel, and further defines the rights of the United
States and the Philippine government in the matter of criminal jurisdiction, movement of
vessel and aircraft, importation and exportation of equipment, materials and supplies.
Undoubtedly, Section 25, Article XVIII, which specifically deals with treaties
involving foreign military bases, troops, or facilities, should apply in the instant case. To
a certain extent and in a limited sense, however, the provisions of section 21, Article VII
will find applicability with regard to the issue and for the sole purpose of determining the
number of votes required to obtain the valid concurrence of the Senate, as will be
further discussed hereunder.
It is a finely-imbedded principle in statutory construction that a special provision or
law prevails over a general one. Lex specialis derogat generali. Thus, where there is
in the same statute a particular enactment and also a general one which, in its most
comprehensive sense, would include what is embraced in the former, the particular
enactment must be operative, and the general enactment must be taken to affect only
such cases within its general language which are not within the provision of the
particular enactment.[26]
In Leveriza vs. Intermediate Appellate Court,[27] we enunciated:

x x x that another basic principle of statutory construction mandates that general

legislation must give way to a special legislation on the same subject, and generally be
so interpreted as to embrace only cases in which the special provisions are not
applicable (Sto. Domingo vs. de los Angeles, 96 SCRA 139), that a specific statute
prevails over a general statute (De Jesus vs. People, 120 SCRA 760) and that where
two statutes are of equal theoretical application to a particular case, the one designed
therefor specially should prevail (Wil Wilhensen Inc. vs. Baluyot, 83 SCRA 38).

Moreover, it is specious to argue that Section 25, Article XVIII is inapplicable to

mere transient agreements for the reason that there is no permanent placing of
structure for the establishment of a military base. On this score, the Constitution makes
no distinction between transient and permanent. Certainly, we find nothing in Section
25, Article XVIII that requires foreign troops or facilities to be stationed or
placed permanently in the Philippines.
It is a rudiment in legal hermenuetics that when no distinction is made by law, the
Court should not distinguish- Ubi lex non distinguit nec nos distinguire debemos.
In like manner, we do not subscribe to the argument that Section 25, Article XVIII is
not controlling since no foreign military bases, but merely foreign troops and facilities,
are involved in the VFA. Notably, a perusal of said constitutional provision reveals that
the proscription covers foreign military bases, troops, or facilities. Stated differently, this
prohibition is not limited to the entry of troops and facilities without any foreign bases
being established. The clause does not refer to foreign military bases,
troops, or facilities collectively but treats them as separate and independent
subjects. The use of comma and the disjunctive word or clearly signifies disassociation
and independence of one thing from the others included in the enumeration, [28]such that,
the provision contemplates three different situations - a military treaty the subject of
which could be either (a) foreign bases, (b) foreign troops, or (c) foreign facilities - any
of the three standing alone places it under the coverage of Section 25, Article XVIII.
To this end, the intention of the framers of the Charter, as manifested during the
deliberations of the 1986 Constitutional Commission, is consistent with this
interpretation:
MR. MAAMBONG. I just want to address a question or two to Commissioner Bernas.
This formulation speaks of three things: foreign military bases, troops or facilities. My first
question is: If the country does enter into such kind of a treaty, must it cover the
three-bases, troops or facilities-or could the treaty entered into cover only one or
two?
FR. BERNAS. Definitely, it can cover only one. Whether it covers only one or it covers
three, the requirement will be the same.
MR. MAAMBONG. In other words, the Philippine government can enter into a treaty
covering not bases but merely troops?
FR. BERNAS. Yes.
MR. MAAMBONG. I cannot find any reason why the government can enter into a treaty
covering only troops.
 FR. BERNAS. Why not? Probably if we stretch our imagination a little bit more, we will find
some. We just want to cover everything.[29] (Underscoring Supplied)
Moreover, military bases established within the territory of another state is no longer
viable because of the alternatives offered by new means and weapons of warfare such
as nuclear weapons, guided missiles as well as huge sea vessels that can stay afloat in
the sea even for months and years without returning to their home country. These
military warships are actually used as substitutes for a land-home base not only of
military aircraft but also of military personnel and facilities. Besides, vessels are mobile
as compared to a land-based military headquarters.
At this juncture, we shall then resolve the issue of whether or not the requirements
of Section 25 were complied with when the Senate gave its concurrence to the VFA.
Section 25, Article XVIII disallows foreign military bases, troops, or facilities in the
country, unless the following conditions are sufficiently met, viz: (a) it must be under
a treaty; (b) the treaty must be duly concurred in by the Senate and, when so
required by congress, ratified by a majority of the votes cast by the people in a national
referendum; and (c) recognized as a treaty by the other contracting state.
There is no dispute as to the presence of the first two requisites in the case of the
VFA. The concurrence handed by the Senate through Resolution No. 18 is in
accordance with the provisions of the Constitution, whether under the general
requirement in Section 21, Article VII, or the specific mandate mentioned in Section 25,
Article XVIII, the provision in the latter article requiring ratification by a majority of the
votes cast in a national referendum being unnecessary since Congress has not required
it.
As to the matter of voting, Section 21, Article VII particularly requires that a treaty
or international agreement, to be valid and effective, must be concurred in by at least
two-thirds of all the members of the Senate. On the other hand, Section 25, Article
XVIII simply provides that the treaty be duly concurred in by the Senate.
Applying the foregoing constitutional provisions, a two-thirds vote of all the
members of the Senate is clearly required so that the concurrence contemplated by law
may be validly obtained and deemed present. While it is true that Section 25, Article
XVIII requires, among other things, that the treaty-the VFA, in the instant case-be duly
concurred in by the Senate, it is very true however that said provision must be related
and viewed in light of the clear mandate embodied in Section 21, Article VII, which in
more specific terms, requires that the concurrence of a treaty, or international
agreement, be made by a two -thirds vote of all the members of the Senate. Indeed,
Section 25, Article XVIII must not be treated in isolation to section 21, Article, VII.
As noted, the concurrence requirement under Section 25, Article XVIII must be
construed in relation to the provisions of Section 21, Article VII. In a more particular
language, the concurrence of the Senate contemplated under Section 25, Article XVIII
means that at least two-thirds of all the members of the Senate favorably vote to concur
with the treaty-the VFA in the instant case.
 Under these circumstances, the charter provides that the Senate shall be composed
of twenty-four (24) Senators.[30] Without a tinge of doubt, two-thirds (2/3) of this figure, or
not less than sixteen (16) members, favorably acting on the proposal is an
unquestionable compliance with the requisite number of votes mentioned in Section 21
of Article VII. The fact that there were actually twenty-three (23) incumbent Senators at
the time the voting was made,[31] will not alter in any significant way the circumstance
that more than two-thirds of the members of the Senate concurred with the proposed
VFA, even if the two-thirds vote requirement is based on this figure of actual members
(23). In this regard, the fundamental law is clear that two-thirds of the 24 Senators, or at
least 16 favorable votes, suffice so as to render compliance with the strict constitutional
mandate of giving concurrence to the subject treaty.
Having resolved that the first two requisites prescribed in Section 25, Article XVIII
are present, we shall now pass upon and delve on the requirement that the VFA should
be recognized as a treaty by the United States of America.
Petitioners content that the phrase recognized as a treaty, embodied in section 25,
Article XVIII, means that the VFA should have the advice and consent of the United
States Senate pursuant to its own constitutional process, and that it should not be
considered merely an executive agreement by the United States.
In opposition, respondents argue that the letter of United States Ambassador
Hubbard stating that the VFA is binding on the United States Government is conclusive,
on the point that the VFA is recognized as a treaty by the United States of
America. According to respondents, the VFA, to be binding, must only be accepted as a
treaty by the United States.
This Court is of the firm view that the phrase recognized as a treaty means that
the other contracting party accepts or acknowledges the agreement as a treaty. [32] To
require the other contracting state, the United States of America in this case, to
submit the VFA to the United States Senate for concurrence pursuant to its Constitution,
[33]
is to accord strict meaning to the phrase.
Well-entrenched is the principle that the words used in the Constitution are to be
given their ordinary meaning except where technical terms are employed, in which case
the significance thus attached to them prevails. Its language should be understood in
the sense they have in common use.[34]
Moreover, it is inconsequential whether the United States treats the VFA only as an
executive agreement because, under international law, an executive agreement is as
binding as a treaty.[35] To be sure, as long as the VFA possesses the elements of an
agreement under international law, the said agreement is to be taken equally as a
treaty.
A treaty, as defined by the Vienna Convention on the Law of Treaties, is an
international instrument concluded between States in written form and governed by
international law, whether embodied in a single instrument or in two or more related
instruments, and whatever its particular designation. [36] There are many other terms used
for a treaty or international agreement, some of which are: act, protocol,
agreement, compromis d arbitrage, concordat, convention, declaration, exchange of notes,
pact, statute, charter and modus vivendi. All writers, from Hugo Grotius onward, have
pointed out that the names or titles of international agreements included under the
general term treaty have little or no legal significance. Certain terms are useful, but they
furnish little more than mere description.[37]
Article 2(2) of the Vienna Convention provides that the provisions of paragraph 1
regarding the use of terms in the present Convention are without prejudice to the use of
those terms, or to the meanings which may be given to them in the internal law of the
State.
Thus, in international law, there is no difference between treaties and executive
agreements in their binding effect upon states concerned, as long as the negotiating
functionaries have remained within their powers. [38] International law continues to make
no distinction between treaties and executive agreements: they are equally binding
obligations upon nations.[39]
In our jurisdiction, we have recognized the binding effect of executive agreements
even without the concurrence of the Senate or Congress. In Commissioner of
Customs vs. Eastern Sea Trading,[40] we had occasion to pronounce:

x x x the right of the Executive to enter into binding agreements without the necessity
of subsequent congressional approval has been confirmed by long usage. From the
earliest days of our history we have entered into executive agreements covering such
subjects as commercial and consular relations, most-favored-nation rights, patent
rights, trademark and copyright protection, postal and navigation arrangements and
the settlement of claims. The validity of these has never been seriously questioned by
our courts.

xxxxxxxxx

Furthermore, the United States Supreme Court has expressly recognized the validity
and constitutionality of executive agreements entered into without Senate
approval. (39 Columbia Law Review, pp. 753-754) (See, also, U.S. vs. Curtis
Wright Export Corporation, 299 U.S. 304, 81 L. ed. 255; U.S. vs. Belmont, 301
U.S. 324, 81 L. ed. 1134; U.S. vs. Pink, 315 U.S. 203, 86 L. ed. 796; Ozanic vs. U.S.
188 F. 2d. 288; Yale Law Journal, Vol. 15 pp. 1905-1906; California Law Review,
Vol. 25, pp. 670-675; Hyde on International Law [revised Edition], Vol. 2, pp.
1405, 1416-1418; willoughby on the U.S. Constitution Law, Vol. I [2d ed.], pp.
537-540; Moore, International Law Digest, Vol. V, pp. 210-218; Hackworth,
International Law Digest, Vol. V, pp. 390-407). (Italics Supplied) (Emphasis Ours)

The deliberations of the Constitutional Commission which drafted the 1987

Constitution is enlightening and highly-instructive:
MR. MAAMBONG. Of course it goes without saying that as far as ratification of the other
state is concerned, that is entirely their concern under their own laws.
 FR. BERNAS. Yes, but we will accept whatever they say. If they say that we have done
everything to make it a treaty, then as far as we are concerned, we will accept it as a
treaty.[41]
The records reveal that the United States Government, through Ambassador
Thomas C. Hubbard, has stated that the United States government has fully committed
to living up to the terms of the VFA. [42] For as long as the united States of America
accepts or acknowledges the VFA as a treaty, and binds itself further to comply with its
obligations under the treaty, there is indeed marked compliance with the mandate of the
Constitution.
Worth stressing too, is that the ratification, by the President, of the VFA and the
concurrence of the Senate should be taken as a clear an unequivocal expression of our
nations consent to be bound by said treaty, with the concomitant duty to uphold the
obligations and responsibilities embodied thereunder.
Ratification is generally held to be an executive act, undertaken by the head of the
state or of the government, as the case may be, through which the formal acceptance of
the treaty is proclaimed.[43] A State may provide in its domestic legislation the process of
ratification of a treaty. The consent of the State to be bound by a treaty is expressed by
ratification when: (a) the treaty provides for such ratification, (b) it is otherwise
established that the negotiating States agreed that ratification should be required, (c)
the representative of the State has signed the treaty subject to ratification, or (d) the
intention of the State to sign the treaty subject to ratification appears from the full
powers of its representative, or was expressed during the negotiation. [44]
In our jurisdiction, the power to ratify is vested in the President and not, as
commonly believed, in the legislature. The role of the Senate is limited only to giving or
withholding its consent, or concurrence, to the ratification. [45]
With the ratification of the VFA, which is equivalent to final acceptance, and with the
exchange of notes between the Philippines and the United States of America, it now
becomes obligatory and incumbent on our part, under the principles of international law,
to be bound by the terms of the agreement. Thus, no less than Section 2, Article II of the
Constitution,[46]declares that the Philippines adopts the generally accepted principles of
international law as part of the law of the land and adheres to the policy of peace,
equality, justice, freedom, cooperation and amity with all nations.
As a member of the family of nations, the Philippines agrees to be bound by
generally accepted rules for the conduct of its international relations. While the
international obligation devolves upon the state and not upon any particular branch,
institution, or individual member of its government, the Philippines is nonetheless
responsible for violations committed by any branch or subdivision of its government or
any official thereof. As an integral part of the community of nations, we are responsible
to assure that our government, Constitution and laws will carry out our international
obligation.[47] Hence, we cannot readily plead the Constitution as a convenient excuse for
non-compliance with our obligations, duties and responsibilities under international law.
Beyond this, Article 13 of the Declaration of Rights and Duties of States adopted by
the International Law Commission in 1949 provides: Every State has the duty to carry
out in good faith its obligations arising from treaties and other sources of international
law, and it may not invoke provisions in its constitution or its laws as an excuse for
failure to perform this duty.[48]
Equally important is Article 26 of the convention which provides that Every treaty in
force is binding upon the parties to it and must be performed by them in good faith. This
is known as the principle of pacta sunt servanda which preserves the sanctity of treaties
and have been one of the most fundamental principles of positive international law,
supported by the jurisprudence of international tribunals. [49]

NO GRAVE ABUSE OF DISCRETION

In the instant controversy, the President, in effect, is heavily faulted for exercising a
power and performing a task conferred upon him by the Constitution-the power to enter
into and ratify treaties. Through the expediency of Rule 65 of the Rules of Court,
petitioners in these consolidated cases impute grave abuse of discretion on the part
of the chief Executive in ratifying the VFA, and referring the same to the Senate
pursuant to the provisions of Section 21, Article VII of the Constitution.
On this particular matter, grave abuse of discretion implies such capricious and
whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, when the
power is exercised in an arbitrary or despotic manner by reason of passion or personal
hostility, and it must be so patent and gross as to amount to an evasion of positive duty
enjoined or to act at all in contemplation of law. [50]
By constitutional fiat and by the intrinsic nature of his office, the President, as head
of State, is the sole organ and authority in the external affairs of the country. In many
ways, the President is the chief architect of the nations foreign policy; his dominance in
the field of foreign relations is (then) conceded. [51] Wielding vast powers an influence, his
conduct in the external affairs of the nation, as Jefferson describes, is executive
altogether."[52]

As regards the power to enter into treaties or international agreements, the

Constitution vests the same in the President, subject only to the concurrence of at least
two-thirds vote of all the members of the Senate. In this light, the negotiation of the VFA
and the subsequent ratification of the agreement are exclusive acts which pertain solely
to the President, in the lawful exercise of his vast executive and diplomatic powers
granted him no less than by the fundamental law itself. Into the field of negotiation the
Senate cannot intrude, and Congress itself is powerless to invade it.[53] Consequently,
the acts or judgment calls of the President involving the VFA-specifically the acts of
ratification and entering into a treaty and those necessary or incidental to the exercise of
such principal acts - squarely fall within the sphere of his constitutional powers and thus,
may not be validly struck down, much less calibrated by this Court, in the absence of
clear showing of grave abuse of power or discretion.
It is the Courts considered view that the President, in ratifying the VFA and in
submitting the same to the Senate for concurrence, acted within the confines and limits
of the powers vested in him by the Constitution. It is of no moment that the President, in
the exercise of his wide latitude of discretion and in the honest belief that the VFA falls
within the ambit of Section 21, Article VII of the Constitution, referred the VFA to the
Senate for concurrence under the aforementioned provision. Certainly, no abuse of
discretion, much less a grave, patent and whimsical abuse of judgment, may be
imputed to the President in his act of ratifying the VFA and referring the same to the
Senate for the purpose of complying with the concurrence requirement embodied in the
fundamental law. In doing so, the President merely performed a constitutional task and
exercised a prerogative that chiefly pertains to the functions of his office. Even if he
erred in submitting the VFA to the Senate for concurrence under the provisions of
Section 21 of Article VII, instead of Section 25 of Article XVIII of the Constitution, still,
the President may not be faulted or scarred, much less be adjudged guilty of committing
an abuse of discretion in some patent, gross, and capricious manner.
For while it is conceded that Article VIII, Section 1, of the Constitution has
broadened the scope of judicial inquiry into areas normally left to the political
departments to decide, such as those relating to national security, it has not altogether
done away with political questions such as those which arise in the field of foreign
relations.[54] The High Tribunals function, as sanctioned by Article VIII, Section 1, is
merely (to) check whether or not the governmental branch or agency has gone beyond
the constitutional limits of its jurisdiction, not that it erred or has a different view. In the
absence of a showing (of) grave abuse of discretion amounting to lack of jurisdiction,
there is no occasion for the Court to exercise its corrective powerIt has no power to look
into what it thinks is apparent error.[55]
As to the power to concur with treaties, the constitution lodges the same with the
Senate alone. Thus, once the Senate[56] performs that power, or exercises its prerogative
within the boundaries prescribed by the Constitution, the concurrence cannot, in like
manner, be viewed to constitute an abuse of power, much less grave abuse
thereof. Corollarily, the Senate, in the exercise of its discretion and acting within the
limits of such power, may not be similarly faulted for having simply performed a task
conferred and sanctioned by no less than the fundamental law.
For the role of the Senate in relation to treaties is essentially legislative in character;
the Senate, as an independent body possessed of its own erudite mind, has the
[57]

prerogative to either accept or reject the proposed agreement, and whatever action it
takes in the exercise of its wide latitude of discretion, pertains to the wisdom rather than
the legality of the act. In this sense, the Senate partakes a principal, yet delicate, role in
keeping the principles of separation of powers and of checks and balances alive and vigilantly
ensures that these cherished rudiments remain true to their form in a democratic
government such as ours. The Constitution thus animates, through this treaty-
concurring power of the Senate, a healthy system of checks and balances
indispensable toward our nations pursuit of political maturity and growth. True enough,
rudimentary is the principle that matters pertaining to the wisdom of a legislative act are
beyond the ambit and province of the courts to inquire.
In fine, absent any clear showing of grave abuse of discretion on the part of
respondents, this Court- as the final arbiter of legal controversies and staunch sentinel
of the rights of the people - is then without power to conduct an incursion and meddle
with such affairs purely executive and legislative in character and nature. For the
Constitution no less, maps out the distinct boundaries and limits the metes and bounds
within which each of the three political branches of government may exercise the
powers exclusively and essentially conferred to it by law.
WHEREFORE, in light of the foregoing disquisitions, the instant petitions are hereby
DISMISSED.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Kapunan, Quisumbing, Purisima, Pardo, Gonzaga-
Reyes, Ynares-Santiago, and De Leon, Jr., JJ., concur.
Melo, and Vitug, JJ., join the dissent of J. Puno.
Puno, J., see dissenting opinion.
Mendoza, J., in the result.
Panganiban, J., no part due to close personal and former professional relations with
a petitioner, Sen. J.R. Salonga.

[1]
Article V. Any such armed attack and all measures taken as a result thereof shall be immediately
reported to the Security Council of the United Nations. Such measures shall be terminated when the
Security Council has taken the measure necessary to restore and maintain international peace and
security.
[2]
Joint Report of the Senate Committee on Foreign Relation and the Committee on National Defense and
Security on the Visiting Forces Agreement.
[3]
Joint Committee Report.
[4]
Petition, G.R. No. 138698, Annex B, Rollo, pp. 61-62.
INSTRUMENT OF RATIFICATION
TO ALL TO WHOM THESE PRESENTS SHALL COME, GREETINGS:
KNOW YE, that whereas, the Agreement between the government of the Republic of the Philippines and
the Government of the United States of America Regarding the Treatment of the United States Armed
Forces Visiting the Philippines, hereinafter referred to as VFA, was signed in Manila on 10 February 1998;
WHEREAS, the VFA is essentially a framework to promote bilateral defense cooperation between the
Republic of the Philippines and the United States of America and to give substance to the 1951 RP-US
Mutual Defense Treaty (RP-US MDT). To fulfill the objectives of the RP-US MDT, it is necessary that
regular joint military exercises are conducted between the Republic of the Philippines and the United
States of America;
WHEREAS, the VFA seeks to provide a conducive setting for the successful conduct of combined military
exercises between the Philippines and the United States armed forces to ensure interoperability of the
RP-US MDT;
WHEREAS, in particular, the VFA provides the mechanism for regulating the circumstances and
conditions under which US armed forces and defense personnel may be present in the Philippines such
as the following inter alia:
(a) specific requirements to facilitate the admission of United States personnel and their departure from
the Philippines in connection with activities covered by the agreement;
(b) clear guidelines on the prosecution of offenses committed by any member of the United States armed
forces while in the Philippines;
(c) precise directive on the importation and exportation of United States Government equipment,
materials, supplies and other property imported into or acquired in the Philippines by or on behalf of the
United States armed forces in connection with activities covered by the Agreement; and
(d) explicit regulations on the entry of United States vessels, aircraft, and vehicles;
WHEREAS, Article IX of the Agreement provides that it shall enter into force on the date on which the
Parties have notified each other in writing, through diplomatic channels, that they have completed their
constitutional requirements for its entry into force. It shall remain in force until the expiration of 180 days
from the date on which either Party gives the other Party written notice to terminate the Agreement.
NOW, THEREFORE, be it known that I, JOSEPH EJERCITO ESTRADA, President of the Republic of the
Philippines, after having seen and considered the aforementioned Agreement between the Government of
the United States of America Regarding the Treatment of the United States Armed Forces Visiting the
Philippines, do hereby ratify and confirm the same and each and every Article and Clause thereof.
IN TESTIMONY WHEREOF, I have hereunto set my hand and caused the seal of the Republic of the
Philippines to be affixed.
GIVEN under my hand at the City of Manila, this 5th day of October, in the year of Our Lord one thousand
nine hundred and ninety-eight.
[5]
Petition, G.R. No. 138587, Annex C, Rollo, p. 59.
The Honorable Senate President and
Member of the Senate
Senate of the Philippines
Pasay City
Gentlemen and Ladies of the Senate:
I have the honor to transmit herewith the Instrument of Ratification duly signed by H.E. President Joseph
Ejercito Estrada, his message to the Senate and a draft Senate Resolution of Concurrence in connection
with the ratification of the AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF THE
PHILIPPINES AND THE GOVERNMENT OF THE UNITED STATES OF AMERICA REGARDING THE
TREATMENT OF THE UNITED STATES ARMED FORCES VISITING THE PHILIPPINES.
With best wishes.
Very truly yours,
RONALDO B. ZAMORA
Executive Secretary
[6]
Petition, G.R. No. 138698, Annex C.
[7]
Between January 26 and March 11, 1999, the two Committees jointly held six public hearings-three in
Manila and one each in General Santos, Angeles City and Cebu City.
[8]
Petition , G.R. No. 138570, Annex C, Rollo, pp. 88-95.
WHEREAS, the VFA is essentially a framework for promoting the common security interest of the two
countries; and for strengthening their bilateral defense partnership under the 1951 RP-US Mutual
Defense Treaty;
xxxxxxxxx
WHEREAS, the VFA does not give unrestricted access or unhampered movement to US Forces in the
Philippines; in fact, it recognizes the Philippine government as the sole authority to approve the conduct
of any visit or activity in the country by US Forces, hence the VFA is not a derogation of Philippine
sovereignty;
WHEREAS, the VFA is not a basing arrangement; neither does it pave way for the restoration of the
American bases and facilities in the Philippines, in contravention of the prohibition against foreign bases
and permanent stationing of foreign troops under Article XVIII, Section 25 of the 1987 Constitution-
because the agreement envisions only temporary visits of US personnel engaged in joint military
exercises or other activities as may be approved by the Philippine Government;
WHEREAS, the VFA gives Philippine courts primary jurisdiction over offenses that may be committed by
US personnel within Philippine territory, with the exception of those incurred solely against the security or
property of the Us or solely against the person or property of US personnel, and those committed in the
performance of official duty;
xxxxxxxxx
WHEREAS, by virtue of Article II of the VFA, the United States commits to respect the laws of the
Republic of the Philippines, including the Constitution, which declares in Article II, Section 8 thereof, a
policy of freedom from nuclear weapons consistent with the national interest;
WHEREAS, the VFA shall serve as the legal mechanism to promote defense cooperation between two
countries-enhancing the preparedness of the Armed Forces of the Philippines against external threats;
and enabling the Philippines to bolster the stability of the Pacific area in a shared effort with its neighbor-
states;
WHEREAS, the VFA will enhance our political, economic and security partnership and cooperation with
the United States-which has helped promote the development of our country and improved the lives of
our people;
WHEREAS, in accordance with the powers and functions of Senate as mandated by the Constitution, this
Chamber, after holding several public hearings and deliberations, concurs in the Presidents ratification of
the VFA, for the following reasons:
(1) The Agreement will provide the legal mechanism to promote defense cooperation between the
Philippines and the U.S. and thus enhance the tactical, strategic, and technological capabilities of our
armed forces;
(2) The Agreement will govern the treatment of U.S., military and defense personnel within Philippine
territory, while they are engaged in activities covered by the Mutual Defense Treaty and conducted with
the prior approval of the Philippine government; and
(3) The Agreement will provide the regulatory mechanism for the circumstances and conditions under
which U.S. military forces may visit the Philippines; x x x
xxxxxxxxx
WHEREAS, in accordance with Article IX of the VFA, the Philippine government reserves the right to
terminate the agreement unilaterally once it no longer redounds to our national interest: Now, therefore,
be it
Resolved, that the Senate concur, as it hereby concurs, in the Ratification of the Agreement between the
Government of the Republic of the Philippines and the United States of America Regarding the Treatment
of United States Armed Forces visiting the Philippines. x x x
[9]
The following voted for concurrence: (1) Senate President Marcelo Fernan, (2) Senate
President Pro Tempore Blas Ople, (3) Senator Franklin Drilon, (4) Senator Rodolfo Biazon, (5) Senator
Francisco Tatad, (6) Senator Renato Cayetano, (7) Senator Teresa Aquino-Oreta, (8) Senator Robert
Barbers, (9) Senator Robert Jaworski, (10) Senator Ramon Magsaysay, Jr., (11) Senator John Osmea,
(12) Senator Juan Flavier, (13) Senator Mirriam Defensor-Santiago, (14) Senator Juan Ponce-Enrile, (15)
Senator Vicente Sotto III, (16) Senator Ramon Revilla, (17) Senator Anna Dominique Coseteng, and (18)
Senator Gregorio Honasan.
Only the following voted to reject the ratification of the VFA: (1) Senator Teofisto Guingona, Jr., (2)
Senator Raul Roco, (3) Senator Sergio Osmena III, (4) Senator Aquilino Pimentel, Jr., and (5) Senator
Loren Legarda-Leviste.
[10]
See Petition, G.R. No. 138570, Rollo, pp. 105.
[11]
Minute Resolution dated June 8, 1999.
[12]
See Consolidated Comment.
[13]
Reply to Consolidated Comment, G.R. No. 138698; G.R. No. 138587.
[14]
Valmonte vs. Philippine Charity Sweepstakes Office, (Res.) G.R. No. 78716, September 22, 1987,
cited in Telecommunications and Broadcast Attorneys of the Philippines, Inc. vs. COMELEC, 289 SCRA
337, 343 [1998]; Valley Forge College vs. Americans United, 454 US 464, 70 L. Ed. 2d 700 [1982];
Bugnay Const. And Dev. Corp. vs. Laron, 176 SCRA 240, 251-252 [1989]; Tatad vs. Garcia, Jr. 243 SCRA
436, 473 [1995].
[15]
See Article VI, Sections 24, 25 and 29 of the 1987 Constitution.
[16]
Pascual vs. Secretary of Public Works, 110 Phil. 331 [1960]; Maceda vs. Macaraig, 197 SCRA 771
[1991]; Lozada vs. COMELEC, 120 SCRA 337 [1983]; Dumlao vs. COMELEC, 95 SCRA 392 [1980];
Gonzales vs. Marcos, 65 SCRA 624 [1975].
[17]
176 SCRA 240, 251-252 [1989].
[18]
235 SCRA 506 [1994].
[19]
Consolidated Memorandum, p. 11.
[20]
Araneta vs. Dinglasan, 84 Phil. 368 [1949]; Iloilo Palay & Corn Planters Association vs. Feliciano, 121
Phil. 358 [1965]; Philippine Constitution Association vs. Gimenez, 122 Phil. 894 [1965].
[21]
21 SCRA 774 [1967].
[22]
180 SCRA 496, 502 [1988] cited in Kilosbayan, Inc. vs. Guingona, Jr., 232 SCRA 110 [1994].
[23]
197 SCRA 52, 60 [1991].
[24]
232 SCRA 110 [1994].
[25]
J. Santos vs. Northwest Orient Airlines, 210 SCRA 256, 261 [1992].
[26]
Manila Railroad Co. vs. Collector of Customs, 52 Phil. 950.
[27]
157 SCRA 282 [1988] cited in Republic vs. Sandiganbayan, 173 SCRA 72, 85 [1989].
[28]
Castillo-co v. Barbers, 290 SCRA 717, 723 (1998).
[29]
Records of the Constitutional Commission, September 18, 1986 Deliberation, p. 782.
[30]
1987 Constitution, Article VI, Section 2. - the Senate shall be composed of twenty-four Senators who
shall be elected at large by the qualified voters of the Philippines, as may be provided by law.
[31]
The 24th member (Gloria Macapagal-Arroyo) of the Senate whose term was to expire in 2001 was
elected Vice-President in the 1998 national elections.
[32]
Ballentines Legal Dictionary, 1995.
[33]
Article 2, Section 2, paragraph 2 of the United States Constitution, speaking of the United States
President provides: He shall have power, by and with the advice and consent of the Senate to make
treaties, provided two-thirds of the senators present concur.
[34]
J.M. Tuason & Co., Inc. vs. Land Tenure Association, 31 SCRA 413 [1970].
[35]
Altman Co. vs. United States, 224 US 263 [1942], cited in Coquia and Defensor-Santiago, International
Law, 1998 Ed. P. 497.
[36]
Vienna Convention, Article 2.
[37]
Gerhard von Glahn, Law among Nations, an Introduction to Public International Law, 4th Ed., p. 480.
[38]
Hackworth, Digest of International Law, Vol. 5, p. 395, cited in USAFE Veterans Association Inc. vs.
Treasurer of the Philippines, 105 Phil. 1030, 1037 [1959].
[39]
Richard J. Erickson, The Making of Executive Agreements by the United States Department of
Defense: An agenda for Progress, 13 Boston U. Intl. L.J. 58 [1995], citing Restatement [third] of Foreign
Relations Law pt. III, introductory note [1987] and Paul Reuter, Introduction to the Law of Treaties 22
[Jose Mico & Peter Haggemacher trans., 1989] cited in Consolidated Memorandum, p. 32.
[40]
3 SCRA 351, 356-357 [1961].
[41]
4 Record of the Constitutional Commission 782 [Session of September 18, 1986].
[42]
Letter of Ambassador Hubbard to Senator Miriam Defensor-Santiago:
Dear Senator Santiago:
I am happy to respond to your letter of April 29, concerning the way the US Government views the
Philippine-US Visiting Forces Agreement in US legal terms. You raise an important question and I believe
this response will help in the Senate deliberations.
As a matter of both US and international law, an international agreement like the Visiting Forces
Agreement is legally binding on the US Government, In international legal terms, such an agreement is a
treaty. However, as a matter of US domestic law, an agreement like the VFA is an executive agreement,
because it does not require the advice and consent of the senate under Article II, section 2 of our
Constitution.
The Presidents power to conclude the VFA with the Philippines, and other status of forces agreements
with the other countries, derives from the Presidents responsibilities for the conduct of foreign
relations (Art. II, Sec. 1) and his constitutional powers as Commander in Chief of the Armed
Forces. Senate advice and consent is not needed, inter alia, because the VFA and similar agreements
neither change US domestic nor require congressional appropriation of funds. It is important to note that
only about five percent of the international agreement entered into by the US Governments require
Senate advice and consent. However, in terms of the US Governments obligation to adhere to the terms
of the VFA, there is no difference between a treaty concurred in by our Senate and an executive
agreement. Background information on these points can be found in the Restatement 3rd of the Foreign
Relations Law of the United States, Sec. 301, et seq. [1986].
I hope you find this answer helpful. As the Presidents representative to the Government of the
Philippines, I can assure you that the United States Government is fully committed to living up to the
terms of the VFA.
Sincerely yours,
THOMAS C. HUBBARD
Ambassador
[43]
Gerhard von Glahn, Law Among Nations, An Introduction to Public International Law, 4th Ed., p. 486.
[44]
Article 14 of the Vienna Convention, cited in Coquia and Defensor-Santiago, Intenational Law, 1998
Ed., pp. 506-507.
[45]
Cruz, Isagani, International Law, 1985 Ed., p. 175.
[46]
Sec. 2. The Philippines renounces war as an instrument of national policy, adopts the generally
accepted principles of international law as part of the law of the land and adheres to the policy of peace,
equality, justice, freedom, cooperation, and amity with all nations.
[47]
Louis Henkin, Richard C. Pugh, Oscar Schachter, Hans Smit, International Law, Cases and Materials,
2nd Ed American Casebook Series, p. 136.
[48]
Gerhard von Glah, supra, p. 487.
[49]
Harris, p. 634 cited in Coquia, International Law, supra, p. 512.
[50]
Cuison vs. CA, 289 SCRA 159 [1998]. See also Jardine vs. NLRC, G.R. No. 119268, Feb 23, 2000
citing Arroyo vs. De Venecia, 277 SCRA 268 [1997].
[51]
Cortes, The Philippine Presidency a study of Executive Power, 2nd Ed., p. 195.
[52]
Cruz, Phil. Political Law, 1995 Ed., p. 223.
[53]
United States vs. Curtis Wright Corp., 299 U.S. 304 (1934), per Justice Sutherland.
[54]
Arroyo vs. De Venecia, 277 SCRA 269 [1997].
[55]
Co vs. Electoral Tribunal of the House of Representatives, 199 SCRA 692, 701 (1991); Llamas vs.
Orbos, 202 SCRA 849, 857 (1991); Lansang vs. Garcia, 42 SCRA at 480-481 [1971].
[56]
1987 Constitution, Article VI, Section 1. - The legislative power shall be vested in the Congress of the
Philippines which shall consist of a Senate and a House of Representatives, except to the extent reserved
to the people by the provision on initiative and referendum.
[57]
See Akehurst, Michael: Modern Introduction to International Law, (London: George Allen and Unwin)
5th ed., p. 45; United States vs. Curtiss-Wright Export Corp., 299 U.

36G.R. No. 138298 June 19, 2001

RAOUL B. DEL MAR, petitioner,

vs.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, ET. AL., respondent.

x---------------------------------------------------------x

G.R. No. 138982 June 19, 2001

FEDERICO SANDOVAL II, petitioner,

vs.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, respondent,
JUAN MIGUEL ZUBIRI, intervenor.

Acting on the motions for reconsideration filed by public respondent Philippine Amusement and
Gaming Corporation (PAGCOR) and private respondents Belle Jai-Alai Corporation, (BELLE) and
Filipinas Gaming Entertainment Totalizator Corporation (FILGAME), seeking to reverse the court's
Decision dated November 29, 2000, only seven (7) justices, namely, Josue Bellosillo, Jose Melo,
Santiago Kapunan, Leonardo Quisumbing, Consuelo Y. Santiago, Sabino de Leon and Angelina
Gutierrez voted to grant the motions. For lack of the required number of votes, the said motions for
reconsideration are denied. The opinions of Justices Puno, Melo, Vitug and De Leon are herewith
made part of this resolution.
SEPARATE OPINION

PUNO, J.:

Before the Court for resolution are the Motions for Reconsideration filed by public respondent
Philippine Amusement and Gaming Corporation (PAGCOR), and private respondents Belle Jai-Alai
Corporation (BELLE) and Filipinas Gaming Entertainment Totalizator Corporation (FILGAME),
seeking to reverse our decision dated November 29, 2000 which enjoined the respondents from
managing, maintaining and operating jai-alai games, and from enforcing the agreement entered into
by them for that purpose.

In its motion for reconsideration, PAGCOR raised the following grounds:

"I

P.D. 1869, otherwise known as the PAGCOR franchise, is not merely a consolidation of P.D.
Nos. 1067-A, 1067-B, 1067-C, 1399 and 1622 but is an express amendment of the latter.

II

The provisions of P .D .1869, taken in their totality, do not limit PAGCOR's franchise to the
operation of gambling casinos.

III

Regardless of the fact that the exercise of PAGCOR's franchise to operate and manage
gambling casinos and other games of chance affect public morals and notwithstanding any
perceived bias against the martial law powers of former President Marcos, it remains that
P.D. 1869 has the force and effect of law whose wisdom cannot be validly inquired into by
the courts.

IV

The jai-alai games as introduced in the Philippine context or setting has never been
associated with or appreciated as a game of skill but as a betting game or gambling activity.

Pursuant to the agreement of PAGCOR with BELLE/FILGAME, PAGCOR under a joint

venture scheme will be the one to manage and operate the jai-alai games.

VI

The difference in tax treatment between jai-alai and other gaming activities is not crucial as
would preclude PAGCOR from operating jai-alai games."1

On the other hand, private respondents BELLE and FILGAME averred that:

"A.
 The Honorable Court's reading of the franchise granted under Presidential Decree No. 1869
makes meaningless most of Section 10 of the law, which is specifically meant to express the
nature of the Philippine Amusement and Gaming Corporation's franchise, and which
categorically confers upon it the "rights, privilege and authority to operate and maintain" not
only "gambling casinos," but also "clubs, and other recreation or amusement places, sports,
gaming pools x x x basketball, football, lotteries, etc.," which plainly includes gaming pools
on jai-alai.

B.

By construing Presidential Decree No.1869 as granting only the right to own and operate
gambling casinos, this Honorable Court defeats its plainly expressed intent to "centralize and
integrate all games of chance x x x," and fails to consider that the broad "right and authority
to operate and conduct games of chance" was not granted to a mere private business
corporation, but to a "corporate entity to be controlled, administered and supervised by the
government," meant to regulate gaming activities and earn funding for socio-economic
projects for the public good."2

Petitioners Federico S. Sandoval II and Michael T. Defensor and intervenor Juan Miguel Zubiri
vigorously opposed the Motions for Reconsideration.

Respondents reiterate in the main that Sections 1 and 10 of P.D. 1869, which define the nature and
term of PAGCOR's franchise, are broad enough to cover the right to manage and operate jai-alai.
They insist that a plain text interpretation of the terms "lotteries, etc." and "gaming pools" as used
under Section 10 of the law necessarily includes jai-alai. They allege that P.D. 1869 did not merely
incorporate all the laws relating to, but actually enlarged, the powers conferred on PAGCOR. They
again submit that to strictly construe the PAGCOR charter as a grant only of a franchise to operate
gambling casinos would render nugatory the other provisions of the law. They point out that under
Section 11 of the law, the operation of gambling casinos is merely "in addition to the rights and
privileges granted it in" Section 10.

Respondents' motions for reconsideration are merely a rehash of the arguments raised in their
previous pleadings. They failed to refute the following substantive points stated in our decision, to
wit:

1. A "franchise" is a special privilege and its terms and conditions are specifically prescribed by
Congress. Thus, the manner of granting the franchise, to whom it may be granted, the mode of
conducting the business, the character and quality of the service to be rendered and the duty of the
grantee to the public in exercising the franchise are defined in clear and unequivocal language by
the legislature. These conditionalities are made more stringent when the franchise involves the
operation of a game played for bets, such as jai-alai, which is conceded as a menace to morality.
Franchises are granted in accord with this universal principle.

2. The parameters of P.D. 1869 can best be understood by looking at its history. P.D. 1067-B, the
predecessor of P.D. 1869, is aptly titled "Granting the Philippine Amusements and Gaming
Corporation a Franchise to establish, operate, and maintain gambling casinos on land or water
within the territorial jurisdiction of the Republic of the Philippines." Beyond debate, P.D. 1067-B is a
franchise to maintain gambling casinos alone. Section 10 of P .D .1869 merely reiterated the nature
and scope of PAGCOR's existing franchise to maintain gambling casinos and no legal hat trick can
be pulled to show that it is a franchise to operate jai-alai.
3. The creation of PAGCOR did not empower it to operate jai-alai in competition with the existing jai-
alai franchisee. P.D. 1067-A established PAGCOR for the specific purpose of centralizing and
integrating "all games of chance not heretofore authorized by existing franchises x x x." Likewise,
P.D. 1067-C expressly provided that PAGCOR's franchise "shall become exclusive in character,
subject only to the exception of existing franchises and games of chance heretofore permitted by law
x x x." It is an uncontested fact that at the time PAGCOR was established, the Philippine Jai-alai and
Amusement Corporation had an existing franchise to operate jai-alai. It could not have been the
intent of Congress to grant franchises to operate jai-alai to two entities within the same jurisdiction.
The proliferation of gambling is not the legislative policy, then as it is now.

4. To determine whether an entity has been given a legislative franchise to operate the game of jai-
alai need not be a guessing endeavor. Jai-alai is a different game, hence, the terms and conditions
imposed on the franchisee are spelled out in a form different from that of gambling casinos. A
perusal of past laws and executive orders granting corporations a franchise to operate jai-alai will
readily disclose that standard terms and conditions are imposed by the franchising authorities. P.D.
1869 will show that it does not have these standard terms and conditions found under P.D. 810 or
E.O. 135 which are prior laws granting franchises to operate jai-alai. P.D. 1869 is replete with
provisions pertinent alone to the operation of gambling casinos. It does not have the standard
provisions with regard to the operation of jai-alai such as: the licensing of pelotaris, judges and
referees; installation of automatic electric totalizator; sale of betting tickets; computation and
payment of dividends based on ticket sales; distribution of wager funds; and rules and regulations
governing the pelotaris, games and personnel of the fronton. Without these standard yet necessary
provisions, PAGCOR cannot successfully maintain that it was granted a franchise to operate jai-alai
frontons.

5. We have always proceeded from the orientation that a legislative franchise to operate jai-alai is
imbued with high public interest and is not lightly granted in view of gambling's corrupting effects on
the morals of society. What is claimed in the cases at bar is an alleged legislative grant of a gambling
franchise, i.e., to operate jai-alai.A statute which seeks to legalize an otherwise illegal gambling
activity punishable by law must therefore be strictly construed and every reasonable doubt must be
resolved to limit the powers and rights claimed under its authority. Gambling can bring a lot of money
to the government but no self- respecting government can operate and hope to succeed on earnings
from gambling.

6. The respondents cannot seek sanctuary in the plain meaning rule of statutory construction. The
plain meaning rule rests on the assumption that there is no ambiguity or obscurity in the language of
the law. The fact, however, that P.D. 1869 admits of different interpretations is the best evidence that
it suffers from the vice of vagueness. If it were true that the language of the law is plain and clear, it
is incomprehensible why PAGCOR had to seek the legal opinions of not just one but several
government agencies, namely, the Department of Justice, the Office of the Solicitor General, and the
Office of the Government Corporate Counsel, to ascertain its alleged authority to operate jai-alai
under its charter. With due respect, these solicited opinions could hardly be expected to be
dissonant.

II

It cannot be overstressed that PAGCOR was created in light of the State policy "to centralize and
integrate all games of chance not heretofore authorized by existing franchises or permitted by law"
(Section 1 of P.D. 1869). It is clear from the PAGCOR Charter that it does not include those games
of chance covered by an existing franchise. At the time P.D. 1869 was decreed in 1983, the
Philippine Jai-Alai and Amusement Corporation had a subsisting franchise to operate, construct and
maintain a fronton for basque pelota or jai-alai which was granted under P.D. 810 enacted on
October 16, 1975. As correctly observed by petitioners, P.D. 1869 was passed at a time when "jai-
alai was already very popular and it was no secret that the franchise holder at that time, PJAC, was
raking huge profits out of its operation. It could not have escaped the notice of the author of the law.
Its omission can only mean a deliberate intention to exclude "jai-alai" from the PAGCOR charter." 3

Undaunted by the import of the clear language of the law, respondents argue that with the repeal of
P.D. 810, the restriction in the PAGCOR Charter on existing franchises was removed and hence,
PAGCOR could now exercise its authority to operate and manage jai-alai games. The fallacy in this
argument is that it presupposes that PAGCOR had the power to operate and manage jai- alai except
that the exercise thereof was suspended while the PJAC franchise was still subsisting. To begin with,
PAGCOR was never vested with such authority. The phrase "not heretofore authorized by existing
franchises" imposes an exception, not merely a restriction, on PAGCOR's franchise. Consequently,
the repeal of P.D. 810 did not have any effect whatsoever on the franchise of PAGCOR. It must be
noted that then President Aquino repealed P.D. 810 with the intention not to grant any franchise for
jai-alai. The Aquino government was grounded on a strong sense of morality and was very much
against gambling. It would have been quite illogical for the Aquino government to repeal P.D. 810 on
the ground that it is contrary to public morals and in the same breath allow PAGCOR, which is under
the Office of the President, to conduct exactly the same activity which it abhorred. The moral
standing of the government in its repeated avowals against illegal gambling is fatally flawed and
becomes untenable when it itself engages in the very activity it seeks to eradicate. 4 Perforce, with
the repeal of P.D. 810, it is necessary, before PAGCOR can conduct jai-alai, that a law be passed
allowing the same. Respondents have not shown that such a law exists.

III

Our moral fiber is in tatters. There is greater reason to insist on the principle that gambling can only
be allowed by express mandate of Congress. The world over, gambling is recognized as a vice and
a social ill which government must minimize, if not eradicate, in pursuit of social and economic
development.5 In all its forms, gambling is generally proscribed as offensive to the public morals and
the public good.6

In contending that jai-alai is impliedly included in Section 10 of the law, the respondents are
suggesting that an illegal act may be legalized by mere implication of law. This novel step is difficult
to accept. All these years, Congress has been very strict in recognizing gambling as a necessary
evil. Starting with Articles 195-197 of the Revised Penal Code and the subsequent laws such as P.D.
1602 (Prescribing stiffer penalties on illegal gambling), P.D. 449 (Cockfighting Law of 1974), R.A.
309 (An Act to Regulate Horse-Racing in the Philippines), R.A. 1169 (An Act Providing for Charity
Sweepstakes Horse Races and Lotteries), C.A. 485 (An Act to Permit Betting on the Game of
Basque Pelota), and P.D. 810, the policy has been to punish gambling and in exceptional cases
where it is allowed, to strictly control its franchise.

It cannot be gainsaid that jai-alai is equally, if not more, pernicious than gambling casinos because
whereas the latter is confined to a few persons and select places, the former infests the whole
community; jai-alai frontons have mushroomed in every nook and comer of the country, and are
accessible to everyone, specially the marginalized sector of society; gambling casinos cater more to
the middle and upper classes of society. It would seem illogical and absurd for the lawmaking
authority to provide strict safeguards and guidelines in its grant of a franchise to PAGCOR to operate
gambling casinos and at the same time clothe it with unrestrained authority in the operation of jai-
alai. Indeed, the respondents would grant PAGCOR an unlimited authority to engage in all kinds of
gambling activities which are presently prohibited by law.

I vote to deny the motions for reconsideration.

DISSENTING OPINION

MELO, J.:

On the basic issue herein presented as to whether or not the Philippine Amusement and Gaming
Corporation has a franchise to operate jai-alai, I am constrained, after studied reflection, to change
my position and to dissent from the majority opinion. The ponencia of Mr. Justice Puno, well-written
as it is, involves, upon further appraisal, a restricted view of the scope of the franchise granted to
PAGCOR. The majority opinion, after undertaking a historical study of legislation covering the
creation, growth, and development of PAGCOR, concluded that right from the beginning, PAGCOR
was simply granted a franchise to maintain gambling casinos and that Section 10 of Presidential
Decree No.1869 never meant to confer PAGCOR a franchise to operate jai-alai. To hew to such an
interpretation would, however, disregard several provisions of Presidential Decree No. 1869, the law
consolidating and amending Presidential Decrees No. 1067-A, 1067-B, 1067-C, 1399, and 1632
relative to the franchise and power of the PAGCOR.Section 1 (b) of Presidential Decree No.1869
pertinently provides:

Section 1. Declaration of Policy.- It is hereby declared to be the policy of the State to

centralize and integrate all games of chance not heretofore authorized by existing franchises
or permitted by law in order to attain the following objectives:

xxx xxx xxx

(b) To establish and operate clubs and casinos, for amusement and recreation, including
sports, gaming pools (basketball, football, lotteries, etc.) and such other forms of amusement
and recreation including games of chance, which may be allowed by law within the territorial
jurisdiction of the Philippines...

Likewise, Section 10 of Presidential Decree No.1869 provides:

Section 10. Nature and term of franchise.- Subject to the terms and conditions established in
this Decree, the Corporation is hereby granted for a period of twenty- five (25) years,
renewable for another twenty-five (25) years, the rights, privileges and authority to operate
and maintain gambling casinos, clubs and other recreation or amusement places, sports,
gaming pools, i.e. basketball, football, lotteries, etc. whether on land or sea, within the
territorial jurisdiction of the Republic of the Philippines.

One need hardly be reminded of the rule that in construing a statute, courts "have to take the
thought conveyed by the statute as a whole; construe the constituent parts together; ascertain the
legislative intent from the whole act; consider each and every provision thereof in the light of the
general purpose of the statute; and endeavor to make every part effective, harmonious and sensible"
(Republic vs. Reyes, 17 SCRA 170 [1966]). To consider the franchise granted to PAGCOR as
allowing only the operation of casinos would, I respectfully submit, render nugatory the above
provisions of Presidential Decree No.1869 allowing the PAGCOR to operate and maintain other
recreation or amusement places, sports, gaming pools, i.e. basketball, football, lotteries,
etc. Interpretate fienda est res valeat quam pereat. A law should be interpreted with a view to
upholding rather than destroying it. One portion of a statute should not be construed to destroy the
other. A construction that would render a provision inoperative or ineffective should be avoided.
Considering the inclusion of games of skill like basketball, football, etc. in Sections 1 (b) and 10 of
Presidential Decree No.1869, it is incontrovertible that the franchise granted to PAGCOR is broad
enough for it to operate jai-alai, a game of skill not unlike basketball and football. If a statute is clear,
plain, and free from ambiguity, it must be given its literal meaning and applied without attempted
interpretation. Verba legis non est recedendum. From the words of a statute there should be no
departure (Agpalo, Statutory Construction, p. 95).

More importantly, petitioners have brought the present suit in their capacity as taxpayers and
legislators. It has long been my consistent stand that in order for a taxpayer's suit to prosper, the
petitioners therein must have locus standi (see Kilosbayan, Inc. vs. Morato, 232 SCRA 110
[1994]; Tatad vs. Garcia,243 SCRA 436 [1995]; Bagatsing vs. COP, 246 SCRA 334
[1995]; Kilosbayan, Inc. vs. Morato, 246 SCRA 540 [1995]; Kilosbayan, Inc. vs. Morato, 250 SCRA
130 [1995]; Tatad vs. Secretary of Energy, 281 SCRA 330 [1997]). As early as 1994, in a dissenting
opinion in Kilosbayan, Inc. vs. Guingona, Jr. (232 SCRA 110 [1994]), I stated that:

Any effort to infuse personality on petitioners by considering the present case as a

"taxpayer's suit" could not cure the lack of locus standi on the part of petitioners. As
understood in this jurisdiction, a "taxpayer's suit" refers to a case where the act complained
of directly involves the illegal disbursement of public funds derived from taxation. It cannot be
overstressed that no public fund raised by taxation is involved in this case. In fact, it is even
doubtful if the rentals which the PCSO will pay to the lessor for its operation of the lottery
system may be regarded as public fund.

In the instant case, it is undisputed that the spending powers of Congress are not involved. Nor is
there an allegation of illegal disbursement of public funds. Hence, petitioners' right to sue as
taxpayers or concerned citizens cannot be sustained. Neither may petitioners take refuge in their
status as members of Congress. In Kilosbayan, Inc. vs. Morato (246 SCRA 540 [1995]), we held that
members of Congress may properly challenge the validity of an official act of any department of the
government only upon showing that the assailed official act affects or impairs their rights and
prerogatives as legislators. Parenthetically, the issue before the Court is whether or not the franchise
of PAGCOR includes the operation of jai-alai. It would thus be most awkward to conclude that the
power to grant franchises, which undisputably belongs to Congress, is impaired by PAGCOR 's
operation of jai-alai, seeing that Congress' power to modify, amend, or even repeal PAGCOR's
franchise remains undiminished and plenary. Neither does PAGCOR's operation of jai-alai prevent
Congress, if it is so minded, from granting a rival franchise to any other entity.

FOR ALL THE FOREGOING REASONS, I vote to grant the motion for reconsideration filed by
respondents.

SEPARATE OPINION

VITUG, J.:

I most humbly reiterate my separate opinion, promulgated on 29 November 2000 (along with
the ponencia sought to be reconsidered), to the effect that -the authority of PAGCOR under its
charter "to establish and operate clubs and casinos for amusement and recreation, including games
of chance,"1 is broad enough to allow PAGCOR to operate all kinds of sports and gaming pools,
inclusive of jai alai, but not in joint venture with Belle Jai Alai Corporation ("BELLE") and Filipinas
Gaming Entertainment Totalizator Corporation ("FILGAME") which are not themselves holders of any
legislative franchise. While PAGCOR is permitted under its charter to enter into various agreements
in its authorized operations, that power, nevertheless, cannot be so construed as empowering it to
pass on or share its franchise to anyone else. The grant of a franchise is a purely legislative act that
cannot be delegated to PAGCOR without violating the Constitution. 2 The thesis rests on the
maxim potestas delegata non delegari potest. Without a congressional franchise of its own, neither
BELLE nor FILGAME, in fine, can lawfully engage in active endeavor with PAGCOR in conducting jai
alai games.

ACCORDINGLY, I still vote (a) to the grant of the petitions insofar as they seek to enjoin respondent
Philippine Amusement and Gaming Corporation (PAGCOR) from operating jai alai or basque pelota
games through respondents Belle Jai Alai Corporation (BELLE) and/or Filipinas Gaming
Entertainment Totalizator Corporation (FILGAME), or through any other agency for that matter, but
(b) to deny the same petitions to the extent that they further seek to prohibit PAGCOR from itself
managing or operating those games.

DISSENTING OPINION

DE LEON, JR., J.:

The twin motions for reconsideration before us concern the issue as to whether the Philippine
Amusement and Gaming Corporation (PAGCOR) has the requisite franchise to manage and/or
operate jai alai or Basque pelota games, by itself or with the infrastructure facilities of co-
respondents Belle Jai Alai Corporation (hereinafter called BELLE) and Filipinas Gaming
Entertainment Totalizator Corporation (hereinafter called FILGAME).

On November 29, 2000, this Court rendered a decision, holding that the management and operation
of jai alai games is not covered by the franchise granted to PAGCOR under Presidential Decree
No.1869. Thus, the dispositive portion of said decision reads as follows:

WHEREFORE, the petitions are GRANTED. Respondents PAGCOR, Belle Jai alai
Corporation and Filipinas Gaming Entertainment Totalizator Corporation are ENJOINED from
managing, maintaining and operating jai alai games, and from enforcing the agreement
entered into by them for that purpose.

SO ORDERED.

On December 29, 2000, PAGCOR, through the Government Corporate Counsel, filed its Motion for
Reconsideration dated December 26, 2000. Movant PAGCOR argues that:

I. P.D. 1869, otherwise known as the PAGCOR franchise, is not merely a consolidation of
P.D. Nos. 1067-A, 1067-B, 1067-C, 1399 and 1622 but is an express amendment of the
latter.

II. The provisions of P.D. 1869, taken in their totality, do not limit PAGCOR 's franchise to the
operation of gambling casinos.

III. Regardless of the fact that the exercise of PAGCOR 's franchise to operate and manage
gambling casinos and other games of chance affect public morals and notwithstanding any
perceived bias against the martial law powers of former President Marcos, it remains that
P.D. 1869 has the force and effect of law, whose wisdom cannot be validly inquired into by
the courts.
 IV. The jai alai games as introduced in the Philippine context or setting has never been
associated with or appreciated as a game of skill but as a betting game or gambling activity.

V. Pursuant to the agreement of PAGCOR with BELLE/FILGAME, PAGCOR under a joint

venture scheme will be the one to manage and operate jai alai games.

VI. The difference in tax treatment between jai alai and other gaming activities is not crucial
as would preclude PAGCOR from operating jai alai games.

On December 26, 2000, private respondents BELLE and FILGAME filed their motion for
reconsideration dated December 22,2000 based on the following grounds:

I. This Honorable Court's reading of the franchise granted under Presidential Decree
No.1869 makes meaningless most of Section 10 of the law, which is specifically meant to
express the nature of the Philippine Amusement and Gaming Corporation's franchise, and
which categorically confers upon it the "rights, privilege and authority to operate and
maintain" not only "gambling casinos, " but also "clubs and other recreation or amusement
places, sports, gaming pools x x x basketball, football, lotteries, etc, " which plainly includes
gaming pools on jai alai.

II. By construing Presidential Decree No.1869 as granting only the right to own and operate
gambling casinos, this Honorable Court defeats its plainly expressed intent to "centralize and
integrate all games of chance x x x," and fails to consider that the broad "right and authority
to operate and conduct games of chance " was not granted to a mere private business
corporation, but to a corporate entity to be controlled, administered and supervised by the
government, meant to regulate gaming activities and earn funding for socio-economic
projects for public good.

On February 1 and 2, 2001, petitioners, filed their respective comments/opposition to the motion for
reconsideration filed by respondents alleging, in essence, that:

I. Since there was no mention of the word "Jai alai" in the PAGCOR charter, although the
legislative authority could have easily included the same, jai alai is deemed to have been
excluded from the activities falling within the scope of PAGCOR 's franchise to operate and
manage.

II. PAGCOR does not have the franchise to operate and manage jai alai games in the
absence of specific rules and guidelines given by the legislative authority for the operation of
a game played for bets.

We find merit in the twin motions for reconsideration before us and hold that PAGCOR has the
requisite franchise to manage and operate jai alai games and to enter into a joint venture agreement
with BELLE and FILGAME.

FIRST. Section 10 of P. D. No.1869 defining the extent and nature of PAGCOR's franchise is
couched in language so broad that literally all kinds of sports and gaming pools, including jai alai, are
covered therein.

Section 10 of P.D. No.1869 reads:

 Section 10. Nature and term of franchise -Subject to the terms and conditions established in
this Decree, the Corporation is hereby granted for a period of twenty-five (25) years,
renewable for another twenty-five (25) years, the rights, privilege, and authority to operate
and maintain gambling casinos, clubs, and other recreation or amusement places,
sports, gaming pools, i.e., basketball, football, lotteries, etc. whether on land or sea, within
the territorial jurisdiction of the Republic of the Philippines. [Italics supplied]

A sport is defined as "a game or contest especially when involving individual skill or prowess on
which money is staked."1 Gaming, on the other hand, is defined as "the act or practice of playing
games for stakes."2 P.D. No.1869 has made express mention of basketball and football as example
of gaming pools. Basketball and football, however, like jai alai are games of skills. Considering that
under Section 10 of P.D. No.1869, games of skill like basketball and football have been lumped
together with the word "lotteries" just before the word "etc." and after the words "gaming pools," it
may be deduced from the wording of the law that when bets or stakes are made in connection with
games of skill, they may be classified as games of chance under the coverage of PAGCOR's
franchise.

The meaning of the phrase "et cetera" or its abbreviation "etc." depends largely on the context of the
instrument, description and enumeration of the matters preceding the term and subject matter to
which it is applied, and when used in a statute, the words should be given their usual and natural
signification.3 Consequently, jai alai, otherwise known as "game of Basque pelota", while in itself is
not per se a game of chance, may be categorized as a game of chance when bets are accepted as
a form of gambling.

It is a cardinal rule of statutory construction that when words and phrases of a statute are clear and
unequivocal, their meaning must be determined from the language employed and the statute must
be taken to mean exactly what it says.

SECOND. Petitioners contend that jai alai does not fall within the scope of PAGCOR's franchise
inasmuch as there is no specific mention of jai alai as among the games which PAGCOR can
operate under P.D. No.1869.

The language of the law defining the scope of PAGCOR's franchise, as earlier mentioned, is broad
enough to include the operations of jai alai. The abbreviation "etc." ordinarily refers to others of the
like kind, and the rest, and so on, and so forth, being used to point out that other things which could
be mentioned are understood.4Bearing in mind that the law was created to maximize potential
sources of additional revenue for the government, it would have been incongruous to expect an
enumeration of all the possible games or activities that could be covered by the scope of PAGCOR's
franchise.

To adopt the petitioners' stance that there should have been an express mention of jai alai as among
the games or activities which PAGCOR can operate and manage under its franchise, would limit the
scope of PAGCOR's franchise to games or activities which have been expressly mentioned under
P.D. No. 1869 and render ineffective the use of the word "etc." in said law.

It is a universal rule of application that a construction of a statute is to be favored, and must be

adopted if reasonably possible, which will give meaning to every word, clause, and sentence of the
statute and operation and effect to every part and provision of it.5

THIRD. Petitioners maintain that the operations of jai alai was already the subject of a legislative
grant by then President Marcos to the Philippine Jai Alai and Amusement Corporation (PJAC), a
corporation controlled by his in-laws, the Romualdezes, by virtue of P.D. Nos. 810 6 and
1124.7 Hence, it could not have been his intent to grant PAGCOR the franchise to operate and
manage jai alai games inasmuch as it would result in a competition with the business interest of his
in-laws.

We need only say that in the interpretation of statutes, it is not proper or permissible to inquire into
the motives which influenced the legislative body, except insofar as such motives are disclosed by
the statute itself.8 The magnitude of the consideration, political or financial, which may operate upon
the legislative mind as an inducement for grants and franchises conferred by statute, do not change
the character of the legislation, or vary the rule of construction by which the rights of the grantees
must be measured.9

Given the broad language of P.D. 1869 defining the scope of PAGCOR's franchise, we find no
reason why the operations of jai alai cannot be deemed as included in its franchise. The subsequent
repeal of P.D. Nos. 810 and 1124 in 1986 by Executive Order (E.O.) No. 169 only meant that PJAC
was no longer entitled to exercise its rights under its former franchise. E.O. No.169, otherwise known
as 'Repealing Presidential Decree No. 810 entitled "An act granting the Philippine Jai alai and
Amusement Corporation a franchise to operate, construct and maintain a fronton for Basque Pelota
and similar games of skill in the Greater Manila Area as amended" and Accordingly Revoking and
Cancelling the Right, Privilege and Authority granted therein' in itself did not delimit the scope of the
franchise of PAGCOR especially since E.O. No.169 was specific enough to identify the repeal of the
particular law (P.D. No.810) granting a certain franchise, i.e. PJAC's franchise.

FOURTH. Petitioners, however, insist that PAGCOR was created to operate games of chance or
gaming pools for which no franchises have been granted at the time that P .D. No.1869 went into
effect on July 11, 1983. To bolster their claim, petitioners cite Section 1 of P.D. No.1869 which reads:

Section 1. Declaration of policy. -It is hereby the policy of the State to centralize and
integrate all games of chance not heretofore authorized by existing franchises or permitted
by law in order to attain the following objectives."(underscoring supplied)

The fact that there was an existing jai alai franchise in favor of PJAC the time P.D. No.1869 went into
effect does not necessarily mean jai alai can never be the subject of PAGCOR's franchise upon
repeal of PJAC's franchise. Monopoly is not an essential feature of a franchise and the strictly legal
signification of the term franchise is not always confined to exclusive rights. 10

The Declaration of Policy stated in Section 1 of P.D. No.1869 should be read in conjunction with the
purpose of the law, i.e. to generate sources of additional revenue for governmental projects.
PAGCOR was created primarily to maximize potential sources of revenue for the government by
integrating into just one entity the operation and management of all games of chance. To attain this
objective, the legislature saw it fit to couch the scope and nature of PAGCOR's franchise in a broad
language.

Statutes should be construed in the light of the object to be achieved and the evil or mischief to be
suppressed and they should be given such construction as will advance the object, suppress the
mischief and secure the benefits intended. A statute should therefore be read with reference to its
leading idea, and its general purpose and intention should be gathered from the whole act, and this
predominant purpose will prevail over the literal import of particular terms or clauses, if plainly
apparent, operating as a limitation upon some and as a reason for expanding the signification of
others, so that the interpretation may accord with the spirit of the entire act, and so that the policy
and object of the statute as a whole may be made effectual and operative to the widest possible
extent.11
FIFTH. Petitioners maintain that the legislative authority could not have intended to include jai alai in
the scope of PAGCOR's franchise in the absence of specific guidelines laid down in P.D. No. 1869
as to how PAGCOR shall conduct the operation and management of jai alai games.

Considering that the intent of the law is to regulate and centralize all games of chance thru an
appropriate institution which would enable the government to identify potential sources of additional
revenue, it would be impracticable for the law to provide in detail for the manner in which each
possible game covered by the franchise is to be maintained and operated by PAGCOR. Significantly,
the law has not provided for a set of guidelines as to how basketball and football shall be managed
and operated by PAGCOR. Yet, because of the express provision of the law, one could not contend
that such games are to be excluded from the scope of the franchise.

If we use the presence or absence of a set of guidelines in the law as to how each possible game
should be managed and operated by PAGCOR, as a standard for their inclusion in the scope of
PAGCOR's franchise, then we render ineffective the object of the law to maximize potential sources
of revenue by integrating all games of chance into just one entity since all games of chance which
might have otherwise been covered by the all encompassing word "etc." also do not have a set of
guidelines regarding their operation and management by PAGCOR. Such strained interpretation
violates the rule of statutory construction that no limitation is to be inferred or implied which would
have the effect of defeating the object of the law.

SIXTH. As regards the issue that jai alai, as a form of gambling, is "universally regarded to be a
threat to the moral fiber of the society," we need only reiterate the oft quoted principle that courts do
not pass upon questions of wisdom, justice or expediency of legislation, for it is not within their
province to supervise legislation and keep it within the bounds of propriety or common sense.
Whether or not a given law is the best that could have been enacted on the subject; whether or not it
is calculated to accomplish its avowed object; whether or not it accords with what is understood to
be the general policy of legislation in the particular jurisdiction -these are questions which do not fall
within the province of the courts. A court exceeds its proper office and authority if it attempts, under
the guise of construction, to mould the expression of the legislative will into the shape which the
court thinks it ought to bear.12

Petitioners, who are members of the legislature, should perhaps be reminded that it is their office
which, in fact, has the prerogative to correct what it deems to be excesses or omissions in the
legislation.

SEVENTH. Petitioners contend that PAGCOR may not enter into a joint venture agreement with
private corporations, in this case with BELLE and FILGAME, to operate, manage and conduct jai alai
games as well as supervise betting activities both at the fronton site and selected off-fronton betting
stations.

Petitioners maintain that PAGCOR's right to enter into management contracts is limited only to those
relating to the efficient operation of gambling casinos under Section 11 of P.D. No.1869 which reads:

Sec. 11. Scope of Franchise. -In addition to the rights and privileges granted it under the
preceding Section, this Franchise shall entitle the corporation to do and undertake the
following:

(1) enter into operating and/or managing contracts with any registered and accredited
company possessing the knowledge, skill, expertise and facilities to insure the efficient
operation of gambling casinos x x x.
We are not convinced.

A joint venture is an association of persons or companies jointly undertaking some commercial

enterprise -generally, all contribute assets and share risks. It requires a community of interests in the
performance of the subject matter, a right to direct and govern the policy connected therewith, and
duty, which may be altered by agreement to share both in profit and losses. 13 In this jurisdiction, a
joint venture is a form of partnership and is thus governed by the law on partnerships.

Section 3 of P.D. No.1869 enumerates the following powers and functions of PAGCOR:

xxx

h) to enter into, make, perform, and carry out contracts of every kind and for any lawful
purpose pertaining to the business of the Corporation, or in any manner incident thereto, as
principal, agent or otherwise, with any person, firm, association or corporation.

xxx

l) to do anything and everything necessary, proper, desirable, convenient or suitable for the
accomplishment of any of the purposes or the attainment of any of the objects or the
furtherance of any of the powers herein stated, either alone or in association with other
corporations, firms or individuals, and to do every other act or thing incidental, pertaining to,
growing out of, or connected with, the aforesaid purposes, objects or powers, or any part
thereof.

Clearly, the powers granted to PAGCOR are broad enough to include the power to enter into a joint
venture agreement with private corporations like BELLE and FILGAME relating to the operation,
management and conduct not only of gambling casinos but also of those relating to jai alai as
legalized gambling.

Where the language of the statute is clear, it is the duty of the court to enforce it according to the
plain meaning of the word. There is no occasion to resort to other means of interpretation.

EIGHTH. Finally, it is contended that PAGCOR cannot enter into a joint venture agreement with
BELLE and FILGAME because to do so would grant the two (2) corporations a veritable franchise to
operate jai alai games in violation of the principle that the grant of a franchise is a purely legislative
act which cannot be delegated without violating the Constitution under the maxim potestas delegata
non delegari potest.

Under the maxim potestas delegata non delegari potest a delegated power cannot be delegated.
This is based upon the ethical principle that such delegated power constitutes not only a right but a
duty to be performed by the delegate by the instrumentality of his own judgment acting immediately
upon the matter of legislation and not through the intervening mind of another. 14

It should be noted, however, that the legislative grant of franchise to PAGCOR has not accorded
unto the latter legislative powers nor quasi- legislative powers. The joint venture agreement entered
into by PAGCOR with FILGAME and BELLE was made pursuant to the powers granted under P.D.
No. 1869 to PAGCOR to "enter into, make, perform, and carry out contracts of every kind and for
any purpose pertaining to the business of the corporation x x x with any person, firm or corporation."
Under the joint venture agreement, BELLE and FILGAME will provide financial requirements and
technical assistance to PAGCOR in connection with the use of their operational facilities. PAGCOR
however shall still manage, regulate and control all aspects of jai alai operations. PAGCOR has
entered into a joint venture agreement with the two (2) corporations for the simple reason that
without the collaboration of the private sector, it is not financially capable of undertaking the
resumption of the operation of jai alai games which will require massive financial outlay. Hence, the
joint venture agreement is in consonance with the powers granted to PAGCOR that it may "do
anything and everything necessary, proper, desirable, convenient or suitable for the accomplishment
of any of the purposes or the attainment of any of the objects or the furtherance of any of the powers
herein stated, either alone or in association with other corporations, firms or individuals x x x."

NINTH. The petitioners filed the present suits in their capacity as taxpayers and legislators. However,
for a taxpayer's suit to prosper, the petitioners therein must have locus standi. In these instant
petitions, it is undisputed that the spending powers of Congress are not involved. There is no
allegation of illegal disbursement of public funds. Hence, petitioners' right to sue as taxpayers or
concerned citizens cannot be sustained. Neither is there any showing that the assailed official acts of
PAGCOR affect the rights and prerogatives of petitioners as members of Congress.

I therefore vote to grant the subject twin Motions for Reconsideration filed by respondents PAGCOR,
BELLE and FILGAME.

Footnotes

1
Motion for Reconsideration of PAGCOR; Rollo, pp. 499-500.

2
Motion for Reconsideration of Private Respondents; ibid., p. 464.

3
Comment/Opposition on the Motion for Reconsideration, p. 5; Rollo, p. 559.

4
See Concurring Opinion of Justice Padilla in Basco, et al. vs. PAGCOR, 197 SCRA 52
(1991).

5
Lim vs. Pacquing, et al., 240 SCRA 649 (1995).

6
See Separate Opinion of Justice Kapunan in Lim vs. Pacquing, et al., supra.

Vitug, J.:

1
Sec. 1(b), P.D. No.1869; People vs. Quijada, 259 SCRA 191 citing Victoria vs. COMELEC,
299 SCRA 269 and Libanan vs. Sandiganbayan, 233 SCRA 163.

2
Secs.1 and 24, Art. VI, Constitution.

De Leon, J.:

1
Webster's Third New International Dictionary (Unabridged), 1993 Ed.

2
Ibid.
 3
Wright v. People, 181 P. 2d 447,450. 116 Colo. 306.

4
Osternberg v. Section 30 Development Co., 200 N.W. 738, 739, 160 Minn. 497; Fleck v.
Hamstad, 155 A. 875, 877, 304 Pa. 302, 77 ALR 874.

5
H.C. Black, HANDBOOK ON THE CONSTRUCTION AND INTERPRETATION OF THE
LAWS 322 (2nd Ed, 1971).

6
entitled "An Act granting the Philippine Jai alai and Amusement Corporation a franchise to
operate, construct and maintain a fronton for Basque Pelota and similar games of skill in the
Greater Manila Area."

7
entitled "Amending Presidential Decree No. 810 dated October 16, 1975 entitled 'An Act
granting the Philippine Jai alai and Amusement Corporation a franchise to operate, construct
and maintain a fronton for Basque Pelota and similar games of skill in the Greater Manila
Area."

8
Id., at 315 citing Home v. Guy, L.R. 5 Ch Div. 901; Keyport & M.P. Streamboat Co. v.
Farmer's Transp. Co. 18 N.J. Eq 13; Kountze v. Omaha, 5 Dill. 443, Fed. Cas. No.7,928; City
of Richmond v. Supervisors of Henrico County, 83 Va. 204, 2 S.E. 26, People v. Shepard, 36
N.Y. 285; Fletcher v. Peck, 6 Cranch, 87, 3 L.Ed. 162; Williams v. Nashville, 89 Tenn. 487, 15
S.W. 364; Pacific Coast S.S. Co. v. United States, 33 Ct. Cl. 36; City of Lebanon v. Creel,
109 Ky 363, 59 S.W.16.

9
Id., at 116 citing Union Pac. R. Co.v. United States, 10 Ct. Cl 448.

10
36 Am Jur 2d, Franchises 29.

11
H. Black, Op. Cit, note 5 at 320-321.

12
Id., at 11.

13
Kilosbayan, Incorporated v. Guingona, Jr., 232 SCRA 110, 144 [1994].

14
United States v. Barrias, 11 Phil 327, 330 [1908].

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