G.R. No.

175356 December 3, 2013

MANILA MEMORIAL PARK, INC. AND LA FUNERARIA PAZ-SUCAT, INC., Petitioners,

vs.

SECRETARY OF THE DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT and THE

SECRETARY OF THE DEPARTMENT OF FINANCE, Respondents.

DECISION

DEL CASTILLO, J.:

When a party challeges the constitutionality of a law, the burden of proof rests upon
him.

Before us is a Petition for Prohibition under Rule 65 of the Rules of Court filed by
petitioners Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc., domestic
corporations engaged in the business of providing funeral and burial services, against
public respondents Secretaries of the Department of Social Welfare and Development
(DSWD) and the Department of Finance (DOF).

Petitioners assail the constitutionality of Section 4 of Republic Act (RA) No. 7432, as
amended by RA 9257, and the implementing rules and regulations issued by the DSWD
and DOF insofar as these allow business establishments to claim the 20% discount
given to senior citizens as a tax deduction.

Factual Antecedents

On April 23, 1992, RA 7432 was passed into law, granting senior citizens the following
privileges:

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to
the following:

a) the grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishment[s],
restaurants and recreation centers and purchase of medicine anywhere in the country:
Provided, That private establishments may claim the cost as tax credit;

b) a minimum of twenty percent (20%) discount on admission fees charged by

theaters, cinema houses and concert halls, circuses, carnivals and other similar places
of culture, leisure, and amusement;
c) exemption from the payment of individual income taxes: Provided, That their annual
taxable income does not exceed the property level as determined by the National
Economic and Development Authority (NEDA) for that year;

d) exemption from training fees for socioeconomic programs undertaken by the OSCA
as part of its work;

e) free medical and dental services in government establishment[s] anywhere in the

country, subject to guidelines to be issued by the Department of Health, the
Government Service Insurance System and the Social Security System;

f) to the extent practicable and feasible, the continuance of the same benefits and
privileges given by the Government Service Insurance System (GSIS), Social Security
System (SSS) and PAG-IBIG, as the case may be, as are enjoyed by those in actual
service.

On August 23, 1993, Revenue Regulations (RR) No. 02-94 was issued to implement RA
7432. Sections 2(i) and 4 of RR No. 02-94 provide:

Sec. 2. DEFINITIONS. – For purposes of these regulations:

i. Tax Credit – refers to the amount representing the 20% discount granted to a
qualified senior citizen by all establishments relative to their utilization of transportation
services, hotels and similar lodging establishments, restaurants, drugstores, recreation
centers, theaters, cinema houses, concert halls, circuses, carnivals and other similar
places of culture, leisure and amusement, which discount shall be deducted by the said
establishments from their gross income for income tax purposes and from their gross
sales for value-added tax or other percentage tax purposes. x x x x Sec. 4.
RECORDING/BOOKKEEPING REQUIREMENTS FOR PRIVATE ESTABLISHMENTS. –
Private establishments, i.e., transport services, hotels and similar lodging
establishments, restaurants, recreation centers, drugstores, theaters, cinema houses,
concert halls, circuses, carnivals and other similar places of culture[,] leisure and
amusement, giving 20% discounts to qualified senior citizens are required to keep
separate and accurate record[s] of sales made to senior citizens, which shall include the
name, identification number, gross sales/receipts, discounts, dates of transactions and
invoice number for every transaction. The amount of 20% discount shall be deducted
from the gross income for income tax purposes and from gross sales of the business
enterprise concerned for purposes of the VAT and other percentage taxes.
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,5 the Court
declared Sections 2(i) and 4 of RR No. 02-94 as erroneous because these contravene
RA 7432,6 thus:

RA 7432 specifically allows private establishments to claim as tax credit the amount of
discounts they grant. In turn, the Implementing Rules and Regulations, issued pursuant
thereto, provide the procedures for its availment. To deny such credit, despite the plain
mandate of the law and the regulations carrying out that mandate, is indefensible.

First, the definition given by petitioner is erroneous. It refers to tax credit as the
amount representing the 20 percent discount that "shall be deducted by the said
establishments from their gross income for income tax purposes and from their gross
sales for value-added tax or other percentage tax purposes." In ordinary business
language, the tax credit represents the amount of such discount. However, the manner
by which the discount shall be credited against taxes has not been clarified by the
revenue regulations. By ordinary acceptation, a discount is an "abatement or reduction
made from the gross amount or value of anything." To be more precise, it is in business
parlance "a deduction or lowering of an amount of money;" or "a reduction from the full
amount or value of something, especially a price." In business there are many kinds of
discount, the most common of which is that affecting the income statement or financial
report upon which the income tax is based.

xxxx

Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20
percent discount deductible from gross income for income tax purposes, or from gross
sales for VAT or other percentage tax purposes. In effect, the tax credit benefit under
RA 7432 is related to a sales discount. This contrived definition is improper, considering
that the latter has to be deducted from gross sales in order to compute the gross
income in the income statement and cannot be deducted again, even for purposes of
computing the income tax. When the law says that the cost of the discount may be
claimed as a tax credit, it means that the amount — when claimed — shall be treated
as a reduction from any tax liability, plain and simple. The option to avail of the tax
credit benefit depends upon the existence of a tax liability, but to limit the benefit to a
sales discount — which is not even identical to the discount privilege that is granted by
law — does not define it at all and serves no useful purpose. The definition must,
therefore, be stricken down.

Laws Not Amended by Regulations

Second, the law cannot be amended by a mere regulation. In fact, a regulation that
"operates to create a rule out of harmony with the statute is a mere nullity;" it cannot
prevail. It is a cardinal rule that courts "will and should respect the contemporaneous
construction placed upon a statute by the executive officers whose duty it is to enforce
it x x x." In the scheme of judicial tax administration, the need for certainty and
predictability in the implementation of tax laws is crucial. Our tax authorities fill in the
details that "Congress may not have the opportunity or competence to provide." The
regulations these authorities issue are relied upon by taxpayers, who are certain that
these will be followed by the courts. Courts, however, will not uphold these authorities’
interpretations when clearly absurd, erroneous or improper. In the present case, the tax
authorities have given the term tax credit in Sections 2.i and 4 of RR 2-94 a meaning
utterly in contrast to what RA 7432 provides. Their interpretation has muddled x x x the
intent of Congress in granting a mere discount privilege, not a sales discount. The
administrative agency issuing these regulations may not enlarge, alter or restrict the
provisions of the law it administers; it cannot engraft additional requirements not
contemplated by the legislature.

In case of conflict, the law must prevail. A "regulation adopted pursuant to law is law."
Conversely, a regulation or any portion thereof not adopted pursuant to law is no law
and has neither the force nor the effect of law.7

On February 26, 2004, RA 92578 amended certain provisions of RA 7432, to wit:

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to
the following:

(a) the grant of twenty percent (20%) discount from all establishments relative to the
utilization of services in hotels and similar lodging establishments, restaurants and
recreation centers, and purchase of medicines in all establishments for the exclusive use
or enjoyment of senior citizens, including funeral and burial services for the death of
senior citizens;

xxxx

The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That
the cost of the discount shall be allowed as deduction from gross income for the same
taxable year that the discount is granted. Provided, further, That the total amount of
the claimed tax deduction net of value added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper documentation and
to the provisions of the National Internal Revenue Code, as amended.
To implement the tax provisions of RA 9257, the Secretary of Finance issued RR No. 4-
2006, the pertinent provision of which provides:

SEC. 8. AVAILMENT BY ESTABLISHMENTS OF SALES DISCOUNTS AS DEDUCTION

FROM GROSS INCOME. – Establishments enumerated in subparagraph (6) hereunder
granting sales discounts to senior citizens on the sale of goods and/or services specified
thereunder are entitled to deduct the said discount from gross income subject to the
following conditions:

(1) Only that portion of the gross sales EXCLUSIVELY USED, CONSUMED OR ENJOYED
BY THE SENIOR CITIZEN shall be eligible for the deductible sales discount.

(2) The gross selling price and the sales discount MUST BE SEPARATELY INDICATED IN
THE OFFICIAL RECEIPT OR SALES INVOICE issued by the establishment for the sale of
goods or services to the senior citizen.

(3) Only the actual amount of the discount granted or a sales discount not exceeding
20% of the gross selling price can be deducted from the gross income, net of value
added tax, if applicable, for income tax purposes, and from gross sales or gross receipts
of the business enterprise concerned, for VAT or other percentage tax purposes.

(4) The discount can only be allowed as deduction from gross income for the same
taxable year that the discount is granted.

(5) The business establishment giving sales discounts to qualified senior citizens is
required to keep separate and accurate record[s] of sales, which shall include the name
of the senior citizen, TIN, OSCA ID, gross sales/receipts, sales discount granted, [date]
of [transaction] and invoice number for every sale transaction to senior citizen.

(6) Only the following business establishments which granted sales discount to senior
citizens on their sale of goods and/or services may claim the said discount granted as
deduction from gross income, namely:

xxxx

(i) Funeral parlors and similar establishments – The beneficiary or any person who shall
shoulder the funeral and burial expenses of the deceased senior citizen shall claim the
discount, such as casket, embalmment, cremation cost and other related services for
the senior citizen upon payment and presentation of [his] death certificate.

The DSWD likewise issued its own Rules and Regulations Implementing RA 9257, to
wit:
RULE VI DISCOUNTS AS TAX DEDUCTION OF ESTABLISHMENTS

Article 8. Tax Deduction of Establishments. – The establishment may claim the

discounts granted under Rule V, Section 4 – Discounts for Establishments, Section 9,
Medical and Dental Services in Private Facilities and Sections 10 and 11 – Air, Sea and
Land Transportation as tax deduction based on the net cost of the goods sold or
services rendered.

Provided, That the cost of the discount shall be allowed as deduction from gross income
for the same taxable year that the discount is granted; Provided, further, That the total
amount of the claimed tax deduction net of value added tax if applicable, shall be
included in their gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code, as
amended; Provided, finally, that the implementation of the tax deduction shall be
subject to the Revenue Regulations to be issued by the Bureau of Internal Revenue
(BIR) and approved by the Department of Finance (DOF).

Feeling aggrieved by the tax deduction scheme, petitioners filed the present recourse,
praying that Section 4 of RA 7432, as amended by RA 9257, and the implementing rules
and regulations issued by the DSWD and the DOF be declared unconstitutional insofar
as these allow business establishments to claim the 20% discount given to senior
citizens as a tax deduction; that the DSWD and the DOF be prohibited from enforcing
the same; and that the tax credit treatment of the 20% discount under the former
Section 4 (a) of RA 7432 be reinstated.

Issues

Petitioners raise the following issues:

A.

WHETHER THE PETITION PRESENTS AN ACTUAL CASE OR CONTROVERSY.

B.

WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND X X X ITS IMPLEMENTING

RULES AND REGULATIONS, INSOFAR AS THEY PROVIDE THAT THE TWENTY PERCENT
(20%) DISCOUNT TO SENIOR CITIZENS MAY BE CLAIMED AS A TAX DEDUCTION BY
THE PRIVATE ESTABLISHMENTS, ARE INVALID AND UNCONSTITUTIONAL.9

Petitioners’ Arguments
Petitioners emphasize that they are not questioning the 20% discount granted to senior
citizens but are only assailing the constitutionality of the tax deduction scheme
prescribed under RA 9257 and the implementing rules and regulations issued by the
DSWD and the DOF.10

Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the
Constitution, which provides that: "[p]rivate property shall not be taken for public use
without just compensation."11

In support of their position, petitioners cite Central Luzon Drug Corporation,12 where it
was ruled that the 20% discount privilege constitutes taking of private property for
public use which requires the payment of just compensation, and Carlos Superdrug
Corporation v. Department of Social Welfare and Development,14 where it was
acknowledged that the tax deduction scheme does not meet the definition of just
compensation.15

Petitioners likewise seek a reversal of the ruling in Carlos Superdrug Corporation16 that
the tax deduction scheme adopted by the government is justified by police power.17

They assert that "[a]lthough both police power and the power of eminent domain have
the general welfare for their object, there are still traditional distinctions between the
two"18 and that "eminent domain cannot be made less supreme than police power."19

Petitioners further claim that the legislature, in amending RA 7432, relied on an

erroneous contemporaneous construction that prior payment of taxes is required for tax
credit.20

Petitioners also contend that the tax deduction scheme violates Article XV, Section 421
and Article XIII, Section 1122 of the Constitution because it shifts the State’s
constitutional mandate or duty of improving the welfare of the elderly to the private
sector.23

Under the tax deduction scheme, the private sector shoulders 65% of the discount
because only 35% of it is actually returned by the government.

Consequently, the implementation of the tax deduction scheme prescribed under

Section 4 of RA 9257 affects the businesses of petitioners.

Thus, there exists an actual case or controversy of transcendental importance which

deserves judicious disposition on the merits by the highest court of the land.27

Respondents’ Arguments
Respondents, on the other hand, question the filing of the instant Petition directly with
the Supreme Court as this disregards the hierarchy of courts.28

They likewise assert that there is no justiciable controversy as petitioners failed to prove
that the tax deduction treatment is not a "fair and full equivalent of the loss sustained"
by them.29

As to the constitutionality of RA 9257 and its implementing rules and regulations,

respondents contend that petitioners failed to overturn its presumption of
constitutionality.30

More important, respondents maintain that the tax deduction scheme is a legitimate
exercise of the State’s police power.31

Our Ruling

The Petition lacks merit.

There exists an actual case or controversy.

We shall first resolve the procedural issue. When the constitutionality of a law is put in
issue, judicial review may be availed of only if the following requisites concur: "(1) the
existence of an actual and appropriate case; (2) the existence of personal and
substantial interest on the part of the party raising the [question of constitutionality];
(3) recourse to judicial review is made at the earliest opportunity; and (4) the [question
of constitutionality] is the lis mota of the case."32

In this case, petitioners are challenging the constitutionality of the tax deduction
scheme provided in RA 9257 and the implementing rules and regulations issued by the
DSWD and the DOF. Respondents, however, oppose the Petition on the ground that
there is no actual case or controversy. We do not agree with respondents. An actual
case or controversy exists when there is "a conflict of legal rights" or "an assertion of
opposite legal claims susceptible of judicial resolution."33

The Petition must therefore show that "the governmental act being challenged has a
direct adverse effect on the individual challenging it."34

In this case, the tax deduction scheme challenged by petitioners has a direct adverse
effect on them. Thus, it cannot be denied that there exists an actual case or
controversy.
The validity of the 20% senior citizen discount and tax deduction scheme under RA
9257, as an exercise of police power of the State, has already been settled in Carlos
Superdrug Corporation.

Petitioners posit that the resolution of this case lies in the determination of whether the
legally mandated 20% senior citizen discount is an exercise of police power or eminent
domain. If it is police power, no just compensation is warranted. But if it is eminent
domain, the tax deduction scheme is unconstitutional because it is not a peso for peso
reimbursement of the 20% discount given to senior citizens. Thus, it constitutes taking
of private property without payment of just compensation. At the outset, we note that
this question has been settled in Carlos Superdrug Corporation.

In that case, we ruled:

Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to
grant the discount will result in a loss of profit and capital because 1) drugstores
impose a mark-up of only 5% to 10% on branded medicines; and 2) the law failed to
provide a scheme whereby drugstores will be justly compensated for the discount.
Examining petitioners’ arguments, it is apparent that what petitioners are ultimately
questioning is the validity of the tax deduction scheme as a reimbursement mechanism
for the twenty percent (20%) discount that they extend to senior citizens. Based on the
afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse
petitioners for the discount privilege accorded to senior citizens. This is because the
discount is treated as a deduction, a tax-deductible expense that is subtracted from the
gross income and results in a lower taxable income. Stated otherwise, it is an amount
that is allowed by law to reduce the income prior to the application of the tax rate to
compute the amount of tax which is due. Being a tax deduction, the discount does not
reduce taxes owed on a peso for peso basis but merely offers a fractional reduction in
taxes owed. Theoretically, the treatment of the discount as a deduction reduces the net
income of the private establishments concerned. The discounts given would have
entered the coffers and formed part of the gross sales of the private establishments,
were it not for R.A. No. 9257. The permanent reduction in their total revenues is a
forced subsidy corresponding to the taking of private property for public use or benefit.
This constitutes compensable taking for which petitioners would ordinarily become
entitled to a just compensation. Just compensation is defined as the full and fair
equivalent of the property taken from its owner by the expropriator. The measure is not
the taker’s gain but the owner’s loss. The word just is used to intensify the meaning of
the word compensation, and to convey the idea that the equivalent to be rendered for
the property to be taken shall be real, substantial, full and ample. A tax deduction does
not offer full reimbursement of the senior citizen discount. As such, it would not meet
the definition of just compensation. Having said that, this raises the question of
whether the State, in promoting the health and welfare of a special group of citizens,
can impose upon private establishments the burden of partly subsidizing a government
program. The Court believes so. The Senior Citizens Act was enacted primarily to
maximize the contribution of senior citizens to nation-building, and to grant benefits
and privileges to them for their improvement and well-being as the State considers
them an integral part of our society. The priority given to senior citizens finds its basis
in the Constitution as set forth in the law itself. Thus, the Act provides: SEC. 2. Republic
Act No. 7432 is hereby amended to read as follows:

SECTION 1. Declaration of Policies and Objectives. — Pursuant to Article XV, Section 4

of the Constitution, it is the duty of the family to take care of its elderly members while
the State may design programs of social security for them. In addition to this, Section
10 in the Declaration of Principles and State Policies provides: "The State shall provide
social justice in all phases of national development." Further, Article XIII, Section 11,
provides: "The State shall adopt an integrated and comprehensive approach to health
development which shall endeavor to make essential goods, health and other social
services available to all the people at affordable cost. There shall be priority for the
needs of the underprivileged sick, elderly, disabled, women and children." Consonant
with these constitutional principles the following are the declared policies of this Act:

xxx xxx xxx

(f) To recognize the important role of the private sector in the improvement of the
welfare of senior citizens and to actively seek their partnership.

To implement the above policy, the law grants a twenty percent discount to senior
citizens for medical and dental services, and diagnostic and laboratory fees; admission
fees charged by theaters, concert halls, circuses, carnivals, and other similar places of
culture, leisure and amusement; fares for domestic land, air and sea travel; utilization
of services in hotels and similar lodging establishments, restaurants and recreation
centers; and purchases of medicines for the exclusive use or enjoyment of senior
citizens. As a form of reimbursement, the law provides that business establishments
extending the twenty percent discount to senior citizens may claim the discount as a tax
deduction. The law is a legitimate exercise of police power which, similar to the power
of eminent domain, has general welfare for its object. Police power is not capable of an
exact definition, but has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough room for an efficient and
flexible response to conditions and circumstances, thus assuring the greatest benefits.
Accordingly, it has been described as "the most essential, insistent and the least
limitable of powers, extending as it does to all the great public needs." It is "[t]he
power vested in the legislature by the constitution to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes, and ordinances, either with
penalties or without, not repugnant to the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of the subjects of the same." For this
reason, when the conditions so demand as determined by the legislature, property
rights must bow to the primacy of police power because property rights, though
sheltered by due process, must yield to general welfare. Police power as an attribute to
promote the common good would be diluted considerably if on the mere plea of
petitioners that they will suffer loss of earnings and capital, the questioned provision is
invalidated. Moreover, in the absence of evidence demonstrating the alleged
confiscatory effect of the provision in question, there is no basis for its nullification in
view of the presumption of validity which every law has in its favor. Given these, it is
incorrect for petitioners to insist that the grant of the senior citizen discount is unduly
oppressive to their business, because petitioners have not taken time to calculate
correctly and come up with a financial report, so that they have not been able to show
properly whether or not the tax deduction scheme really works greatly to their
disadvantage. In treating the discount as a tax deduction, petitioners insist that they
will incur losses because, referring to the DOF Opinion, for every ₱1.00 senior citizen
discount that petitioners would give, P0.68 will be shouldered by them as only P0.32
will be refunded by the government by way of a tax deduction. To illustrate this point,
petitioner Carlos Super Drug cited the anti-hypertensive maintenance drug Norvasc as
an example. According to the latter, it acquires Norvasc from the distributors at ₱37.57
per tablet, and retails it at ₱39.60 (or at a margin of 5%). If it grants a 20% discount to
senior citizens or an amount equivalent to ₱7.92, then it would have to sell Norvasc at
₱31.68 which translates to a loss from capital of ₱5.89 per tablet. Even if the
government will allow a tax deduction, only ₱2.53 per tablet will be refunded and not
the full amount of the discount which is ₱7.92. In short, only 32% of the 20% discount
will be reimbursed to the drugstores. Petitioners’ computation is flawed. For purposes of
reimbursement, the law states that the cost of the discount shall be deducted from
gross income, the amount of income derived from all sources before deducting
allowable expenses, which will result in net income. Here, petitioners tried to show a
loss on a per transaction basis, which should not be the case. An income statement,
showing an accounting of petitioners' sales, expenses, and net profit (or loss) for a
given period could have accurately reflected the effect of the discount on their income.
Absent any financial statement, petitioners cannot substantiate their claim that they will
be operating at a loss should they give the discount. In addition, the computation was
erroneously based on the assumption that their customers consisted wholly of senior
citizens. Lastly, the 32% tax rate is to be imposed on income, not on the amount of the
discount.

Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the
prices of their medicines given the cutthroat nature of the players in the industry. It is a
business decision on the part of petitioners to peg the mark-up at 5%. Selling the
medicines below acquisition cost, as alleged by petitioners, is merely a result of this
decision. Inasmuch as pricing is a property right, petitioners cannot reproach the law
for being oppressive, simply because they cannot afford to raise their prices for fear of
losing their customers to competition. The Court is not oblivious of the retail side of the
pharmaceutical industry and the competitive pricing component of the business. While
the Constitution protects property rights, petitioners must accept the realities of
business and the State, in the exercise of police power, can intervene in the operations
of a business which may result in an impairment of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of the
Constitution provides the precept for the protection of property, various laws and
jurisprudence, particularly on agrarian reform and the regulation of contracts and public
utilities, continuously serve as x x x reminder[s] that the right to property can be
relinquished upon the command of the State for the promotion of public good.
Undeniably, the success of the senior citizens program rests largely on the support
imparted by petitioners and the other private establishments concerned. This being the
case, the means employed in invoking the active participation of the private sector, in
order to achieve the purpose or objective of the law, is reasonably and directly related.
Without sufficient proof that Section 4 (a) of R.A. No. 9257 is arbitrary, and that the
continued implementation of the same would be unconscionably detrimental to
petitioners, the Court will refrain from quashing a legislative act.36 (Bold in the original;
underline supplied)

We, thus, found that the 20% discount as well as the tax deduction scheme is a valid
exercise of the police power of the State.

No compelling reason has been proffered to overturn, modify or abandon the ruling in
Carlos Superdrug Corporation.

Petitioners argue that we have previously ruled in Central Luzon Drug Corporation that
the 20% discount is an exercise of the power of eminent domain, thus, requiring the
payment of just compensation. They urge us to re-examine our ruling in Carlos
Superdrug Corporation which allegedly reversed the ruling in Central Luzon Drug
Corporation.
They also point out that Carlos Superdrug Corporation40 recognized that the tax
deduction scheme under the assailed law does not provide for sufficient just
compensation. We agree with petitioners’ observation that there are statements in
Central Luzon Drug Corporation41 describing the 20% discount as an exercise of the
power of eminent domain, viz.:

[T]he privilege enjoyed by senior citizens does not come directly from the State, but
rather from the private establishments concerned. Accordingly, the tax credit benefit
granted to these establishments can be deemed as their just compensation for private
property taken by the State for public use. The concept of public use is no longer
confined to the traditional notion of use by the public, but held synonymous with public
interest, public benefit, public welfare, and public convenience. The discount privilege to
which our senior citizens are entitled is actually a benefit enjoyed by the general public
to which these citizens belong. The discounts given would have entered the coffers and
formed part of the gross sales of the private establishments concerned, were it not for
RA 7432. The permanent reduction in their total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit. As a result of
the 20 percent discount imposed by RA 7432, respondent becomes entitled to a just
compensation. This term refers not only to the issuance of a tax credit certificate
indicating the correct amount of the discounts given, but also to the promptness in its
release. Equivalent to the payment of property taken by the State, such issuance —
when not done within a reasonable time from the grant of the discounts — cannot be
considered as just compensation. In effect, respondent is made to suffer the
consequences of being immediately deprived of its revenues while awaiting actual
receipt, through the certificate, of the equivalent amount it needs to cope with the
reduction in its revenues. Besides, the taxation power can also be used as an
implement for the exercise of the power of eminent domain. Tax measures are but
"enforced contributions exacted on pain of penal sanctions" and "clearly imposed for a
public purpose." In recent years, the power to tax has indeed become a most effective
tool to realize social justice, public welfare, and the equitable distribution of wealth.
While it is a declared commitment under Section 1 of RA 7432, social justice "cannot be
invoked to trample on the rights of property owners who under our Constitution and
laws are also entitled to protection. The social justice consecrated in our [C]onstitution
[is] not intended to take away rights from a person and give them to another who is
not entitled thereto." For this reason, a just compensation for income that is taken
away from respondent becomes necessary. It is in the tax credit that our legislators find
support to realize social justice, and no administrative body can alter that fact. To put it
differently, a private establishment that merely breaks even — without the discounts
yet — will surely start to incur losses because of such discounts. The same effect is
expected if its mark-up is less than 20 percent, and if all its sales come from retail
purchases by senior citizens. Aside from the observation we have already raised earlier,
it will also be grossly unfair to an establishment if the discounts will be treated merely
as deductions from either its gross income or its gross sales.1âwphi1 Operating at a
loss through no fault of its own, it will realize that the tax credit limitation under RR 2-
94 is inutile, if not improper. Worse, profit-generating businesses will be put in a better
position if they avail themselves of tax credits denied those that are losing, because no
taxes are due from the latter.42 (Italics in the original; emphasis supplied)

The above was partly incorporated in our ruling in Carlos Superdrug Corporation43
when we stated preliminarily that—

Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to
grant the discount will result in a loss of profit and capital because 1) drugstores
impose a mark-up of only 5% to 10% on branded medicines; and 2) the law failed to
provide a scheme whereby drugstores will be justly compensated for the discount.
Examining petitioners’ arguments, it is apparent that what petitioners are ultimately
questioning is the validity of the tax deduction scheme as a reimbursement mechanism
for the twenty percent (20%) discount that they extend to senior citizens. Based on the
afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse
petitioners for the discount privilege accorded to senior citizens. This is because the
discount is treated as a deduction, a tax-deductible expense that is subtracted from the
gross income and results in a lower taxable income. Stated otherwise, it is an amount
that is allowed by law to reduce the income prior to the application of the tax rate to
compute the amount of tax which is due. Being a tax deduction, the discount does not
reduce taxes owed on a peso for peso basis but merely offers a fractional reduction in
taxes owed. Theoretically, the treatment of the discount as a deduction reduces the net
income of the private establishments concerned. The discounts given would have
entered the coffers and formed part of the gross sales of the private establishments,
were it not for R.A. No. 9257. The permanent reduction in their total revenues is a
forced subsidy corresponding to the taking of private property for public use or benefit.
This constitutes compensable taking for which petitioners would ordinarily become
entitled to a just compensation. Just compensation is defined as the full and fair
equivalent of the property taken from its owner by the expropriator. The measure is not
the taker’s gain but the owner’s loss. The word just is used to intensify the meaning of
the word compensation, and to convey the idea that the equivalent to be rendered for
the property to be taken shall be real, substantial, full and ample. A tax deduction does
not offer full reimbursement of the senior citizen discount. As such, it would not meet
the definition of just compensation. Having said that, this raises the question of
whether the State, in promoting the health and welfare of a special group of citizens,
can impose upon private establishments the burden of partly subsidizing a government
program. The Court believes so.44

This, notwithstanding, we went on to rule in Carlos Superdrug Corporation45 that the

20% discount and tax deduction scheme is a valid exercise of the police power of the
State. The present case, thus, affords an opportunity for us to clarify the above-quoted
statements in Central Luzon Drug Corporation46 and Carlos Superdrug Corporation.47

First, we note that the above-quoted disquisition on eminent domain in Central Luzon
Drug Corporation48 is obiter dicta and, thus, not binding precedent. As stated earlier, in
Central Luzon Drug Corporation,49 we ruled that the BIR acted ultra vires when it
effectively treated the 20% discount as a tax deduction, under Sections 2.i and 4 of RR
No. 2-94, despite the clear wording of the previous law that the same should be treated
as a tax credit. We were, therefore, not confronted in that case with the issue as to
whether the 20% discount is an exercise of police power or eminent domain. Second,
although we adverted to Central Luzon Drug Corporation50 in our ruling in Carlos
Superdrug Corporation,51 this referred only to preliminary matters. A fair reading of
Carlos Superdrug Corporation52 would show that we categorically ruled therein that the
20% discount is a valid exercise of police power. Thus, even if the current law, through
its tax deduction scheme (which abandoned the tax credit scheme under the previous
law), does not provide for a peso for peso reimbursement of the 20% discount given by
private establishments, no constitutional infirmity obtains because, being a valid
exercise of police power, payment of just compensation is not warranted. We have
carefully reviewed the basis of our ruling in Carlos Superdrug Corporation53 and we
find no cogent reason to overturn, modify or abandon it. We also note that petitioners’
arguments are a mere reiteration of those raised and resolved in Carlos Superdrug
Corporation.54 Thus, we sustain Carlos Superdrug Corporation.55

Nonetheless, we deem it proper, in what follows, to amplify our explanation in Carlos

Superdrug Corporation56 as to why the 20% discount is a valid exercise of police power
and why it may not, under the specific circumstances of this case, be considered as an
exercise of the power of eminent domain contrary to the obiter in Central Luzon Drug
Corporation.57

Police power versus eminent domain.

Police power is the inherent power of the State to regulate or to restrain the use of
liberty and property for public welfare.58
The only limitation is that the restriction imposed should be reasonable, not
oppressive.59

In other words, to be a valid exercise of police power, it must have a lawful subject or
objective and a lawful method of accomplishing the goal.60

Under the police power of the State, "property rights of individuals may be subjected to
restraints and burdens in order to fulfill the objectives of the government."61

The State "may interfere with personal liberty, property, lawful businesses and
occupations to promote the general welfare [as long as] the interference [is] reasonable
and not arbitrary."62

Eminent domain, on the other hand, is the inherent power of the State to take or
appropriate private property for public use.63

The Constitution, however, requires that private property shall not be taken without due
process of law and the payment of just compensation.64

Traditional distinctions exist between police power and eminent domain. In the exercise
of police power, a property right is impaired by regulation,65 or the use of property is
merely prohibited, regulated or restricted66 to promote public welfare. In such cases,
there is no compensable taking, hence, payment of just compensation is not required.
Examples of these regulations are property condemned for being noxious or intended
for noxious purposes (e.g., a building on the verge of collapse to be demolished for
public safety, or obscene materials to be destroyed in the interest of public morals)67
as well as zoning ordinances prohibiting the use of property for purposes injurious to
the health, morals or safety of the community (e.g., dividing a city’s territory into
residential and industrial areas).68

It has, thus, been observed that, in the exercise of police power (as distinguished from
eminent domain), although the regulation affects the right of ownership, none of the
bundle of rights which constitute ownership is appropriated for use by or for the benefit
of the public.69

On the other hand, in the exercise of the power of eminent domain, property interests
are appropriated and applied to some public purpose which necessitates the payment of
just compensation therefor. Normally, the title to and possession of the property are
transferred to the expropriating authority. Examples include the acquisition of lands for
the construction of public highways as well as agricultural lands acquired by the
government under the agrarian reform law for redistribution to qualified farmer
beneficiaries. However, it is a settled rule that the acquisition of title or total destruction
of the property is not essential for "taking" under the power of eminent domain to be
present.70

Examples of these include establishment of easements such as where the land owner is
perpetually deprived of his proprietary rights because of the hazards posed by electric
transmission lines constructed above his property71 or the compelled interconnection of
the telephone system between the government and a private company.72

In these cases, although the private property owner is not divested of ownership or
possession, payment of just compensation is warranted because of the burden placed
on the property for the use or benefit of the public.

The 20% senior citizen discount is an exercise of police power.

It may not always be easy to determine whether a challenged governmental act is an

exercise of police power or eminent domain. The very nature of police power as elastic
and responsive to various social conditions as well as the evolving meaning and scope
of public use and just compensation in eminent domain evinces that these are not static
concepts. Because of the exigencies of rapidly changing times, Congress may be
compelled to adopt or experiment with different measures to promote the general
welfare which may not fall squarely within the traditionally recognized categories of
police power and eminent domain. The judicious approach, therefore, is to look at the
nature and effects of the challenged governmental act and decide, on the basis thereof,
whether the act is the exercise of police power or eminent domain. Thus, we now look
at the nature and effects of the 20% discount to determine if it constitutes an exercise
of police power or eminent domain.

The 20% discount is intended to improve the welfare of senior citizens who, at their
age, are less likely to be gainfully employed, more prone to illnesses and other
disabilities, and, thus, in need of subsidy in purchasing basic commodities. It may not
be amiss to mention also that the discount serves to honor senior citizens who
presumably spent the productive years of their lives on contributing to the development
and progress of the nation. This distinct cultural Filipino practice of honoring the elderly
is an integral part of this law. As to its nature and effects, the 20% discount is a
regulation affecting the ability of private establishments to price their products and
services relative to a special class of individuals, senior citizens, for which the
Constitution affords preferential concern.

In turn, this affects the amount of profits or income/gross sales that a private
establishment can derive from senior citizens. In other words, the subject regulation
affects the pricing, and, hence, the profitability of a private establishment. However, it
does not purport to appropriate or burden specific properties, used in the operation or
conduct of the business of private establishments, for the use or benefit of the public,
or senior citizens for that matter, but merely regulates the pricing of goods and services
relative to, and the amount of profits or income/gross sales that such private
establishments may derive from, senior citizens. The subject regulation may be said to
be similar to, but with substantial distinctions from, price control or rate of return on
investment control laws which are traditionally regarded as police power measures.

These laws generally regulate public utilities or industries/enterprises imbued with

public interest in order to protect consumers from exorbitant or unreasonable pricing as
well as temper corporate greed by controlling the rate of return on investment of these
corporations considering that they have a monopoly over the goods or services that
they provide to the general public. The subject regulation differs therefrom in that (1)
the discount does not prevent the establishments from adjusting the level of prices of
their goods and services, and (2) the discount does not apply to all customers of a
given establishment but only to the class of senior citizens. Nonetheless, to the degree
material to the resolution of this case, the 20% discount may be properly viewed as
belonging to the category of price regulatory measures which affect the profitability of
establishments subjected thereto. On its face, therefore, the subject regulation is a
police power measure. The obiter in Central Luzon Drug Corporation, however,
describes the 20% discount as an exercise of the power of eminent domain and the tax
credit, under the previous law, equivalent to the amount of discount given as the just
compensation therefor. The reason is that (1) the discount would have formed part of
the gross sales of the establishment were it not for the law prescribing the 20%
discount, and (2) the permanent reduction in total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit. The flaw in this
reasoning is in its premise. It presupposes that the subject regulation, which impacts
the pricing and, hence, the profitability of a private establishment, automatically
amounts to a deprivation of property without due process of law. If this were so, then
all price and rate of return on investment control laws would have to be invalidated
because they impact, at some level, the regulated establishment’s profits or
income/gross sales, yet there is no provision for payment of just compensation. It
would also mean that overnment cannot set price or rate of return on investment limits,
which reduce the profits or income/gross sales of private establishments, if no just
compensation is paid even if the measure is not confiscatory. The obiter is, thus, at
odds with the settled doctrine that the State can employ police power measures to
regulate the pricing of goods and services, and, hence, the profitability of business
establishments in order to pursue legitimate State objectives for the common good,
provided that the regulation does not go too far as to amount to "taking."
In City of Manila v. Laguio, Jr.,80 we recognized that— x x x a taking also could be
found if government regulation of the use of property went "too far." When regulation
reaches a certain magnitude, in most if not in all cases there must be an exercise of
eminent domain and compensation to support the act. While property may be regulated
to a certain extent, if regulation goes too far it will be recognized as a taking. No
formula or rule can be devised to answer the questions of what is too far and when
regulation becomes a taking. In Mahon, Justice Holmes recognized that it was "a
question of degree and therefore cannot be disposed of by general propositions." On
many other occasions as well, the U.S. Supreme Court has said that the issue of when
regulation constitutes a taking is a matter of considering the facts in each case. The
Court asks whether justice and fairness require that the economic loss caused by public
action must be compensated by the government and thus borne by the public as a
whole, or whether the loss should remain concentrated on those few persons subject to
the public action.81

The impact or effect of a regulation, such as the one under consideration, must, thus,
be determined on a case-to-case basis. Whether that line between permissible
regulation under police power and "taking" under eminent domain has been crossed
must, under the specific circumstances of this case, be subject to proof and the one
assailing the constitutionality of the regulation carries the heavy burden of proving that
the measure is unreasonable, oppressive or confiscatory. The time-honored rule is that
the burden of proving the unconstitutionality of a law rests upon the one assailing it
and "the burden becomes heavier when police power is at issue."82

The 20% senior citizen discount has not been shown to be unreasonable, oppressive or
confiscatory.

In Alalayan v. National Power Corporation,83 petitioners, who were franchise holders of

electric plants, challenged the validity of a law limiting their allowable net profits to no
more than 12% per annum of their investments plus two-month operating expenses. In
rejecting their plea, we ruled that, in an earlier case, it was found that 12% is a
reasonable rate of return and that petitioners failed to prove that the aforesaid rate is
confiscatory in view of the presumption of constitutionality.84

We adopted a similar line of reasoning in Carlos Superdrug Corporation85 when we

ruled that petitioners therein failed to prove that the 20% discount is arbitrary,
oppressive or confiscatory. We noted that no evidence, such as a financial report, to
establish the impact of the 20% discount on the overall profitability of petitioners was
presented in order to show that they would be operating at a loss due to the subject
regulation or that the continued implementation of the law would be unconscionably
detrimental to the business operations of petitioners. In the case at bar, petitioners
proceeded with a hypothetical computation of the alleged loss that they will suffer
similar to what the petitioners in Carlos Superdrug Corporation86 did. Petitioners went
directly to this Court without first establishing the factual bases of their claims. Hence,
the present recourse must, likewise, fail. Because all laws enjoy the presumption of
constitutionality, courts will uphold a law’s validity if any set of facts may be conceived
to sustain it.87

On its face, we find that there are at least two conceivable bases to sustain the subject
regulation’s validity absent clear and convincing proof that it is unreasonable,
oppressive or confiscatory. Congress may have legitimately concluded that business
establishments have the capacity to absorb a decrease in profits or income/gross sales
due to the 20% discount without substantially affecting the reasonable rate of return on
their investments considering (1) not all customers of a business establishment are
senior citizens and (2) the level of its profit margins on goods and services offered to
the general public. Concurrently, Congress may have, likewise, legitimately concluded
that the establishments, which will be required to extend the 20% discount, have the
capacity to revise their pricing strategy so that whatever reduction in profits or
income/gross sales that they may sustain because of sales to senior citizens, can be
recouped through higher mark-ups or from other products not subject of discounts. As
a result, the discounts resulting from sales to senior citizens will not be confiscatory or
unduly oppressive. In sum, we sustain our ruling in Carlos Superdrug Corporation88
that the 20% senior citizen discount and tax deduction scheme are valid exercises of
police power of the State absent a clear showing that it is arbitrary, oppressive or
confiscatory.

Conclusion

In closing, we note that petitioners hypothesize, consistent with our previous

ratiocinations, that the discount will force establishments to raise their prices in order to
compensate for its impact on overall profits or income/gross sales. The general public,
or those not belonging to the senior citizen class, are, thus, made to effectively
shoulder the subsidy for senior citizens. This, in petitioners’ view, is unfair.

As already mentioned, Congress may be reasonably assumed to have foreseen this

eventuality. But, more importantly, this goes into the wisdom, efficacy and expediency
of the subject law which is not proper for judicial review. In a way, this law pursues its
social equity objective in a non-traditional manner unlike past and existing direct
subsidy programs of the government for the poor and marginalized sectors of our
society. Verily, Congress must be given sufficient leeway in formulating welfare
legislations given the enormous challenges that the government faces relative to,
among others, resource adequacy and administrative capability in implementing social
reform measures which aim to protect and uphold the interests of those most
vulnerable in our society. In the process, the individual, who enjoys the rights, benefits
and privileges of living in a democratic polity, must bear his share in supporting
measures intended for the common good. This is only fair. In fine, without the requisite
showing of a clear and unequivocal breach of the Constitution, the validity of the
assailed law must be sustained.

Refutation of the Dissent

The main points of Justice Carpio’s Dissent may be summarized as follows: (1) the
discussion on eminent domain in Central Luzon Drug Corporation89 is not obiter dicta ;
(2) allowable taking, in police power, is limited to property that is destroyed or placed
outside the commerce of man for public welfare; (3) the amount of mandatory discount
is private property within the ambit of Article III, Section 990 of the Constitution; and
(4) the permanent reduction in a private establishment’s total revenue, arising from the
mandatory discount, is a taking of private property for public use or benefit, hence, an
exercise of the power of eminent domain requiring the payment of just compensation. I
We maintain that the discussion on eminent domain in Central Luzon Drug
Corporation91 is obiter dicta. As previously discussed, in Central Luzon Drug
Corporation,92 the BIR, pursuant to Sections 2.i and 4 of RR No. 2-94, treated the
senior citizen discount in the previous law, RA 7432, as a tax deduction instead of a tax
credit despite the clear provision in that law which stated –

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to
the following:

a) The grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishment,
restaurants and recreation centers and purchase of medicines anywhere in the country:
Provided, That private establishments may claim the cost as tax credit; (Emphasis
supplied)

Thus, the Court ruled that the subject revenue regulation violated the law, viz:

The 20 percent discount required by the law to be given to senior citizens is a tax
credit, not merely a tax deduction from the gross income or gross sale of the
establishment concerned. A tax credit is used by a private establishment only after the
tax has been computed; a tax deduction, before the tax is computed. RA 7432
unconditionally grants a tax credit to all covered entities. Thus, the provisions of the
revenue regulation that withdraw or modify such grant are void. Basic is the rule that
administrative regulations cannot amend or revoke the law.

As can be readily seen, the discussion on eminent domain was not necessary in order to
arrive at this conclusion. All that was needed was to point out that the revenue
regulation contravened the law which it sought to implement. And, precisely, this was
done in Central Luzon Drug Corporation94 by comparing the wording of the previous
law vis-à-vis the revenue regulation; employing the rules of statutory construction; and
applying the settled principle that a regulation cannot amend the law it seeks to
implement. A close reading of Central Luzon Drug Corporation95 would show that the
Court went on to state that the tax credit "can be deemed" as just compensation only
to explain why the previous law provides for a tax credit instead of a tax deduction. The
Court surmised that the tax credit was a form of just compensation given to the
establishments covered by the 20% discount. However, the reason why the previous
law provided for a tax credit and not a tax deduction was not necessary to resolve the
issue as to whether the revenue regulation contravenes the law. Hence, the discussion
on eminent domain is obiter dicta.

A court, in resolving cases before it, may look into the possible purposes or reasons that
impelled the enactment of a particular statute or legal provision. However, statements
made relative thereto are not always necessary in resolving the actual controversies
presented before it. This was the case in Central Luzon Drug Corporation96 resulting in
that unfortunate statement that the tax credit "can be deemed" as just compensation.
This, in turn, led to the erroneous conclusion, by deductive reasoning, that the 20%
discount is an exercise of the power of eminent domain. The Dissent essentially adopts
this theory and reasoning which, as will be shown below, is contrary to settled
principles in police power and eminent domain analysis. II The Dissent discusses at
length the doctrine on "taking" in police power which occurs when private property is
destroyed or placed outside the commerce of man. Indeed, there is a whole class of
police power measures which justify the destruction of private property in order to
preserve public health, morals, safety or welfare. As earlier mentioned, these would
include a building on the verge of collapse or confiscated obscene materials as well as
those mentioned by the Dissent with regard to property used in violating a criminal
statute or one which constitutes a nuisance. In such cases, no compensation is
required. However, it is equally true that there is another class of police power
measures which do not involve the destruction of private property but merely regulate
its use. The minimum wage law, zoning ordinances, price control laws, laws regulating
the operation of motels and hotels, laws limiting the working hours to eight, and the
like would fall under this category. The examples cited by the Dissent, likewise, fall
under this category: Article 157 of the Labor Code, Sections 19 and 18 of the Social
Security Law, and Section 7 of the Pag-IBIG Fund Law. These laws merely regulate or,
to use the term of the Dissent, burden the conduct of the affairs of business
establishments. In such cases, payment of just compensation is not required because
they fall within the sphere of permissible police power measures. The senior citizen
discount law falls under this latter category. III The Dissent proceeds from the theory
that the permanent reduction of profits or income/gross sales, due to the 20%
discount, is a "taking" of private property for public purpose without payment of just
compensation. At the outset, it must be emphasized that petitioners never presented
any evidence to establish that they were forced to suffer enormous losses or operate at
a loss due to the effects of the assailed law. They came directly to this Court and
provided a hypothetical computation of the loss they would allegedly suffer due to the
operation of the assailed law. The central premise of the Dissent’s argument that the
20% discount results in a permanent reduction in profits or income/gross sales, or
forces a business establishment to operate at a loss is, thus, wholly unsupported by
competent evidence. To be sure, the Court can invalidate a law which, on its face, is
arbitrary, oppressive or confiscatory.97

But this is not the case here.

In the case at bar, evidence is indispensable before a determination of a constitutional

violation can be made because of the following reasons. First, the assailed law, by
imposing the senior citizen discount, does not take any of the properties used by a
business establishment like, say, the land on which a manufacturing plant is
constructed or the equipment being used to produce goods or services. Second, rather
than taking specific properties of a business establishment, the senior citizen discount
law merely regulates the prices of the goods or services being sold to senior citizens by
mandating a 20% discount. Thus, if a product is sold at ₱10.00 to the general public,
then it shall be sold at ₱8.00 ( i.e., ₱10.00 less 20%) to senior citizens. Note that the
law does not impose at what specific price the product shall be sold, only that a 20%
discount shall be given to senior citizens based on the price set by the business
establishment. A business establishment is, thus, free to adjust the prices of the goods
or services it provides to the general public. Accordingly, it can increase the price of the
above product to ₱20.00 but is required to sell it at ₱16.00 (i.e. , ₱20.00 less 20%) to
senior citizens. Third, because the law impacts the prices of the goods or services of a
particular establishment relative to its sales to senior citizens, its profits or income/gross
sales are affected. The extent of the impact would, however, depend on the profit
margin of the business establishment on a particular good or service. If a product costs
₱5.00 to produce and is sold at ₱10.00, then the profit98 is ₱5.0099 or a profit
margin100 of 50%.101

Under the assailed law, the aforesaid product would have to be sold at ₱8.00 to senior
citizens yet the business would still earn ₱3.00102 or a 30%103 profit margin. On the
other hand, if the product costs ₱9.00 to produce and is required to be sold at ₱8.00 to
senior citizens, then the business would experience a loss of ₱1.00.104

But note that since not all customers of a business establishment are senior citizens, the
business establishment may continue to earn ₱1.00 from non-senior citizens which, in
turn, can offset any loss arising from sales to senior citizens.

Fourth, when the law imposes the 20% discount in favor of senior citizens, it does not
prevent the business establishment from revising its pricing strategy.

By revising its pricing strategy, a business establishment can recoup any reduction of
profits or income/gross sales which would otherwise arise from the giving of the 20%
discount. To illustrate, suppose A has two customers: X, a senior citizen, and Y, a non-
senior citizen. Prior to the law, A sells his products at ₱10.00 a piece to X and Y
resulting in income/gross sales of ₱20.00 (₱10.00 + ₱10.00). With the passage of the
law, A must now sell his product to X at ₱8.00 (i.e., ₱10.00 less 20%) so that his
income/gross sales would be ₱18.00 (₱8.00 + ₱10.00) or lower by ₱2.00. To prevent
this from happening, A decides to increase the price of his products to ₱11.11 per
piece. Thus, he sells his product to X at ₱8.89 (i.e. , ₱11.11 less 20%) and to Y at
₱11.11. As a result, his income/gross sales would still be ₱20.00105 (₱8.89 + ₱11.11).
The capacity, then, of business establishments to revise their pricing strategy makes it
possible for them not to suffer any reduction in profits or income/gross sales, or, in the
alternative, mitigate the reduction of their profits or income/gross sales even after the
passage of the law. In other words, business establishments have the capacity to adjust
their prices so that they may remain profitable even under the operation of the assailed
law.

The Dissent, however, states that – The explanation by the majority that private
establishments can always increase their prices to recover the mandatory discount will
only encourage private establishments to adjust their prices upwards to the prejudice of
customers who do not enjoy the 20% discount. It was likewise suggested that if a
company increases its prices, despite the application of the 20% discount, the
establishment becomes more profitable than it was before the implementation of R.A.
7432. Such an economic justification is self-defeating, for more consumers will suffer
from the price increase than will benefit from the 20% discount. Even then, such ability
to increase prices cannot legally validate a violation of the eminent domain clause.106
But, if it is possible that the business establishment, by adjusting its prices, will suffer
no reduction in its profits or income/gross sales (or suffer some reduction but continue
to operate profitably) despite giving the discount, what would be the basis to strike
down the law? If it is possible that the business establishment, by adjusting its prices,
will not be unduly burdened, how can there be a finding that the assailed law is an
unconstitutional exercise of police power or eminent domain? That there may be a
burden placed on business establishments or the consuming public as a result of the
operation of the assailed law is not, by itself, a ground to declare it unconstitutional for
this goes into the wisdom and expediency of the law.

The cost of most, if not all, regulatory measures of the government on business
establishments is ultimately passed on to the consumers but that, by itself, does not
justify the wholesale nullification of these measures. It is a basic postulate of our
democratic system of government that the Constitution is a social contract whereby the
people have surrendered their sovereign powers to the State for the common good.107

All persons may be burdened by regulatory measures intended for the common good or
to serve some important governmental interest, such as protecting or improving the
welfare of a special class of people for which the Constitution affords preferential
concern. Indubitably, the one assailing the law has the heavy burden of proving that
the regulation is unreasonable, oppressive or confiscatory, or has gone "too far" as to
amount to a "taking." Yet, here, the Dissent would have this Court nullify the law
without any proof of such nature.

Further, this Court is not the proper forum to debate the economic theories or realities
that impelled Congress to shift from the tax credit to the tax deduction scheme. It is not
within our power or competence to judge which scheme is more or less burdensome to
business establishments or the consuming public and, thereafter, to choose which
scheme the State should use or pursue. The shift from the tax credit to tax deduction
scheme is a policy determination by Congress and the Court will respect it for as long as
there is no showing, as here, that the subject regulation has transgressed constitutional
limitations. Unavoidably, the lack of evidence constrains the Dissent to rely on
speculative and hypothetical argumentation when it states that the 20% discount is a
significant amount and not a minimal loss (which erroneously assumes that the discount
automatically results in a loss when it is possible that the profit margin is greater than
20% and/or the pricing strategy can be revised to prevent or mitigate any reduction in
profits or income/gross sales as illustrated above),108 and not all private
establishments make a 20% profit margin (which conversely implies that there are
those who make more and, thus, would not be greatly affected by this regulation).109
In fine, because of the possible scenarios discussed above, we cannot assume that the
20% discount results in a permanent reduction in profits or income/gross sales, much
less that business establishments are forced to operate at a loss under the assailed law.
And, even if we gratuitously assume that the 20% discount results in some degree of
reduction in profits or income/gross sales, we cannot assume that such reduction is
arbitrary, oppressive or confiscatory. To repeat, there is no actual proof to back up this
claim, and it could be that the loss suffered by a business establishment was
occasioned through its fault or negligence in not adapting to the effects of the assailed
law. The law uniformly applies to all business establishments covered thereunder. There
is, therefore, no unjust discrimination as the aforesaid business establishments are
faced with the same constraints. The necessity of proof is all the more pertinent in this
case because, as similarly observed by Justice Velasco in his Concurring Opinion, the
law has been in operation for over nine years now. However, the grim picture painted
by petitioners on the unconscionable losses to be indiscriminately suffered by business
establishments, which should have led to the closure of numerous business
establishments, has not come to pass. Verily, we cannot invalidate the assailed law
based on assumptions and conjectures. Without adequate proof, the presumption of
constitutionality must prevail. IV At this juncture, we note that the Dissent modified its
original arguments by including a new paragraph, to wit:

Section 9, Article III of the 1987 Constitution speaks of private property without any
distinction. It does not state that there should be profit before the taking of property is
subject to just compensation. The private property referred to for purposes of taking
could be inherited, donated, purchased, mortgaged, or as in this case, part of the gross
sales of private establishments. They are all private property and any taking should be
attended by corresponding payment of just compensation. The 20% discount granted
to senior citizens belong to private establishments, whether these establishments make
a profit or suffer a loss. In fact, the 20% discount applies to non-profit establishments
like country, social, or golf clubs which are open to the public and not only for exclusive
membership. The issue of profit or loss to the establishments is immaterial.110

Two things may be said of this argument. First, it contradicts the rest of the arguments
of the Dissent. After it states that the issue of profit or loss is immaterial, the Dissent
proceeds to argue that the 20% discount is not a minimal loss111 and that the 20%
discount forces business establishments to operate at a loss.112

Even the obiter in Central Luzon Drug Corporation,113 which the Dissent essentially
adopts and relies on, is premised on the permanent reduction of total revenues and the
loss that business establishments will be forced to suffer in arguing that the 20%
discount constitutes a "taking" under the power of eminent domain. Thus, when the
Dissent now argues that the issue of profit or loss is immaterial, it contradicts itself
because it later argues, in order to justify that there is a "taking" under the power of
eminent domain in this case, that the 20% discount forces business establishments to
suffer a significant loss or to operate at a loss. Second, this argument suffers from the
same flaw as the Dissent's original arguments. It is an erroneous characterization of the
20% discount. According to the Dissent, the 20% discount is part of the gross sales
and, hence, private property belonging to business establishments. However, as
previously discussed, the 20% discount is not private property actually owned and/or
used by the business establishment. It should be distinguished from properties like
lands or buildings actually used in the operation of a business establishment which, if
appropriated for public use, would amount to a "taking" under the power of eminent
domain. Instead, the 20% discount is a regulatory measure which impacts the pricing
and, hence, the profitability of business establishments. At the time the discount is
imposed, no particular property of the business establishment can be said to be
"taken." That is, the State does not acquire or take anything from the business
establishment in the way that it takes a piece of private land to build a public road.
While the 20% discount may form part of the potential profits or income/gross sales114
of the business establishment, as similarly characterized by Justice Bersamin in his
Concurring Opinion, potential profits or income/gross sales are not private property,
specifically cash or money, already belonging to the business establishment. They are a
mere expectancy because they are potential fruits of the successful conduct of the
business. Prior to the sale of goods or services, a business establishment may be
subject to State regulations, such as the 20% senior citizen discount, which may impact
the level or amount of profits or income/gross sales that can be generated by such
establishment. For this reason, the validity of the discount is to be determined based on
its overall effects on the operations of the business establishment.

Again, as previously discussed, the 20% discount does not automatically result in a
20% reduction in profits, or, to align it with the term used by the Dissent, the 20%
discount does not mean that a 20% reduction in gross sales necessarily results.
Because (1) the profit margin of a product is not necessarily less than 20%, (2) not all
customers of a business establishment are senior citizens, and (3) the establishment
may revise its pricing strategy, such reduction in profits or income/gross sales may be
prevented or, in the alternative, mitigated so that the business establishment continues
to operate profitably. Thus, even if we gratuitously assume that some degree of
reduction in profits or income/gross sales occurs because of the 20% discount, it does
not follow that the regulation is unreasonable, oppressive or confiscatory because the
business establishment may make the necessary adjustments to continue to operate
profitably. No evidence was presented by petitioners to show otherwise. In fact, no
evidence was presented by petitioners at all. Justice Leonen, in his Concurring and
Dissenting Opinion, characterizes "profits" (or income/gross sales) as an inchoate right.
Another way to view it, as stated by Justice Velasco in his Concurring Opinion, is that
the business establishment merely has a right to profits. The Constitution adverts to it
as the right of an enterprise to a reasonable return on investment.115

Undeniably, this right, like any other right, may be regulated under the police power of
the State to achieve important governmental objectives like protecting the interests and
improving the welfare of senior citizens. It should be noted though that potential profits
or income/gross sales are relevant in police power and eminent domain analyses
because they may, in appropriate cases, serve as an indicia when a regulation has gone
"too far" as to amount to a "taking" under the power of eminent domain. When the
deprivation or reduction of profits or income/gross sales is shown to be unreasonable,
oppressive or confiscatory, then the challenged governmental regulation may be
nullified for being a "taking" under the power of eminent domain. In such a case, it is
not profits or income/gross sales which are actually taken and appropriated for public
use. Rather, when the regulation causes an establishment to incur losses in an
unreasonable, oppressive or confiscatory manner, what is actually taken is capital and
the right of the business establishment to a reasonable return on investment. If the
business losses are not halted because of the continued operation of the regulation, this
eventually leads to the destruction of the business and the total loss of the capital
invested therein. But, again, petitioners in this case failed to prove that the subject
regulation is unreasonable, oppressive or confiscatory.

V.

The Dissent further argues that we erroneously used price and rate of return on
investment control laws to justify the senior citizen discount law. According to the
Dissent, only profits from industries imbued with public interest may be regulated
because this is a condition of their franchises. Profits of establishments without
franchises cannot be regulated permanently because there is no law regulating their
profits. The Dissent concludes that the permanent reduction of total revenues or gross
sales of business establishments without franchises is a taking of private property under
the power of eminent domain. In making this argument, it is unfortunate that the
Dissent quotes only a portion of the ponencia – The subject regulation may be said to
be similar to, but with substantial distinctions from, price control or rate of return on
investment control laws which are traditionally regarded as police power measures.
These laws generally regulate public utilities or industries/enterprises imbued with
public interest in order to protect consumers from exorbitant or unreasonable pricing as
well as temper corporate greed by controlling the rate of return on investment of these
corporations considering that they have a monopoly over the goods or services that
they provide to the general public. The subject regulation differs therefrom in that (1)
the discount does not prevent the establishments from adjusting the level of prices of
their goods and services, and (2) the discount does not apply to all customers of a
given establishment but only to the class of senior citizens. x x x116

The above paragraph, in full, states –

The subject regulation may be said to be similar to, but with substantial distinctions
from, price control or rate of return on investment control laws which are traditionally
regarded as police power measures. These laws generally regulate public utilities or
industries/enterprises imbued with public interest in order to protect consumers from
exorbitant or unreasonable pricing as well as temper corporate greed by controlling the
rate of return on investment of these corporations considering that they have a
monopoly over the goods or services that they provide to the general public. The
subject regulation differs therefrom in that (1) the discount does not prevent the
establishments from adjusting the level of prices of their goods and services, and (2)
the discount does not apply to all customers of a given establishment but only to the
class of senior citizens.

Nonetheless, to the degree material to the resolution of this case, the 20% discount
may be properly viewed as belonging to the category of price regulatory measures
which affects the profitability of establishments subjected thereto. (Emphasis supplied)

The point of this paragraph is to simply show that the State has, in the past, regulated
prices and profits of business establishments. In other words, this type of regulatory
measures is traditionally recognized as police power measures so that the senior citizen
discount may be considered as a police power measure as well. What is more, the
substantial distinctions between price and rate of return on investment control laws vis-
à-vis the senior citizen discount law provide greater reason to uphold the validity of the
senior citizen discount law. As previously discussed, the ability to adjust prices allows
the establishment subject to the senior citizen discount to prevent or mitigate any
reduction of profits or income/gross sales arising from the giving of the discount. In
contrast, establishments subject to price and rate of return on investment control laws
cannot adjust prices accordingly. Certainly, there is no intention to say that price and
rate of return on investment control laws are the justification for the senior citizen
discount law. Not at all. The justification for the senior citizen discount law is the
plenary powers of Congress. The legislative power to regulate business establishments
is broad and covers a wide array of areas and subjects. It is well within Congress’
legislative powers to regulate the profits or income/gross sales of industries and
enterprises, even those without franchises. For what are franchises but mere legislative
enactments? There is nothing in the Constitution that prohibits Congress from
regulating the profits or income/gross sales of industries and enterprises without
franchises. On the contrary, the social justice provisions of the Constitution enjoin the
State to regulate the "acquisition, ownership, use, and disposition" of property and its
increments.117

This may cover the regulation of profits or income/gross sales of all businesses, without
qualification, to attain the objective of diffusing wealth in order to protect and enhance
the right of all the people to human dignity.118

Thus, under the social justice policy of the Constitution, business establishments may
be compelled to contribute to uplifting the plight of vulnerable or marginalized groups in
our society provided that the regulation is not arbitrary, oppressive or confiscatory, or is
not in breach of some specific constitutional limitation. When the Dissent, therefore,
states that the "profits of private establishments which are non-franchisees cannot be
regulated permanently, and there is no such law regulating their profits
permanently,"119 it is assuming what it ought to prove. First, there are laws which, in
effect, permanently regulate profits or income/gross sales of establishments without
franchises, and RA 9257 is one such law. And, second, Congress can regulate such
profits or income/gross sales because, as previously noted, there is nothing in the
Constitution to prevent it from doing so. Here, again, it must be emphasized that
petitioners failed to present any proof to show that the effects of the assailed law on
their operations has been unreasonable, oppressive or confiscatory. The permanent
regulation of profits or income/gross sales of business establishments, even those
without franchises, is not as uncommon as the Dissent depicts it to be. For instance,
the minimum wage law allows the State to set the minimum wage of employees in a
given region or geographical area. Because of the added labor costs arising from the
minimum wage, a permanent reduction of profits or income/gross sales would result,
assuming that the employer does not increase the prices of his goods or services. To
illustrate, suppose it costs a company ₱5.00 to produce a product and it sells the same
at ₱10.00 with a 50% profit margin. Later, the State increases the minimum wage. As a
result, the company incurs greater labor costs so that it now costs ₱7.00 to produce the
same product. The profit per product of the company would be reduced to ₱3.00 with a
profit margin of 30%. The net effect would be the same as in the earlier example of
granting a 20% senior citizen discount. As can be seen, the minimum wage law could,
likewise, lead to a permanent reduction of profits. Does this mean that the minimum
wage law should, likewise, be declared unconstitutional on the mere plea that it results
in a permanent reduction of profits? Taking it a step further, suppose the company
decides to increase the price of its product in order to offset the effects of the increase
in labor cost; does this mean that the minimum wage law, following the reasoning of
the Dissent, is unconstitutional because the consuming public is effectively made to
subsidize the wage of a group of laborers, i.e., minimum wage earners? The same
reasoning can be adopted relative to the examples cited by the Dissent which,
according to it, are valid police power regulations. Article 157 of the Labor Code,
Sections 19 and 18 of the Social Security Law, and Section 7 of the Pag-IBIG Fund Law
would effectively increase the labor cost of a business establishment.1âwphi1 This
would, in turn, be integrated as part of the cost of its goods or services. Again, if the
establishment does not increase its prices, the net effect would be a permanent
reduction in its profits or income/gross sales. Following the reasoning of the Dissent
that "any form of permanent taking of private property (including profits or
income/gross sales)120 is an exercise of eminent domain that requires the State to pay
just compensation,"121 then these statutory provisions would, likewise, have to be
declared unconstitutional. It does not matter that these benefits are deemed part of the
employees’ legislated wages because the net effect is the same, that is, it leads to
higher labor costs and a permanent reduction in the profits or income/gross sales of the
business establishments.122

The point then is this – most, if not all, regulatory measures imposed by the State on
business establishments impact, at some level, the latter’s prices and/or profits or
income/gross sales.123

If the Court were to sustain the Dissent’s theory, then a wholesale nullification of such
measures would inevitably result. The police power of the State and the social justice
provisions of the Constitution would, thus, be rendered nugatory. There is nothing
sacrosanct about profits or income/gross sales. This, we made clear in Carlos Superdrug
Corporation:124

Police power as an attribute to promote the common good would be diluted

considerably if on the mere plea of petitioners that they will suffer loss of earnings and
capital, the questioned provision is invalidated. Moreover, in the absence of evidence
demonstrating the alleged confiscatory effect of the provision in question, there is no
basis for its nullification in view of the presumption of validity which every law has in its
favor.

xxxx

The Court is not oblivious of the retail side of the pharmaceutical industry and the
competitive pricing component of the business. While the Constitution protects property
rights petitioners must the realities of business and the State, in the exercise of police
power, can intervene in the operations of a business which may result in an impairment
of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of the
Constitution provides the percept for the protection of property, various laws and
jurisprudence, particularly on agrarian reform and the regulation of contracts and public
utilities, continously serve as a reminder for the promotion of public good.

Undeniably, the success of the senior citizens program rests largely on the support
imparted by petitioners and the other private establishments concerned. This being the
case, the means employed in invoking the active participation of the private sector, in
order to achieve the purpose or objective of the law, is reasonably and directly related.
Without sufficient proof that Section 4(a) of R.A. No. 9257 is arbitrary, and that the
continued implementation of the same would be unconscionably detrimental to
petitioners, the Court will refrain form quashing a legislative act.125

In conclusion, we maintain that the correct rule in determining whether the subject
regulatory measure has amounted to a "taking" under the power of eminent domain is
the one laid down in Alalayan v. National Power Corporation and followed in Carlos
Superdurg Corporation consistent with long standing principles in police power and
eminent domain analysis. Thus, the deprivation or reduction of profits or income. Gross
sales must be clearly shown to be unreasonable, oppressive or confiscatory. Under the
specific circumstances of this case, such determination can only be made upon the
presentation of competent proof which petitioners failed to do. A law, which has been in
operation for many years and promotes the welfare of a group accorded special
concern by the Constitution, cannot and should not be summarily invalidated on a mere
allegation that it reduces the profits or income/gross sales of business establishments.

WHEREFORE, the Petition is hereby DISMISSED for lack of merit.

SO ORDERED.

G.R. No. 159647 April 15, 2005

COMMISSIONER OF INTERNAL REVENUE, Petitioners,

vs.
CENTRAL LUZON DRUG CORPORATION, Respondent.

DECISION
PANGANIBAN, J.:

The 20 percent discount required by the law to be given to senior citizens is a tax
credit, not merely a tax deduction from the gross income or gross sale of the
establishment concerned. A tax credit is used by a private establishment only after the
tax has been computed; a tax deduction, before the tax is computed. RA 7432
unconditionally grants a tax credit to all covered entities. Thus, the provisions of the
revenue regulation that withdraw or modify such grant are void. Basic is the rule that
administrative regulations cannot amend or revoke the law.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set
aside the August 29, 2002 Decision2 and the August 11, 2003 Resolution3 of the Court
of Appeals (CA) in CA-GR SP No. 67439. The assailed Decision reads as follows:

"WHEREFORE, premises considered, the Resolution appealed from is AFFIRMED in

toto. No costs."4

The assailed Resolution denied petitioner’s Motion for Reconsideration.

The Facts

The CA narrated the antecedent facts as follows:

"Respondent is a domestic corporation primarily engaged in retailing of medicines and

other pharmaceutical products. In 1996, it operated six (6) drugstores under the
business name and style ‘Mercury Drug.’

"From January to December 1996, respondent granted twenty (20%) percent sales
discount to qualified senior citizens on their purchases of medicines pursuant to
Republic Act No. [R.A.] 7432 and its Implementing Rules and Regulations. For the said
period, the amount allegedly representing the 20% sales discount granted by
respondent to qualified senior citizens totaled ₱904,769.00.

"On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year
1996 declaring therein that it incurred net losses from its operations.

"On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in
the amount of ₱904,769.00 allegedly arising from the 20% sales discount granted by
respondent to qualified senior citizens in compliance with [R.A.] 7432. Unable to obtain
affirmative response from petitioner, respondent elevated its claim to the Court of Tax
Appeals [(CTA or Tax Court)] via a Petition for Review.
"On February 12, 2001, the Tax Court rendered a Decision5 dismissing respondent’s
Petition for lack of merit. In said decision, the [CTA] justified its ruling with the
following ratiocination:

‘x x x, if no tax has been paid to the government, erroneously or illegally, or if no

amount is due and collectible from the taxpayer, tax refund or tax credit is unavailing.
Moreover, whether the recovery of the tax is made by means of a claim for refund or
tax credit, before recovery is allowed[,] it must be first established that there was an
actual collection and receipt by the government of the tax sought to be recovered. x x
x.

‘x x x x x x x x x

‘Prescinding from the above, it could logically be deduced that tax credit is premised on
the existence of tax liability on the part of taxpayer. In other words, if there is no tax
liability, tax credit is not available.’

"Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed resolution,6
granted respondent’s motion for reconsideration and ordered herein petitioner to issue
a Tax Credit Certificate in favor of respondent citing the decision of the then Special
Fourth Division of [the CA] in CA G.R. SP No. 60057 entitled ‘Central [Luzon] Drug
Corporation vs. Commissioner of Internal Revenue’ promulgated on May 31, 2001, to
wit:

‘However, Sec. 229 clearly does not apply in the instant case because the tax sought to
be refunded or credited by petitioner was not erroneously paid or illegally collected. We
take exception to the CTA’s sweeping but unfounded statement that ‘both tax refund
and tax credit are modes of recovering taxes which are either erroneously or illegally
paid to the government.’ Tax refunds or credits do not exclusively pertain to illegally
collected or erroneously paid taxes as they may be other circumstances where a refund
is warranted. The tax refund provided under Section 229 deals exclusively with illegally
collected or erroneously paid taxes but there are other possible situations, such as the
refund of excess estimated corporate quarterly income tax paid, or that of excess input
tax paid by a VAT-registered person, or that of excise tax paid on goods locally
produced or manufactured but actually exported. The standards and mechanics for the
grant of a refund or credit under these situations are different from that under Sec.
229. Sec. 4[.a)] of R.A. 7432, is yet another instance of a tax credit and it does not in
any way refer to illegally collected or erroneously paid taxes, x x x.’"7

Ruling of the Court of Appeals

The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering
petitioner to issue a tax credit certificate in favor of respondent in the reduced amount
of ₱903,038.39. It reasoned that Republic Act No. (RA) 7432 required neither a tax
liability nor a payment of taxes by private establishments prior to the availment of a tax
credit. Moreover, such credit is not tantamount to an unintended benefit from the law,
but rather a just compensation for the taking of private property for public use.

Hence this Petition.8

The Issues

Petitioner raises the following issues for our consideration:

"Whether the Court of Appeals erred in holding that respondent may claim the 20%
sales discount as a tax credit instead of as a deduction from gross income or gross
sales.

"Whether the Court of Appeals erred in holding that respondent is entitled to a refund."9

These two issues may be summed up in only one: whether respondent, despite
incurring a net loss, may still claim the 20 percent sales discount as a tax credit.

The Court’s Ruling

The Petition is not meritorious.

Sole Issue:

Claim of 20 Percent Sales Discount

as Tax Credit Despite Net Loss

Section 4a) of RA 743210 grants to senior citizens the privilege of obtaining a 20 percent
discount on their purchase of medicine from any private establishment in the country.11
The latter may then claim the cost of the discount as a tax credit.12 But can such credit
be claimed, even though an establishment operates at a loss?

We answer in the affirmative.

Tax Credit versus

Tax Deduction

Although the term is not specifically defined in our Tax Code,13 tax credit generally
refers to an amount that is "subtracted directly from one’s total tax liability."14 It is an
"allowance against the tax itself"15 or "a deduction from what is owed"16 by a taxpayer
to the government. Examples of tax credits are withheld taxes, payments of estimated
tax, and investment tax credits.
Tax credit should be understood in relation to other tax concepts. One of these is tax
deduction -- defined as a subtraction "from income for tax purposes,"18 or an amount
that is "allowed by law to reduce income prior to [the] application of the tax rate to
compute the amount of tax which is due."19 An example of a tax deduction is any of the
allowable deductions enumerated in Section 3420 of the Tax Code.

A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax
due, including -- whenever applicable -- the income tax that is determined after
applying the corresponding tax rates to taxable income.21 A tax deduction, on the other,
reduces the income that is subject to tax22 in order to arrive at taxable income.23 To
think of the former as the latter is to avoid, if not entirely confuse, the issue. A tax
credit is used only after the tax has been computed; a tax deduction, before.

Tax Liability Required

for Tax Credit

Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax
liability before the tax credit can be applied. Without that liability, any tax credit
application will be useless. There will be no reason for deducting the latter when there
is, to begin with, no existing obligation to the government. However, as will be
presented shortly, the existence of a tax credit or its grant by law is not the same as
the availment or use of such credit. While the grant is mandatory, the availment or use
is not.

If a net loss is reported by, and no other taxes are currently due from, a business
establishment, there will obviously be no tax liability against which any tax credit can be
applied.24 For the establishment to choose the immediate availment of a tax credit will
be premature and impracticable. Nevertheless, the irrefutable fact remains that, under
RA 7432, Congress has granted without conditions a tax credit benefit to all covered
establishments.

Although this tax credit benefit is available, it need not be used by losing ventures,
since there is no tax liability that calls for its application. Neither can it be reduced to nil
by the quick yet callow stroke of an administrative pen, simply because no reduction of
taxes can instantly be effected. By its nature, the tax credit may still be deducted from
a future, not a present, tax liability, without which it does not have any use. In the
meantime, it need not move. But it breathes.

Prior Tax Payments Not

Required for Tax Credit

While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not. On the contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete
with provisions granting or allowing tax credits, even though no taxes have been
previously paid.

For example, in computing the estate tax due, Section 86(E) allows a tax credit --
subject to certain limitations -- for estate taxes paid to a foreign country. Also found in
Section 101(C) is a similar provision for donor’s taxes -- again when paid to a foreign
country -- in computing for the donor’s tax due. The tax credits in both instances allude
to the prior payment of taxes, even if not made to our government.

Under Section 110, a VAT (Value-Added Tax)- registered person engaging in

transactions -- whether or not subject to the VAT -- is also allowed a tax credit that
includes a ratable portion of any input tax not directly attributable to either activity. This
input tax may either be the VAT on the purchase or importation of goods or services
that is merely due from -- not necessarily paid by -- such VAT-registered person in the
course of trade or business; or the transitional input tax determined in accordance with
Section 111(A). The latter type may in fact be an amount equivalent to only eight
percent of the value of a VAT-registered person’s beginning inventory of goods,
materials and supplies, when such amount -- as computed -- is higher than the actual
VAT paid on the said items.25 Clearly from this provision, the tax credit refers to an
input tax that is either due only or given a value by mere comparison with the VAT
actually paid -- then later prorated. No tax is actually paid prior to the availment of such
credit.

In Section 111(B), a one and a half percent input tax credit that is merely presumptive
is allowed. For the purchase of primary agricultural products used as inputs -- either in
the processing of sardines, mackerel and milk, or in the manufacture of refined sugar
and cooking oil -- and for the contract price of public work contracts entered into with
the government, again, no prior tax payments are needed for the use of the tax credit.

More important, a VAT-registered person whose sales are zero-rated or effectively zero-
rated may, under Section 112(A), apply for the issuance of a tax credit certificate for
the amount of creditable input taxes merely due -- again not necessarily paid to -- the
government and attributable to such sales, to the extent that the input taxes have not
been applied against output taxes.26 Where a taxpayer
is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt
sales, the amount of creditable input taxes due that are not directly and entirely
attributable to any one of these transactions shall be proportionately allocated on the
basis of the volume of sales. Indeed, in availing of such tax credit for VAT purposes,
this provision -- as well as the one earlier mentioned -- shows that the prior payment of
taxes is not a requisite.

It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a
tax credit allowed, even though no prior tax payments are not required. Specifically, in
this provision, the imposition of a final withholding tax rate on cash and/or property
dividends received by a nonresident foreign corporation from a domestic corporation is
subjected to the condition that a foreign tax credit will be given by the domiciliary
country in an amount equivalent to taxes that are merely deemed paid.27 Although true,
this provision actually refers to the tax credit as a condition only for the imposition of a
lower tax rate, not as a deduction from the corresponding tax liability. Besides, it is not
our government but the domiciliary country that credits against the income tax payable
to the latter by the foreign corporation, the tax to be foregone or spared.28

In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as

credits, against the income tax imposable under Title II, the amount of income taxes
merely incurred -- not necessarily paid -- by a domestic corporation during a taxable
year in any foreign country. Moreover, Section 34(C)(5) provides that for such taxes
incurred but not paid, a tax credit may be allowed, subject to the condition precedent
that the taxpayer shall simply give a bond with sureties satisfactory to and approved by
petitioner, in such sum as may be required; and further conditioned upon payment by
the taxpayer of any tax found due, upon petitioner’s redetermination of it.

In addition to the above-cited provisions in the Tax Code, there are also tax treaties
and special laws that grant or allow tax credits, even though no prior tax payments
have been made.

Under the treaties in which the tax credit method is used as a relief to avoid double
taxation, income that is taxed in the state of source is also taxable in the state of
residence, but the tax paid in the former is merely allowed as a credit against the tax
levied in the latter.29 Apparently, payment is made to the state of source, not the state
of residence. No tax, therefore, has been previously paid to the latter.

Under special laws that particularly affect businesses, there can also be tax credit
incentives. To illustrate, the incentives provided for in Article 48 of Presidential Decree
No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, include tax credits
equivalent to either five percent of the net value earned, or five or ten percent of the
net local content of exports.30 In order to avail of such credits under the said law and
still achieve its objectives, no prior tax payments are necessary.

From all the foregoing instances, it is evident that prior tax payments are not
indispensable to the availment of a tax credit. Thus, the CA correctly held that the
availment under RA 7432 did not require prior tax payments by private establishments
concerned.31 However, we do not agree with its finding32 that the carry-over of tax
credits under the said special law to succeeding taxable periods, and even their
application against internal revenue taxes, did not necessitate the existence of a tax
liability.
The examples above show that a tax liability is certainly important in the availment or
use, not the existence or grant, of a tax credit. Regarding this matter, a private
establishment reporting a net loss in its financial statements is no different from
another that presents a net income. Both are entitled to the tax credit provided for
under RA 7432, since the law itself accords that unconditional benefit. However, for the
losing establishment to immediately apply such credit, where no tax is due, will be an
improvident usance.

Sections 2.i and 4 of Revenue

Regulations No. 2-94 Erroneous

RA 7432 specifically allows private establishments to claim as tax credit the amount of
discounts they grant.33 In turn, the Implementing Rules and Regulations, issued
pursuant thereto, provide the procedures for its availment.34 To deny such credit,
despite the plain mandate of the law and the regulations carrying out that mandate, is
indefensible.

First, the definition given by petitioner is erroneous. It refers to tax credit as the
amount representing the 20 percent discount that "shall be deducted by the said
establishments from their gross income for income tax purposes and from their gross
sales for value-added tax or other percentage tax purposes."35 In ordinary business
language, the tax credit represents the amount of such discount. However, the manner
by which the discount shall be credited against taxes has not been clarified by the
revenue regulations.

By ordinary acceptation, a discount is an "abatement or reduction made from the gross

amount or value of anything."36 To be more precise, it is in business parlance "a
deduction or lowering of an amount of money;"37 or "a reduction from the full amount
or value of something, especially a price."38 In business there are many kinds of
discount, the most common of which is that affecting the income statement39 or
financial report upon which the income tax is based.

Business Discounts

Deducted from Gross Sales

A cash discount, for example, is one granted by business establishments to credit

customers for their prompt payment.40 It is a "reduction in price offered to the
purchaser if payment is made within a shorter period of time than the maximum time
specified."41 Also referred to as a sales discount on the part of the seller and a purchase
discount on the part of the buyer, it may be expressed in such
terms as "5/10, n/30."42
A quantity discount, however, is a "reduction in price allowed for purchases made in
large quantities, justified by savings in packaging, shipping, and handling."43 It is also
called a volume or bulk discount.44

A "percentage reduction from the list price x x x allowed by manufacturers to

wholesalers and by wholesalers to retailers"45 is known as a trade discount. No entry for
it need be made in the manual or computerized books of accounts, since the purchase
or sale is already valued at the net price actually charged the buyer.46 The purpose for
the discount is to encourage trading or increase sales, and the prices at which the
purchased goods may be resold are also suggested.47 Even a chain discount -- a series
of discounts from one list price -- is recorded at net.48

Finally, akin to a trade discount is a functional discount. It is "a supplier’s price discount
given to a purchaser based on the [latter’s] role in the [former’s] distribution system."49
This role usually involves warehousing or advertising.

Based on this discussion, we find that the nature of a sales discount is peculiar.
Applying generally accepted accounting principles (GAAP) in the country, this type of
discount is reflected in the income statement50 as a line item deducted -- along with
returns, allowances, rebates and other similar expenses -- from gross sales to arrive at
net sales.51 This type of presentation is resorted to, because the accounts receivable
and sales figures that arise from sales discounts, -- as well as from quantity, volume or
bulk discounts -- are recorded in the manual and computerized books of accounts and
reflected in the financial statements at the gross amounts of the invoices.52 This manner
of recording credit sales -- known as the gross method -- is most widely used, because
it is simple, more convenient to apply than the net method, and produces no material
errors over time.53

However, under the net method used in recording trade, chain or functional discounts,
only the net amounts of the invoices -- after the discounts have been deducted -- are
recorded in the books of accounts54 and reflected in the financial statements. A separate
line item cannot be shown,55 because the transactions themselves involving both
accounts receivable and sales have already been entered into, net of the said discounts.

The term sales discounts is not expressly defined in the Tax Code, but one provision
adverts to amounts whose sum -- along with sales returns, allowances and cost of
goods sold56 -- is deducted from gross sales to come up with the gross income, profit or
margin57 derived from business.58 In another provision therein, sales discounts that are
granted and indicated in the invoices at the time of sale -- and that do not depend upon
the happening of any future event -- may be excluded from the gross sales within the
same quarter they were given.59 While determinative only of the VAT, the latter
provision also appears as a suitable reference point for income tax purposes already
embraced in the former. After all, these two provisions affirm that sales discounts are
amounts that are always deductible from gross sales.
Reason for the Senior Citizen Discount:

The Law, Not Prompt Payment

A distinguishing feature of the implementing rules of RA 7432 is the private

establishment’s outright deduction of the discount from the invoice price of the
medicine sold to the senior citizen.60 It is, therefore, expected that for each retail sale
made under this law, the discount period lasts no more than a day, because such
discount is given -- and the net amount thereof collected -- immediately upon
perfection of the sale.61 Although prompt payment is made for an arm’s-length
transaction by the senior citizen, the real and compelling reason for the private
establishment giving the discount is that the law itself makes it mandatory.

What RA 7432 grants the senior citizen is a mere discount privilege, not a sales
discount or any of the above discounts in particular. Prompt payment is not the reason
for (although a necessary consequence of) such grant. To be sure, the privilege
enjoyed by the senior citizen must be equivalent to the tax credit benefit enjoyed by the
private establishment granting the discount. Yet, under the revenue regulations
promulgated by our tax authorities, this benefit has been erroneously likened and
confined to a sales discount.

To a senior citizen, the monetary effect of the privilege may be the same as that
resulting from a sales discount. However, to a private establishment, the effect is
different from a simple reduction in price that results from such discount. In other
words, the tax credit benefit is not the same as a sales discount. To repeat from our
earlier discourse, this benefit cannot and should not be treated as a tax deduction.

To stress, the effect of a sales discount on the income statement and income tax return
of an establishment covered by RA 7432 is different from that resulting from the
availment or use of its tax credit benefit. While the former is a deduction before, the
latter is a deduction after, the income tax is computed. As mentioned earlier, a discount
is not necessarily a sales discount, and a tax credit for a simple discount privilege
should not be automatically treated like a sales discount. Ubi lex non distinguit, nec nos
distinguere debemus. Where the law does not distinguish, we ought not to distinguish.

Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20
percent discount deductible from gross income for income tax purposes, or from gross
sales for VAT or other percentage tax purposes. In effect, the tax credit benefit under
RA 7432 is related to a sales discount. This contrived definition is improper, considering
that the latter has to be deducted from gross sales in order to compute the gross
income in the income statement and cannot be deducted again, even for purposes of
computing the income tax.
When the law says that the cost of the discount may be claimed as a tax credit, it
means that the amount -- when claimed -- shall be treated as a reduction from any tax
liability, plain and simple. The option to avail of the tax credit benefit depends upon the
existence of a tax liability, but to limit the benefit to a sales discount -- which is not
even identical to the discount privilege that is granted by law -- does not define it at all
and serves no useful purpose. The definition must, therefore, be stricken down.

Laws Not Amended

by Regulations

Second, the law cannot be amended by a mere regulation. In fact, a regulation that
"operates to create a rule out of harmony with the statute is a mere nullity";62 it cannot
prevail.

It is a cardinal rule that courts "will and should respect the contemporaneous
construction placed upon a statute by the executive officers whose duty it is to enforce
it x x x."63 In the scheme of judicial tax administration, the need for certainty and
predictability in the implementation of tax laws is crucial.64 Our tax authorities fill in the
details that "Congress may not have the opportunity or competence to provide."65 The
regulations these authorities issue are relied upon by taxpayers, who are certain that
these will be followed by the courts.66 Courts, however, will not uphold these
authorities’ interpretations when clearly absurd, erroneous or improper.

In the present case, the tax authorities have given the term tax credit in Sections 2.i
and 4 of RR 2-94 a meaning utterly in contrast to what RA 7432 provides. Their
interpretation has muddled up the intent of Congress in granting a mere discount
privilege, not a sales discount. The administrative agency issuing these regulations may
not enlarge, alter or restrict the provisions of the law it administers; it cannot engraft
additional requirements not contemplated by the legislature.67

In case of conflict, the law must prevail.68 A "regulation adopted pursuant to law is
law."69 Conversely, a regulation or any portion thereof not adopted pursuant to law is
no law and has neither the force nor the effect of law.70

Availment of Tax

Credit Voluntary

Third, the word may in the text of the statute71 implies that the
availability of the tax credit benefit is neither unrestricted nor mandatory.72 There is no
absolute right conferred upon respondent, or any similar taxpayer, to avail itself of the
tax credit remedy whenever it chooses; "neither does it impose a duty on the part of
the government to sit back and allow an important facet of tax collection to be at the
sole control and discretion of the taxpayer."73 For the tax authorities to compel
respondent to deduct the 20 percent discount from either its gross income or its gross
sales74 is, therefore, not only to make an imposition without basis in law, but also to
blatantly contravene the law itself.

What Section 4.a of RA 7432 means is that the tax credit benefit is merely permissive,
not imperative. Respondent is given two options -- either to claim or not to claim the
cost of the discounts as a tax credit. In fact, it may even ignore the credit and simply
consider the gesture as an act of beneficence, an expression of its social conscience.

Granting that there is a tax liability and respondent claims such cost as a tax credit,
then the tax credit can easily be applied. If there is none, the credit cannot be used and
will just have to be carried over and revalidated75 accordingly. If, however, the business
continues to operate at a loss and no other taxes are due, thus compelling it to close
shop, the credit can never be applied and will be lost altogether.

In other words, it is the existence or the lack of a tax liability that determines whether
the cost of the discounts can be used as a tax credit. RA 7432 does not give respondent
the unfettered right to avail itself of the credit whenever it pleases. Neither does it allow
our tax administrators to expand or contract the legislative mandate. "The ‘plain
meaning rule’ or verba legis in statutory construction is thus applicable x x x. Where the
words of a statute are clear, plain and free from ambiguity, it must be given its literal
meaning and applied without attempted interpretation."76

Tax Credit Benefit

Deemed Just Compensation

Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of
eminent domain. Be it stressed that the privilege enjoyed by senior citizens does not
come directly from the State, but rather from the private establishments concerned.
Accordingly, the tax credit benefit granted to these establishments can be deemed as
their just compensation for private property taken by the State for public use.77

The concept of public use is no longer confined to the traditional notion of use by the
public, but held synonymous with public interest, public benefit, public welfare, and
public convenience.78 The discount privilege to which our senior citizens are entitled is
actually a benefit enjoyed by the general public to which these citizens belong. The
discounts given would have entered the coffers and formed part of the gross sales of
the private establishments concerned, were it not for RA 7432. The permanent
reduction in their total revenues is a forced subsidy corresponding to the taking of
private property for public use or benefit.

As a result of the 20 percent discount imposed by RA 7432, respondent becomes

entitled to a just compensation. This term refers not only to the issuance of a tax credit
certificate indicating the correct amount of the discounts given, but also to the
promptness in its release. Equivalent to the payment of property taken by the State,
such issuance -- when not done within a reasonable time from the grant of the
discounts -- cannot be considered as just compensation. In effect, respondent is made
to suffer the consequences of being immediately deprived of its revenues while awaiting
actual receipt, through the certificate, of the equivalent amount it needs to cope with
the reduction in its revenues.79

Besides, the taxation power can also be used as an implement for the exercise of the
power of eminent domain.80 Tax measures are but "enforced contributions exacted on
pain of penal sanctions"81 and "clearly imposed for a public purpose."82 In recent years,
the power to tax has indeed become a most effective tool to realize social justice, public
welfare, and the equitable distribution of wealth.83

While it is a declared commitment under Section 1 of RA 7432, social justice "cannot be

invoked to trample on the rights of property owners who under our Constitution and
laws are also entitled to protection. The social justice consecrated in our [C]onstitution
[is] not intended to take away rights from a person and give them to another who is
not entitled thereto."84 For this reason, a just compensation for income that is taken
away from respondent becomes necessary. It is in the tax credit that our legislators find
support to realize social justice, and no administrative body can alter that fact.

To put it differently, a private establishment that merely breaks even85 -- without the
discounts yet -- will surely start to incur losses because of such discounts. The same
effect is expected if its mark-up is less than 20 percent, and if all its sales come from
retail purchases by senior citizens. Aside from the observation we have already raised
earlier, it will also be grossly unfair to an establishment if the discounts will be treated
merely as deductions from either its gross income or its gross sales. Operating at a loss
through no fault of its own, it will realize that the tax credit limitation under RR 2-94 is
inutile, if not improper. Worse, profit-generating businesses will be put in a better
position if they avail themselves of tax credits denied those that are losing, because no
taxes are due from the latter.

Grant of Tax Credit

Intended by the Legislature

Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by
the community as a whole and to establish a program beneficial to them.86 These
objectives are consonant with the constitutional policy of making "health x x x services
available to all the people at affordable cost"87 and of giving "priority for the needs of
the x x x elderly."88 Sections 2.i and 4 of RR 2-94, however, contradict these
constitutional policies and statutory objectives.
Furthermore, Congress has allowed all private establishments a simple tax credit, not a
deduction. In fact, no cash outlay is required from the government for the availment or
use of such credit. The deliberations on February 5, 1992 of the Bicameral Conference
Committee Meeting on Social Justice, which finalized RA 7432, disclose the true intent
of our legislators to treat the sales discounts as a tax credit, rather than as a deduction
from gross income. We quote from those deliberations as follows:

"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about deductions from
taxable income. I think we incorporated there a provision na - on the responsibility of
the private hospitals and drugstores, hindi ba?

SEN. ANGARA. Oo.

THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision here about
the deductions from taxable income of that private hospitals, di ba ganon 'yan?

MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting government and
public institutions, so, puwede na po nating hindi isama yung mga less deductions ng
taxable income.

THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals. Yung
isiningit natin?

MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did not use the
microphone).

SEN. ANGARA. Hindi pa, hindi pa.

THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?

SEN. ANGARA. Oo. You want to insert that?

THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani, e.

SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount,
provided that, the private hospitals can claim the expense as a tax credit.

REP. AQUINO. Yah could be allowed as deductions in the perpetrations of (inaudible)

income.

SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano?

REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng establishments na
covered.
THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang.

REP. AQUINO. Ano ba yung establishments na covered?

SEN. ANGARA. Restaurant lodging houses, recreation centers.

REP. AQUINO. All establishments covered siguro?

SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan kung ganon. Can
we go back to Section 4 ha?

REP. AQUINO. Oho.

SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount
from all establishments et cetera, et cetera, provided that said establishments -
provided that private establishments may claim the cost as a tax credit. Ganon ba 'yon?

REP. AQUINO. Yah.

SEN. ANGARA. Dahil kung government, they don't need to claim it.

THE CHAIRMAN. (Rep. Unico). Tax credit.

SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay.

REP. AQUINO Okay.

SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".89

Special Law

Over General Law

Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a
general law. "x x x [T]he rule is that on a specific matter the special law shall prevail
over the general law, which shall be resorted to only to supply deficiencies in the
former."90 In addition, "[w]here there are two statutes, the earlier special and the later
general -- the terms of the general broad enough to include the matter provided for in
the special -- the fact that one is special and the other is general creates a presumption
that the special is to be considered as remaining an exception to the general,91 one as a
general law of the land, the other as the law of a particular case."92 "It is a canon of
statutory construction that a later statute, general in its terms and not expressly
repealing a prior special statute, will ordinarily not affect the special provisions of such
earlier statute."93
RA 7432 is an earlier law not expressly repealed by, and therefore remains an exception
to, the Tax Code -- a later law. When the former states that a tax credit may be
claimed, then the requirement of prior tax payments under certain provisions of the
latter, as discussed above, cannot be made to apply. Neither can the instances of or
references to a tax deduction under the Tax Code94 be made to restrict RA 7432. No
provision of any revenue regulation can supplant or modify the acts of Congress.

WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution of
the Court of Appeals AFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 120051 December 10, 2014

CITY OF MANILA, HON. ALFREDO S. LIM, as Mayor of the City of Manila, and
ANTHONY Y. ACEVEDO, City Treasurer, Petitioners,
vs.
HON. ANGEL VALERA COLET, as Presiding Judge, Regional Trial Court of
Manila (Br. 43), and MALAYSIAN AIRLINE SYSTEM, Respondents.

x-----------------------x

G.R. No. 121613

MAERSK-FILIPINAS, INC., AMERICAN PRESIDENT LINES, LTD., FLAGSHIP

TANKERS CORP., CORE INDO MARITIME CORP., and CORE MARITIME CORP.,
Petitioners,
vs.
CITY OF MANILA, MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA,1
SANGGUNIANG PANLUNGSOD and CITY TREASURER ANTHONY ACEVEDO,
Respondents.

x-----------------------x

G.R. No. 121675

EASTERN SHIPPING LINES, INC., Petitioner,

vs.
CITY COUNCIL OF MANILA, THE MAYOR OF MANILA and THE CITY OF
MANILA, Respondents.

x-----------------------x
G.R. No. 121704

WILLIAM LINES, INC., NEGROS NAVIGATION CO., INC., LORENZO SHIPPING

CORPORATION, CARLOS A. GOTHONG LINES, INC., ABOITIZ SHIPPING
CORPORATION, ABOITIZ AIR TRANSPORT CORPORATION, ABOITIZ
HAULERS, INC., and SOLID SHIPPING LINES CORPORATION, Petitioners,
vs.
REGIONAL TRIAL COURT OF MANILA, BRANCH 32, CITY OF MANILA, MAYOR
ALFREDO LIM, VICE MAYOR LITO ATIENZA, SANGGUNIANG PANLUNGSOD,
and CITY TREASURER ANTHONY ACEVEDO, Respondents.

x-----------------------x

G.R. Nos. 121720-28

PNOC SHIPPING AND TRANSPORT CORPORATION, Petitioner,

vs.
HON. JUAN T. NABONG, JR., Presiding Judge, Regional Trial Court of Manila,
Branch 32; THE CITY OF MANILA; MAYOR ALFREDO LIM; VICE MAYOR LITO
ATIENZA; SANGGUNIANG PANLUNGSOD, and CITY TREASURER ANTHONY
ACEVEDO, Respondents.

x-----------------------x

G.R. Nos. 121847-55

MAERSK-FILIPINAS, INC., AMERICAN PRESIDENT LINES, SEA-LAND

SERVICES, INC., OVERSEAS FREIGHTERS SHIPPING, INC., DONGNAMA
SHIPPING CO., LTD., FLAGSHIP TANKERS, CORE INDO MARITIME CORP.,
CORE MARITIME CORP., and EASTERN SHIPPING LINES, INC., Petitioners,
vs.
CITY OF MANILA, HON. MAYOR ALFREDO S. LIM, HON. VICE MAYOR LITO
ATIENZA, JR., SANGGUNIANG PANLUNGSOD NG MAYNILA, and CITY
TREASURER ANTHONY Y. ACEBEDO and their agents or representatives, and
HON. JUDGE JUAN C. NABONG, JR., Branch 32, Regional Trial Court of Manila,
Respondents,

WILLIAM LINES, INC., NEGROS NAVIGATION CO., INC., LORENZO SHIPPING

CORPORATION, CARLOS A. GOTHONG LINES, INC., ABOITIZ SHIPPING
CORPORATION, ABOITIZ AIR TRANSPORT CORPORATION, ABOITIZ
HAULERS, INC., SOLID SHIPPING LINES CORPORATION and PNOC
SHIPPING & TRANSPORT CORPORATION, Intervenors.

x-----------------------x
G.R. No. 122333

COSCO CONTAINER LINES and HEUNG-A SHIPPING CO., LTD., both

represented by their Resident Agent, Wallem Philippines Shipping, Inc.; DSR
SENATOR LINES, COMPANIA SUD AMERICANA DE VAPORES S.A., and
ARIMURA SANGYO COMPANY, LTD., all represented by theirResident Agent,
C.F. Sharp Shipping Agencies, Incorporated; PACIFIC INTERNATIONAL LINES
(PTE) LTD. and PACIFIC EAGLE LINES (PTE) LTD., both represented by their
Resident Agent, TMS Ship Agencies, Inc.; COMPAGNIE MARITIME D'
AFFRETEMENT (CMA), represented by its Resident Agent, Inchcape Shipping
Services; EVERETT ORIENT LINES, INC., represented by its Resident Agent,
Everett Steamship Corporation; YANGMING MARINE TRANSPORT CORP.,
represented by its Resident Agent, Sky International, Inc.; NIPON YUSEN
KAISHA, represented by its Resident Agent, Fil-Japan Shipping Corporation;
HYUNDAI MERCHANT MARINE CO. LTD., represented by its Resident Agent,
Citadel Lines; MALAYSIAN INTERNATIONAL SHIPPING CORPORATION
BERHAD, represented by its Resident Agent, Royal Cargo Agencies, Inc.;
BOLT ORIENT LINE, represented by its Resident Agent, FILSOV Shipping
Company, Inc.; MITSUI-O.S.K. LINES, LTD., represented by its Resident
Agent, Magsaysay Agencies, Inc.; PHILS., MICRONESIA & ORIENT
NAVIGATION CO. (PMSO LINE), represented by its Resident Agent, Van
Transport Company, Inc.; LLOYD TRIESTINO DI NAVIGAZIONE S.P.A.N. and
COMPAGNIE GENERALE MARITIME, both represented by their Resident
Agent, F.E. Zuellig (M), Inc.; and MADRIGAL-WAN HAI LINES, Petitioners,
vs.
CITY OF MANILA, MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA,
SANGGUNIANG PANLUNGSOD and City Treasurer ANTHONY Y. ACEBEDO,
Respondents,

x-----------------------x

G.R. No. 122335

SULPICIO LINES, INC., Petitioner,

vs.
REGIONAL TRIAL COURT OF MANILA, BRANCH 32, CITY OF MANILA MAYOR
ALFREDO LIM, VICE MAYOR LITO ATIENZA, SANGGUNIANG PANLUNGSOD
and CITY TREASURER ANTHONY ACEVEDO, Respondents.

x-----------------------x

G.R. No. 122349

ASSOCIATION OF INTERNATIONAL SHIPPING LINES, INC., in its own behalf

and in representation of its Members, Petitioner,
vs.
CITY OF MANILA, MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA,
SANGGUNIANG PANLUNGSOD and CITY TREASURER ANTHONY ACEVEDO,
Respondents.

x-----------------------x

G.R. No. 124855

DONGNAMA SHIPPING CO., LTD. and KYOWA SHIPPING LTD. herein

represented by SKY INTERNATIONAL, INC., Petitioners,
vs.
COURT OF APPEALS, CITY OF MANILA MAYOR ALFREDO LIM, VICE MAYOR
LITO ATIENZA, CITY COUNCIL OF MANILA, and CITY TREASURER ANTHONY
ACEVEDO, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court are 10 consolidated Petitions, the issue at the crux of which is the
constitutionality and/or validity of Section 21(B) of Ordinance No. 7794 of the City of
Manila, otherwise known as the Revenue Code of the City of Manila (Manila Revenue
Code), as amended by Ordinance No. 7807.2

ANTECEDENT FACTS

The Manila Revenue Code was enacted on June 22, 1993 by the City Council of Manila
and approved on June 29, 1993 by then Manila Mayor Alfredo S. Lim (Lim). Section
21(B) of said Code originally provided:

Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes
Under the NIRC. - On any of the following businesses and articles of commerce subject
to the excise, value-added or percentage taxes under the National Internal Revenue
Code, hereinafter referred to as NIRC, as amended, a tax of three percent (3%) per
annum on the gross sales or receipts of the preceding calendar year is hereby imposed:

xxxx

B) On the gross receipts of keepers of garages, cars for rent or hire driven by the
lessee, transportation contractors, persons who transport passenger or freight for hire,
and common carriers by land, air or water, except owners of bancas and owners of
animal-drawn two-wheel vehicle.

Shortly thereafter, Ordinance No. 7807 was enacted by the City Council of Manila on
September 27, 1993 and approved by Mayor Lim on September 29, 1993, already
amending several provisions of the Manila Revenue Code. Section 21 of the Manila
Revenue Code, as amended, imposed a lower tax rate on the businesses that fell under
it, and paragraph (B) thereof read as follows:

Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes
Under the NIRC – On any of the following businesses and articles of commerce subject
to the excise, value-added or percentage taxes under the National Internal Revenue
Code hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) OF
ONE PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar
year is hereby imposed:

xxxx

B) On the gross receipts of keepers of garages, cars for rent or hire driven by the
lessee, transportation contractors, persons who transport passenger or freight for hire,
and common carriers by land, air or water, except owners of bancas and owners of
animal-drawn two-wheel vehicle.

The City of Manila, through its City Treasurer, began imposing and collecting the
business tax under Section 21(B) of the Manila Revenue Code, as amended, beginning
January 1994.

G.R. No. 120051

Malaysian Airline System (MAS) isa foreign corporation organized and existing under the
laws of Malaysia. It is licensed to engage in business in the Philippines by the Securities
and Exchange Commission (SEC), particularly in the airline business which involves the
transportation of passengers and cargo for hire. Its principal office and place of
business in the Philippines is located in the City of Manila.

As MAS was renewing its business permit for 1994, it was assessed by the City
Treasurer of Manila on January 17, 1994 for the following taxes and fees:

Mayor’s permit
and regulatory P 10,307.50
fees
Municipal license
tax or business 1,100,000.00
tax
 P
Total 3
1,110,307.50

MAS, believing that it was exempt from the municipal license tax or business tax,
tendered, via Far East Bank and Trust Company (FEBTC) Check No. 06564 dated
January 19, 1994,only the amount of ₱10,307.50 for the mayor’s permit and regulatory
fees. The City Treasurer of Manila refused to accept FEBTC Check No. 06564.

Consequently, on January 20, 1994,MAS instituted Civil Case No. 94-69052, to consign
with the trial court the amount of ₱10,307.50 for mayor’s permit and regulatory fees; to
challenge the assessment against it by the City Treasurer of Manila in the amount of
₱1,100,000.00 for municipal license tax or business tax; and to have Section 21(B) of
the Manila Revenue Code, as amended, on which said assessment for municipal license
tax or business tax was based, be declared invalid or null and void. Civil Case No. 94-
69052 was assigned to the Regional Trial Court (RTC) of Manila, Branch 43.

On April 3, 1995, RTC-Branch 43 rendered a Decision4 in favor of MAS. The dispositive

portion of said Decision reads:

WHEREFORE, the foregoing disquisitions considered, judgment is hereby rendered in

favor of the plaintiff against the defendants:

1. Declaring the consignation valid and made in accordance with law;

2. Ordering defendants to issue to plaintiff the mayor’s permit or permit to

operate for 1994, the necessary certificates and official receipts
evidencing payment of [plaintiff’s] liabilities for mayor’s permit fee and
other regulatory fees for 1994; and,

3. Declaring Section 21(B) of Ordinance No. 7794, as amended by

Ordinance No. 7807, of the City of Manila as invalid or null and void
insofar as it imposes a business tax on transportation contractors, persons
engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, or that plaintiff is exempt from the
tax imposed by said section 21(B).

4. Declaring plaintiff’s obligation to the defendant City of Manila for

mayor’s permit fee and other regulatory fees for 1994 as having been paid
and extinguished without any liability for surcharges, interests or any
additional amount whatsoever.

Not having been proven, the prayer for the payment of attorney’s fees is denied. No
pronouncement as to costs.5
The City of Manila, Mayor Lim, and City Treasurer Anthony Y. Acevedo (Acevedo) filed
with the Court a Petition for Review on Certiorari,6 assailing the Decision dated April 3,
1995 of RTC-Branch 43 in Civil Case No. 94-69052 based on pure questions of law.
They assigned the following errors on the part of RTC-Branch 43:

4.1. That the trial court erred in declaring Section 21(B) of [the Manila
Revenue Code, as amended,]as invalid or null and void.

4.2. That the trial court erred indeclaring the consignation valid and made
in accordance with law.7

The City of Manila, Mayor Lim, and City Treasurer Acevedo prayed in their Petition that
the Court (1) reverse and set aside the assailed RTC Decision; and (2) affirm the
constitutionality and validity of Section 21(B) of the Manila Revenue Code, as amended.
The Petition was docketed as G.R. No. 120051.

MAS filed its Comment,8 to which the City of Manila, Mayor Lim, and City Treasurer
Acevedo filed their Reply.9

G.R. No. 121613

Because they were assessed and/or compelled to pay business taxes pursuant to
Section 21(B) of the Manila Revenue Code, as amended, before they were issued their
business permits for 1994, several corporations, with principal offices in Manila and
operating as "transportation contractors, persons who transport passenger or freight for
hire, and common carriers by land, air or water," filed their respective petitions before
the Manila RTC against the City of Manila, Mayor Lim, Vice Mayor Lito Atienza (Atienza),
the City Council of Manila/Sangguniang Panlungsod ng Maynila, and City Treasurer
Acevedo. Said petitions were separately docketed and raffled to different RTC Branches,
to wit:

Civil Case Petitioner RTC-

No. Branch
No.
94-68861 Maersk Filipinas, Inc. (Maersk) 32
94-68862 American President Lines, Ltd. (APL) 33
94-68863 Sea-Land Services, Inc. (SeaLand) 34
94-68919 Overseas Freighters Shipping, Inc. 55
(OFSI)
94-68936 Dongnama Shipping Co., Ltd. 47
(Dongnama) and Kyowa Shipping,
 Ltd. (Kyowa)
94-68939 Flagship Tankers Corp. (Flagship 21
Tankers)
94-68940 Core Indo Maritime Corp. (CIMC) 21
94-68941 Core Maritime Corp. (CMC) 21
94- Eastern Shipping Lines, Inc. (Eastern
6902810 Shipping)

All of the aforementioned cases were later consolidated before RTCBranch 32.

Several more corporations with principal offices in Manila and engaged in the same line
of business as the above-named petitioner corporations filed petitions/complaints-in-
intervention in the pending cases, namely: William Lines, Inc. (William Lines); Negros
Navigation Co., Inc. (Negros Navigation); Lorenzo Shipping Corp. (Lorenzo Shipping);
Carlos A. Gothong Lines, Inc. (Gothong Lines); Aboitiz Shipping Corp., Aboitiz Air
Transport Corp., and Aboitiz Haulers, Inc. (collectively referred to as the Aboitiz Group);
Solid Shipping Lines Corp. (Solid Shipping); and PNOC Shipping & Transport Corp.
(PSTC).

Petitioner and intervenor corporations essentially sought the (1) declaration of Section
21(B) of the Manila Revenue Code, as amended, as void/invalid for being contrary to
the Constitution and the Local Government Code (LGC) of 1991; (2) refund of the
business taxes that the petitioner and intervenor corporations paid under protest; and
(3) the issuance of a temporary restraining order (TRO), writ of preliminary injunction,
writ of prohibition, and/or writ of permanent injunction to enjoin the implementation of
Section 21(B) of the Manila Revenue Code, as amended.

RTC-Branch 32 issued a TRO11 on January 14, 1994 in favor of petitioners Maersk, APL,
Flagship Tankers, CIMC, and CMC. The TRO was effective for 20 days and ordered
respondent City of Manila and local officials to cease and desist from implementing
Section 21(B) of the Manila Revenue Code, as amended, while the prayer for a writ of
preliminary injunction was scheduled for presentation of evidence. On February 3,
1992, after hearing, RTC-Branch 32 issued an Order granting the prayer of petitioners
Maersk, APL, Flagship Tankers, CIMC, CMC, and OFSI for the issuance of a Writ of
Preliminary Injunction,12 with the condition that each of said petitioner corporations
should post an injunction bond in the amount of ₱50,000.00. The Writ of Preliminary
Injunction enjoined respondent City of Manila and local officials from: (1) imposing,
enforcing, assessing, and collecting the taxes under Section 21(B) of the Manila
Revenue Code, as amended; and (2) denying to petitioners Maersk, APL, Flagship
Tankers, CIMC, CMC, and OFSI their business permits and licenses for 1994. In another
Order dated April 22, 1994, RTC-Branch 32 granted the prayer of intervenor
corporations for the issuance of a similar Writ of Preliminary Injunction.

In its Decision13 dated August 28, 1995 in Civil Case Nos. 94-68861, 94-68862, 94-
68863, 94-68919, 94-68936, 94-68939,94-68940, 94-68941, and 94-69028, RTC-
Branch 32 upheld the power of the respondent City of Manila, as a local government
unit (LGU), to levy the business tax under Section 21(B) of the Manila Revenue Code,
as amended, consistent with the basic policy of local autonomy. Ultimately, RTC-Branch
32 decreed:

WHEREFORE, the petitions, the supplemental petitions, and the petitions or complaints
in intervention in all these cases are DISMISSED.

All temporary restraining orders are cancelled, all writs of preliminary injunction are
recalled and dissolved, and the injunction bonds cancelled.14

Maersk, APL, Flagship Tankers, CIMC, and CMC (collectively referred to herein as
Maersk, et al.), filed a direct appeal before the Court. Initially, Maersk, et al., filed a
motion for extension of time to file their petition for review on certiorari. Upon filing of
said motion, they were assessed docket and legal fees in the amount of ₱420.00, which
they fully paid. The motion for extension of time was granted by the Court in a
Resolution15 dated October 4, 1995. Within the extended period, Maersk, et al., filed
their Petition for Review on Certiorari with prayer for issuance of a writ of preliminary
injunction and TRO,16 docketed as G.R. No. 121613, naming RTC-Branch 32, the City
ofManila, Mayor Lim, Vice Mayor Atienza, the Sangguniang Panlungsod ng Maynila, and
City Treasurer Acevedo, as respondents. Maersk, et al., submitted for resolution by the
Court a lone question of law, viz.:

Whether or not Section 21(B) of Ordinance No. 7794, otherwise known as the Revenue
Code of the City of Manila, as amended by Section 1(G) of Ordinance No. 7807, is valid
and constitutional.17

Meanwhile, Maersk, et al., also filed with RTC-Branch 32 a Motion to Stay or Restore
Writ of Preliminary Injunction, presenting a Memorandum issued by City Treasurer
Acevedo already ordering the collection of the business tax under Section 21(B) of the
Manila Revenue Code, as amended. In an Order18 dated October 16, 1995, RTC-Branch
32 granted the Motion of Maersk, et al., after finding the same to be meritorious and in
conformity with Rule 39, Section 4 of the Rules of Court, on the condition that Maersk,
et al., would increase their injunction bond from ₱50,000.00 each to ₱800,000.00 each,
or for a total of ₱4,000,000.00. With this latest development, Maersk, et al., filed with
the Court a Supplemental Petition and Motion praying for the confirmation of the RTC
Order dated October 16, 1995 restoring the Writ of Preliminary Injunction and deletion
of the name of RTC-Branch 32 from the caption of the Petition in G.R. No. 121613 as
the trial court is not a necessary party.
On October 23, 1995 though, the Court issued a Resolution19 in G.R. No. 121613 in
which it resolved as follows:

On the basis of the foregoing, the Court RESOLVED to DISMISS the petition for review
on certiorari for non-compliance with the above mentioned requirement no. 1, [Maersk,
et al.,] having failed to remit the amount of ₱202.00 as payment for the balance of the
prescribed legal fees. Accordingly, the supplemental petition and motion of [Maersk, et
al.,] dated October 17, 1995 praying that the lower court’s order restoring the Writ of
Preliminary Injunction be confirmed and that the Regional Trial Court of Manila, Branch
32, be deleted from the caption of the petition for not being a necessary party is
NOTED WITHOUT ACTION.

Maersk, et al., filed a Motion for Reconsideration20 of the foregoing Resolution dated
October 23, 1995 of the Court. Maersk, et al., argued that the dismissal of their Petition
by minute resolution would deprive them of their property rights on mere technical
grounds. Maersk, et al., had no intention of not paying the amount of ₱202.00, which
consisted of sheriff’s fee of ₱200.00 and clerk’s commission of ₱2.00, charged in
connection with their prayer for the issuance of a preliminary injunction and TRO. While
Maersk, et al., did include such a prayer in their Petition, the same had already become
moot and academic after RTC-Branch 32 issued the Order dated October 16, 1995
restoring and reinstating the Writ of Preliminary Injunction in favor of Maersk, et al. In
their Supplemental Petition and Motion in G.R. No. 121613, Maersk, et al., was then
only seeking the confirmation by the Court of the Order dated October 16, 1995 of
RTC-Branch 32 and, in effect, withdrawing their prayer for the issuance of a writ of
preliminary injunction and TRO by the Court. Besides, Maersk, et al., submitted that the
sheriff’s fee of ₱200.00 and clerk’s commission of ₱2.00 were not part of the "legal
fees" required for perfecting an appeal from the decision of the Court of Appeals or the
RTC. The sheriff’s fee and clerk’s commission would merely be "deposited" with the
Court, which implied that said amounts would be "refunded" to Maersk, et al., in case
the Court decided not to issue the TRO prayed for. In fact, when Maersk, et al., filed
their motion for extension of time tofile their petition for review on certiorari, they fully
paid the docket and legal fees as computed by the cashier of the Court; and when they
actually filed their Petition for Review on Certiorari with prayer for issuance of a writ of
preliminary injunction and TRO, they were not assessed and required to pay additional
legal fees. In any event, Maersk, et al., had already deposited with the Cashier’s Office
of the Court the amount of ₱202.00. Maersk, et al., asserted that their case is
meritorious and that dismissal is discretionary for the appellate court and discretion
must be exercised wisely and prudently, never capriciously, with a view to substantial
justice. Consequently, Maersk, et al., prayed that the Court reconsider its Resolution
dated October 23, 1995 and give due course to and squarely resolve their Petition and
Supplemental Petition and Motion in G.R. No. 121613.

Counsel for Maersk, et al., subsequently submitted a joint Memorandum21 for the
petitioners in G.R. Nos. 121613, 122333, and 122349.
G.R. No. 121675

Eastern Shipping was the petitioner in Civil Case No. 94-69028, which was consolidated
with Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939,
94-68940, and 94-68941, before RTC-Branch 32.

Since the Decision dated August 28,1995 of RTC-Branch 32 in the consolidated cases
was contrary to its interest, Eastern Shipping appealed the same before the Court
through a Petition for Review on Certiorari with Prayer for Preliminary Injunction and/or
Temporary Restraining Order,22 with the City Council of Manila, the Mayor of Manila,
and the City of Manila, as respondents. In its Petition, docketed as G.R. No. 121675,
Eastern Shipping raised pure questionsof law and argued two fundamental issues:

I.

WHETHER OR NOT SECTION 21 OF [THE MANILA REVENUE CODE, AS AMENDED,] IS

VALID AND CONSTITUTIONAL.

II.

IN THE REMOTE POSSIBILITYTHAT THE QUESTIONED ORDINANCE IS DECLARED

VALID AND CONSTITUTIONAL, WHETHER OR NOT [EASTERN SHIPPING] IS LIABLE TO
PAY THE BUSINESS TAX BASED ON GROSS RECEIPTS DERIVED FROM INCOMING
FREIGHTS ONLY OR OUTGOING FREIGHTS ONLY OR BOTH.23

The Office of the City Legal Officer, on behalf of the City of Manila, Mayor Lim, Vice
Mayor Atienza, the City Council of Manila/Sangguniang Panlungsod ng Maynila, and City
Treasurer Acevedo, filed a joint Comment24 on the Petitions in G.R. Nos. 121675,
121720-28, and 121847-55. Eastern Shipping later on filed its Memorandum.25

G.R. No. 121704

William Lines, Negros Navigation, Lorenzo Shipping, Gothong Lines, the Aboitiz Group,
and Solid Shipping (collectively referred to herein as William Lines, et al.) are duly
organized domestic corporations principally engaged in the business of operating
domestic shipping vessels for the transportation of cargoes and passengers, except
Aboitiz Air Transport Corp., which is engaged in the transportation of cargoes by air,
and Aboitiz Haulers, Inc. which is engaged in the business of domestic freight and
hauling by land. William Lines, et al., all have principal addresses in Manila.

William Lines, et al., paid under protest to the City of Manila the business taxes
assessed against them for the first quarter of 1994, based on Section 21(B) of the
Manila RevenueCode, as amended. They were intervenors in Civil Case Nos. 94-68861,
94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-
69028, before RTCBranch 32.
William Lines, et al., challenged the Decision dated August 28, 1995 rendered by RTC-
Branch 32 in said civil cases through a Petition for Review on Certiorari with Prayer for
Issuance of a Preliminary Injunction and for a Temporary Restraining Order,26 docketed
as G.R. No. 121704. They identified as respondents the City ofManila, Mayor Lim, Vice
Mayor Atienza, City Treasurer Acevedo, the Sangguniang Panlungsod ng Maynila, and
RTC-Branch 32 Presiding Judge Juan C. Nabong, Jr. (Nabong). William Lines, et al.,
assigned three major errors urportedly committed by RTC-Branch 32:

A. The RTC erred in failing to declare the aforecited Section 21(B) of [the Manila
Revenue Code, as amended, as] ultra vires and therefore null and void because such
sections violate the Provisions of the LGC x x x.

xxxx

B. The RTC erred in holding that Sec. 143(h) which is an omnibus grant of power
couched in general terms is the exception referred or adverted to in Section 133(j) of
the LGC.

C. The RTC erred in holding that there are only four basic requirements for a valid
exercise of the power of the City of Manila to levy tax.27

In their Memorandum,28 William Lines, et al., focused their discussion on the following
issues: I. IS COMPLIANCE WITH THE GUIDELINES AND LIMITATIONS SET FORTH IN
BOOK II TITLE I OF THE LOCAL GOVERNMENT [CODE](LGC) NECESSARY FOR THE
VALIDITY OF SEC. 21(B)OF [THE MANILA REVENUE CODE, AS AMENDED]?

II. DID SEC. 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED]

VIOLATE SUCH GUIDELINES AND LIMITATIONS OF THE LGC?

III. IS SEC. 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED,]

INVALID, ULTRA VIRES AND UNLAWFUL?29

G.R. Nos. 121720-28

PSTC is a government owned and controlled corporation engaged in the business of

shipping, tinkering, lighterage, barging, towing, transport, and shipment of goods,
chattels, petroleum and other products, marine, and maritime commerce in general.

Pursuant to Section 21(B) of the Manila Revenue Code, as amended, PSTC was
assessed by the City of Manilafor business tax in the amount of ₱2,233,994.35,
representing 50% of 1% of the gross receipts earned by PSTC in the year 1993 which
amounted to ₱446,798,871.87. The total amount of business tax due was payable
infour equal parts every quarter of 1994. PSTC paid under protest on January 19, 1994
the business tax for the first quarter of 1994 in the amount of ₱558,498.59, and on
April 20, 1994 the business tax for the second quarter of 1994 in the amount of
₱558,498.59, evidenced by Municipal License Receipt Nos. 003483 and 0057675,
respectively. PSTC claimed it had no other recourse but to pay to the City of Manila the
assessed local business tax, considering the latter had threatened to cancel its license
to operate if said taxes were not paid. PSTC, by way of letters dated February 21, 1994
and April 27, 1994, filed protests or claims for refund with the City Treasurer of Manila,
but the letters were not acted upon.

PSTC intervened in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-
68936, 94-68939, 94-68940, 94-68941, and 94-69028 before RTC-Branch 32.

Unsatisfied with the Decision dated August 28, 1995 rendered by RTC-Branch 32 in the
said civil cases, PSTC filed with the Court a Petition for Review on Certiorari with Prayer
for Temporary Restraining Order and/or Preliminary Injunction,30 against Presiding
Judge Nabong of RTC Branch 32, the City of Manila, Mayor Lim, Vice Mayor Atienza,
City Treasurer Acevedo, and the Sangguniang Panlungsod ng Maynila. In its Petition,
docketed as G.R. No. 121720-28, PSTC maintained that RTCBranch 32 erred thus:

IN FAILING TO REALIZE AND CONSIDER THAT THE RESPONDENT CITY OF MANILA, A

MERE MUNICIPAL CORPORATION, HAS NO INHERENT POWER OF TAXATION.

II

EVEN ASSUMING ARGUENDO THAT SUCH POWER IS CATEGORICALLY GRANTED BY

STATUTE, THE SAME IS SUBJECT TO SUCH GUIDELINES AND LIMITATIONS PROVIDED
BY CONGRESS UNDER SECTION 133 OF THE LOCAL GOVERNMENT CODE OF 1991
AND, AS TO WHICH, NONE WAS GIVEN TO RESPONDENT CITY OF MANILA.

III

IN FAILING TO REALIZE AND CONSIDER THAT AN ORDINANCE WHICH AMENDS,

ENLARGES OR LIMITS THE PROVISIONS OF A STATUTE CONSTITUTES AN
UNCONSTITUTIONAL AND ILLEGAL DEROGATION OF LEGISLATIVE POWER, HENCE,
THE ORDINANCE IS INVALID AND VOID AB-INITIO.

IV

IN FAILING TO REALIZE AND CONSIDER THAT THE RESPONDENT CITY OF MANILA’S

[REVENUE CODE, AS AMENDED, PARTICULARLY SECTION 21(B) THEREOF] WHICH
IMPOSES 50% OF 1% OF THE GROSS SALES OR RECEIPT OF THE NEXT PRECEDING
YEAR, ON TOP OF THE NATIONAL INTERNAL REVENUE TAXES ALREADY IMPOSED
UNDER THE NATIONAL INTERNAL REVENUE CODE, IS UNREASONABLE, UNJUST,
UNFAIR OR OPPRESSIVE, CONFISCATORY, AND CONTRAVENES THE CONSTITUTION
OR STATUTE,HENCE, THE ORDINANCE IS INVALID AND NULL AND VOID AB-INITIO.
 V

IN FAILING TO REALIZE AND CONSIDER THAT THE TAX IMPOSED UNDER SECTION
21(B) OF [THE MANILA REVENUE CODE, AS AMENDED,] PARTAKES THE NATURE OF A
SALES TAX OR A PERCENTAGE TAX BEYOND THE TAXING POWER OF THE
RESPONDENT CITY OF MANILA TO IMPOSE, HENCE, UNENFORCEABLE BY
RESPONDENT CITY OFFICIALS.

VI

IN FAILING TO REALIZE AND CONSIDER THAT [PSTC] IS SPECIFICALLY EXEMPTED

FROM LOCAL GOVERNMENT TAXES IMPOSED UNDER THE LOCAL GOVERNMENT CODE
OF 1991, PURSUANT TO SECTION 115 OF THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED BY REPUBLIC ACT 7761.31

As mentioned previously, the Officeof the City Legal Officer, on behalf of the City of
Manila, MayorLim, Vice Mayor Atienza, the City Council of Manila/Sangguniang
Panlungsod ng Maynila, and City Treasurer Acevedo, filed a joint Comment on the
Petitions in G.R. Nos. 121675, 121720-28, and 121847-55.

PSTC filed its Memorandum,32 summing up its issues and arguments, to wit:

ISSUES SUBMITTED FOR RESOLUTION

1. WHETHER OR NOT SECTION 21(B) OF [THE MANILA REVENUE

CODE, AS AMENDED,] IS VALID AND CONSTITUTIONAL.

2. IN THE NEGATIVE[,] WHETHER OR NOT RESPONDENTS CAN BE

COMPELLED TO REFUND THE TAXES WRONGFULLY AND
ERRONEOUSLY COLLECTED UNDER THE ASSAILED ORDINANCE.

ARGUMENTS IN SUPPORT OF THE MEMORANDUM

I. THE ASSAILED ORDINANCE ISA CLEAR USURPATION OF

LEGISLATIVE POWER, HENCE,UNCONSTITUTIONAL AND VOID AB-
INITIO.

II. THE ASSAILED ORDINANCE IN ITSELF IS UNJUST, UNFAIR, OR

EXCESSIVE, CONFISCATORY AND IN RESTRAINT OF TRADE AND
IN EFFECT CONSTITUTES AN UNLAWFUL TAKING OF PROPERTY
WITHOUT DUE PROCESS OF LAW.33

G.R. Nos. 121847-55

OFSI is a domestic corporation engaged in business as a transportation contractor. It

also represents, as a general agent in the Philippines, ZIM Israel Navigation Co., Ltd.
and Gold Star Line, Hong Kong, which are engaged in the transport by common carrier
of export/import goods to and from the Philippines. Its offices are located in
Intramuros, Manila.

OFSI questioned the legality of Section 21(B) of the Manila Revenue Code, as amended,
in a Petition for Declaratory Relief with Prayer for Preliminary Injunction and/or
Temporary Restraining Order, which was docketed as Civil Case No. 94-68919 and
originally raffled to RTC-Branch 55. Civil Case No. 94-68919 was eventually
consolidated with Civil Case Nos. 94-68861, 94-68862,94-68863, 94-68936, 94-68939,
94-68940, 94-68941, and 94-69028 before RTC-Branch32. During the pendency of said
civil cases, OFSI paid under protest on January 20, 1994 the business tax for the first
quarter of 1994 amounting to ₱181,928.97. Pursuant to Section 196 of the Local
Government Code (LGC),OFSI wrote the City Treasurer of Manila a letter dated March
1, 1994 claiming refund of the business tax it had paid. The letter was received by the
City Treasurer’s Office of Manila on March 3, 1994. The City Treasurer’s Office of Manila
had seven days from receipt of the letter to refund the amount paid, but more than two
months had passed and OFSI received no response from the City Treasurer. To avoid
multiplicity of suits, OFSI filed a Supplemental Petition in Civil Case No. 94-68919 to
incorporate its claim for refund of the business tax it had paid for the first quarter of
1994.

Aggrieved by the Decision dated August 28, 1995 of RTC-Branch 32 in Civil Case Nos.
94-68861, 94-68862,94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941,
and 94-69028, OFSI sought recourse from the Court by filing a Petition for Review by
Certiorari with Prayer for the Issuance of a Preliminary Injunction and/or Temporary
Restraining Order,34 naming as respondents the City of Manila, Mayor Lim, Vice Mayor
Atienza, the City Council of Manila, City Treasurer Acevedo, and Presiding Judge
Nabong of RTC-Branch 32. The Petition of OFSI, docketed as G.R. Nos. 121847-55,
presented for consideration and resolution of the Court the following:

Assignment of Errors

THE RESPONDENT HONORABLE JUDGE ERRED IN HIS FINDING THAT SECTION 21(B)
OF [THE MANILA REVENUE CODE, AS AMENDED,] IS VALID AND CONSTITUTIONAL.

Legal Issues Involved In This Petition

WHETHER OR NOT SECTION 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED,]

IS VALID AND CONSTITUTIONAL.

WHETHER OR NOT A WRIT OF PRELIMINARY INJUNCTION AND/OR TEMPORARY

RESTRAINING ORDER MAY BE ISSUED BY THE HONORABLE COURT.35

In a subsequent Manifestation,36 OFSI informed the Court that RTCBranch 32 issued an

Order dated October 26, 1995 granting its Motion to Restore Injunction Pending
Appeal; reinstating and restoring the Writ of Preliminary Injunction lifted on August 28,
1995; and requiring OFSI to post a bond in the increased amount of ₱300,000.00.

A joint Comment on the Petitions in G.R. Nos. 121675, 121720-28, and 121847-55 was
filed by the Office of the City Legal Officer, on behalf of the City of Manila, MayorLim,
Vice Mayor Atienza, the City Council of Manila/Sangguniang Panlungsod ng Maynila,
and City Treasurer Acevedo.

The Reply37 of OFSI was the last pleading filed in G.R. Nos. 121847-55.

G.R. No. 122333

After RTC-Branch 32 rendered its Decision in Civil Case Nos. 94-68861, 94-68862, 94-
68863,94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028 on August
28, 1995, upholding the constitutionality and validity of Section 21(B) of the Manila
Revenue Code, as amended, and lifting the Writs of Preliminary Injunction issued in
said cases, the City of Manila and its officials resumed the enforcement of the local
business tax in question. City Treasurer Acevedo issued a Memorandum dated
September 7, 1995, instructing Oscar S. Dizon, Acting Chief, License Division, City
Treasurer’s Office of Manila, to prepare the complete staff work "for the collection of
the unpaid taxes, plus interests" imposed by Section 21(B) of the Manila Revenue Code,
as amended, against shipping companies and other common carriers.

A Petition for Prohibition with Temporary Restraining Order and/or Preliminary

Injunction38 was jointly filed before the Court by several foreign and domestic
corporations doing business in Manila as shipping companies and/or common carriers,
namely: Cosco Container Lines (Cosco) and Heung-A Shipping Co., LTD., both
represented by their resident agent, Wallem Philippines Shipping, Inc.; DSR Senator
Lines, Compania Sud Americana de Vapores S.A., and Arimura Sangyo Company, Ltd.,
all represented by their resident agent, C.F. Sharp Shipping Agencies, Inc.; Pacific
International Lines (PTE) Ltd. and Pacific Eagle Lines (PTE) Ltd., both represented by
their resident agent, TMS Ship Agencies, Inc.; Compagnie Maritime D’ Affretement
(CMA), represented by its resident Agent, Inchcape Shipping Services; Everett Orient
Lines, Inc., represented by it resident agent, Everett Steamship Corporation; Yangming
Marine Transport Corp., represented by its resident agent, Sky International, Inc.;
Nipon Yusen Kaisha, represented by its resident agent, Fil-Japan Shipping Corporation;
Hyundai Merchant Marine Co., Ltd., represented by its resident agent, Citadel Lines;
Malaysian International Shipping Corporation Berhad, represented by its resident agent,
Royal Cargo Agencies, Inc.; Bolt Orient Line, represented by its resident agent, FILSOV
Shipping Company, Inc.; Mitsui-O.S.K. Lines, Ltd., represented by its resident agent,
Magsaysay Agencies, Inc.; Phils., Micronesia & Orient Navigation Co. (PMSO Line),
represented by its resident agent, Van Transport Company, Inc.; Lloyd Triestino di
Navigazione S.P.A.N. and Compagnie Generale Maritime, both represented by their
resident agent, F.E. Zuellig (M), Inc.; and MadrigalWan Hai Lines (collectively referred
to herein as Cosco, et al.).

The Petition of Cosco, et al., was docketed as G.R. No. 122333. In their Petition, Cosco,
et al., presented for resolution of the Court the principal issue of whether or not Section
21(B) of the Manila Revenue Code, as amended, is constitutional. Cosco, et al., posited
that Section 21(B) of the Manila Revenue Code, as amended, is unconstitutional and
void ab initio because it was enacted by the Sangguniang Panlungsod ng Maynila,
which was presided over by Vice Mayor Atienza, approved by Mayor Lim, and
implemented and enforced by City Treasurer Acevedo, ultra viresand in violation of
constitutional and statutory limitations on the taxing power of LGUs. Hence, Cosco, et
al., prayed for the issuance of a writ of prohibition to restrain, enjoin, and prohibit
respondents City of Manila, Mayor Lim, Vice Mayor Atienza, Sangguniang Panlungsod,
and City Treasurer Acevedo, from enforcing Section 21(B) of the Manila Revenue Code,
as amended.

A joint Memorandum was filed on behalf of the petitioners in G.R. Nos. 121613,
122333, and 122349.

G.R. No. 122335

Sulpicio Lines, Inc. (Sulpicio Lines) is a domestic corporation, holding office in North
Harbor, Manila, whose principal business is the operation of domestic shipping vessels
for the transportation of cargoes and passengers.

Sulpicio Lines and Gothong Lines jointly filed a complaint for declaratory relief with
prayer for the issuance of a writ of preliminary injunction, which was docketed as Civil
Case No. 94-69141 and raffled to RTC-Branch 44. Sulpicio Lines and Gothong Lines
asked the trial court to determine the validity of Section 21(B)of the Manila Revenue
Code, as amended, as well as the rights and duties of said shipping companies
thereunder. However, after being informed that Maersk already filed a similar case, i.e.,
Civil Case No. 94-68861 before RTC-Branch 32, Gothong Lines decided to withdraw as
complainant in Civil Case No. 94-69141 and simply intervene in Civil Case No. 94-
68861. As a result, Sulpicio Lines became the sole complainant in Civil Case No. 94-
69141. Sulpicio Lines then filed a Motion to Consolidate Civil Case No. 94-69141 with
Civil Case No. 94-68861 which was granted.

On August 28, 1995, RTC-Branch 32 rendered a Decision in Civil Case Nos. 94-68861,
94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-
69028. Civil Case No. 94-69141 was not included in the caption of the
Decision,although the complaint of Sulpicio Lines was mentioned in the body of the
same Decision.

Sulpicio Lines did not formally receive a copy of the aforementioned Decision dated
August 28, 1995 of RTC-Branch 32 and was merely informed of the same by the
petitioners/intervenors in the other civil cases. This prompted Sulpicio Lines to file with
RTC-Branch 32 a Motion for Clarificatory Order seeking to verifyif said Decision included
and was binding on Sulpicio Lines. Acting on the Motion of Sulpicio Lines, RTC-Branch
32 issued an Order39 on October 16, 1995, which reads:

Although Civil Case No. 94-64191 is not included in the caption of the above Decision,
the Decision against all the petitioners, intervenors, most specifically against intervenor
Carlos A. Gothong Lines, Inc. is binding and enforceable against Sulpicio Lines, Inc.
because Civil Case No. 94-64191 had been consolidated with Civil Case No. 94-68861.

WHEREFORE, the Decision and the dispositive portion of the Decision rendered on
August 28, 1995, shall apply to and binds Sulpicio Lines, Inc. x x x.

After Sulpicio Lines confirmed that the Decision dated August 28, 1995 of RTC-Branch
32 in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939,
94-68940, 94-68941, and 94-69028, was also applicable to and binding upon it,it filed
with the Court a Petition for Review on Certiorari with Prayer for Issuance ofa
Preliminary Injunction and for a Temporary Restraining Order,40 against the City of
Manila, Mayor Lim, Vice Mayor Atienza, City Treasurer Acevedo, the Sangguniang
Panlungsod ng Maynila, and Presiding Judge Nabong of RTC-Branch 32. The appeal of
Sulpicio Lines was docketed as G.R. No. 122335.

The assignment of errors in the Petition of Sulpicio Lines was the same as that in the
Petition of William Lines, et al., in G.R. No. 121704, viz.:

A. The RTC erred in failing to declare that the aforecited Section 21(B) of
[the Manila Revenue Code, as amended, as] ultra vires and therefore null
and void because such sections of the Ordinances of the City of Manila
violate the Provisions of the LGC x x x

xxxx

B. The RTC erred in holding that Sec. 143(h) which is an omnibus grant of
power couched in general terms is the exception referred or adverted to
in Section 133(j) of the LGC.

C. The RTC erred in holding that there are only four basic requirements
for a valid exercise of the power of the City of Manila to levy tax.41

On January 31, 1996, the Court issued a Resolution42 referring the Petition of Sulpicio
Lines in G.R. No. 122335 to the Court of Appeals for proper determination and
disposition pursuant to Section 9, paragraph 3 of Batas Pambansa Blg. 129, which
granted the Court of Appeals "exclusive appellate jurisdiction over all final judgments,
decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial
agencies, instrumentalities, boards or commission." At the Court of Appeals, the Petition
of Sulpicio Lines was docketed as CA-G.R. SP No. 39973. In a Resolution43 dated April
12, 1996, the appellate court directed the respondents City of Manila, Mayor Lim, Vice
Mayor Atienza, City Treasurer Acevedo, the Sangguniang Panlungsod ng Maynila, and
Presiding Judge Nabong of RTC-Branch 32, to file their Comments.

In the meantime, Sulpicio Lines filed with the Court in G.R. No. 122335 a Motion for
Reconsideration of the Resolution dated January 31, 1996 and for Consolidation.44
Sulpicio Lines prayed that the Resolution dated January 31, 1996 of the Court inG.R.
No. 122335 be withdrawn; that the rolloof G.R. No. 122335 be transmitted back to the
Court; and that G.R. No. 122335 be consolidated with the other cases pending before
the Court en banc questioning the Decision dated August 28, 1995 of RTC-Branch 32
which upheld the constitutionality and validity of Section 21(B) of the Manila Revenue
Code, as amended.

After several copies of its Resolutions were returned unserved on the respondents in
G.R. Nos. 122335, 122349, and 124855, the Court issued a Resolution45 on December
2, 1997 dispensing with the filing of a Comment by the respondents in the three cases.

G.R. No. 122349

The Association of International Shipping Lines, Inc. (AISL) is a nonstock domestic

corporation the members of which are mostly foreign corporations duly licensed to do
business in the Philippines, specifically: American Transport Lines, Inc., represented by
its resident agent, Anchor International Shipping Agency, Inc.; Australian National Line,
Fleet Trans International, and United Arab Shipping Co., all represented by their
resident agent, Jardine Davies Transport; Dongnama Shipping Co., Ltd., represented by
its resident agent, Uni-Ship Incorporated; Hanjin Shipping Company, Ltd., represented
by its resident agent, MOF Company, Inc.; Hapag-Lloyd A/G, represented by its resident
agent, Hapag-Lloyd Phils., Inc.; Kawasaki Kisen Kaisha, represented by its resident
agent, Transmar Agencies, Inc.; Knutsen Line, represented by its resident agent, AWB
Trade International; Kyowa Line, represented by its resident agent, Sky International,
Inc.; NeptuneOrient Line, represented by its resident agent, Overseas Agency Services,
Inc.; Orient Overseas Container Line, represented by its resident agent, OOCL
(Philippines), Inc.; P&O Containers, Ltd., P&O Swire Containersand WILH Wilhelmsen
Line A/S, all represented by their resident agent, Soriamont Steamship Agencies;
Regional Container Lines (Pte) Ltd., represented by its resident agent, South China
Lines Phils., Inc.; Senator Line Bremen Germany, represented by its resident agent, C.F.
Sharp & Company; Tokyo Senpaku Kaisha, Ltd., represented by its resident agent, Fil-
Japan Shipping Corporation; Uniglory Line, represented by its resident agent, Don Tim
Shipping Corporation; Wan Hai Lines, Ltd., represented by its resident agent, Eastern
Shipping Agencies, Inc.; Westwind Line, represented by its resident agent, Westwind
Shipping Corporation; Zim Israel Navigation Co., Ltd., represented by its resident agent,
Overseas Freighters Shipping, Inc.; Eastern Shipping Lines, Inc.; Nedlloyd Lines, Inc.;
Philippine President Lines, Ltd.; and Sea-Land Service, Inc.

After RTC-Branch 32 rendered its Decision dated August 28, 1995 in Civil Case Nos. 94-
68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941,and
94-69028, upholding the constitutionality and validity of Section 21(B) of the Manila
Revenue Code, as amended; and City Treasurer Acevedo issued the Memorandum
dated September 7, 1995 ordering the collection of the business tax under the
questioned provision of the local tax ordinance, AISL, for itself and on behalf and for
the benefit of its above-named members, filed before the Court a Petition for
Prohibition with Temporary Restraining Order and/or Preliminary Injunction46 against
the City of Manila, Mayor Lim, Vice Mayor Atienza, City Treasurer Acevedo, and the
Sangguniang Panlungsod ng Maynila. The Petition of AISL, docketed as G.R. No.
122349, was substantially similar to the Petition of Cosco, et al., in G.R. No. 122333.

In its Resolution dated December 2, 1997, the Court dispensed with the filing of a
Comment by the respondents in G.R. Nos. 122335, 122349, and 124855.

The only other pleading in G.R. No. 122349 is a joint Memorandum filed on behalf of
the petitioners inG.R. Nos. 121613, 122333, and 122349.

G.R. No. 124855

Dongnama and Kyowa are foreign corporations, organized and existing under the laws
of the Republic of Korea and Japan, respectively. Both shipping companies are doing
business in the Philippines through their resident agent, Sky International, Inc.(Sky
International), with office in Binondo, Manila.

Dongnama and Kyowa, through Sky International, lodged a petition to declare

unconstitutional Section 21(B)of the Manila Revenue Code, as amended, with prayer for
a writ ofpreliminary injunction and TRO, docketed as Civil Case No. 94-68936 and
initially raffled to RTC-Branch 47, but later consolidated with Civil Case Nos. 94-68861,
94-68862, 94-68863, 94-68919, 94-68939, 94-68940, 94-68941, and 94-69028 before
RTC Branch 32. On August 28, 1995, RTC-Branch 32 rendered its Decision in the
consolidated civil cases upholding the constitutionality and validity of Section 21(B) of
the Manila Revenue Code, as amended.

Dongnama and Kyowa then filed with the Court a Petition for Certiorari with Urgent
Prayer for Restraining Order, seeking the annulment or modification of the foregoing
Decision of RTC-Branch 32. The Petition was docketed as G.R. No. 122120. Instead of
consolidating G.R. No. 122120 with the other pending cases that challenge the
constitutionality and validity of Section 21(B) of the Manila Revenue Code, as amended,
the Court issued a Resolution dated October 23, 1995 referring the Petition in G.R. No.
122120 to the Court of Appeals for the following reason:

Considering that under Section 19(sic), paragraph (1) of Batas Pambansa Blg. 129, the
Court of Appeals now exercises original jurisdiction to issue writs of mandamus,
prohibitions, certiorari, habeas corpus, and quo warranto, and auxiliary writs or
processes, whether or not in aid of its appellate jurisdiction, the Court resolved to
REFER this case to the Court of Appeals, for disposition.47

The Petition for Certiorariof Dongnama and Kyowa was docketed as CA-G.R. SP No.
39188 before the Court ofAppeals. The Court of Appeals rendered its Decision48 in CA-
G.R. SP No. 39188 on March 29, 1996, finding no merit in the Petition of Dongnama
and Kyowa as RTC-Branch 32 did not act with grave abuse of discretion when it ruled in
its Decision dated August 28, 1995 that Section 21(B) of the Manila Revenue Code, as
amended, is valid and in clear conformity with the law and the Constitution. In the end,
the appellate court adjudged: WHEREFORE, IN VIEW OF THE FOREGOING, the instant
petition is hereby DENIED for lack of merit.49

Dongnama and Kyowa went back before the Court "by way of Petition for Review on
Certiorari under Rule 65 of the Rules of Court," docketed as G.R. No. 124355, based on
a lone assignment of error:

RESPONDENT COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN ASSUMING

JURISDICTION OVER SUPREME COURT G.R. NO. 122120 ENTITLED "DONGNAMA
SHIPPING CO. LTD., AND KYOWA SHIPPING LTD. HEREIN REPRESENTED BY SKY
INTERNATIONAL INC. VS. HON. JUDGE JUAN C. NABONG JR., CITY OF MANILA,
MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, CITY COUNCIL OF MANILA, AND
CITY TREASURER ANTHONY ACEVEDO" WHEN IN FACT AS PER SUPREME COURT’S
RESOLUTION DATED 23 OCTOBER 1995 IN RELATION [TO] SECTION 9, PARAGRAPH
(1) BATAS PAMBANSA BLG. 129, THE ORIGINAL JURISDICTION PERTAINING TO THE
COURT OF APPEALS REFERS TO THE ISSUANCE OF WRIT OF CERTIORARI, AMONG
OTHERS AND NOT TO PETITION FOR CERTIORARI ON THE GROUND OF GRAVE
ABUSE OF DISCRETION WHICH THE HON. SUPREME COURT HAS EXCLUSIVE
JURISDICTION.50

Dongnama and Kyowa specifically prayed:

1. That this petition be given due course;

2. That the Decision dated 29 March 1996 be annulled and set aside
pending the resolution of the sameto be decided together with other
related cases by this Court;

3. That respondent’s Court of Appeals jurisdiction over the instant case be

limited to the issue on the propriety of the prayer for preliminary
injunction and restraining order in relation to the assailed Decision dated
28 August 1995 by RTC-Manila, Branch 32.51

The Court, in a Resolution dated December 2, 1997, dispensed with the filing of a
Comment by the respondents in G.R. Nos. 122335, 122349, and 124855.

Dongnama and Kyowa eventually filed a Memorandum.52

Consolidation of the 10 Petitions

The foregoing 10 cases were consolidated at different times and stages.53

On December 2, 1997, the Court issued a Resolution54 giving due course to the
Petitions and requiring the parties to simultaneously file their Memoranda within 20
days from notice. Among the parties to the 10 Petitions, Maersk, et al.; Eastern
Shipping; William Lines, et al.; PSTC; Cosco, et al.; AISL; and Dongnama and Kyowa
(petitioners in G.R. Nos.121613, 121675, 121704, 121720-28, 122333, 122349, and
124855, respectively) complied with the Resolution dated December 2, 1997 and
submitted their Memoranda.

In a Resolution55 dated April 23, 2002, the Court resolved to consider the cases
submitted for deliberation.

The Court issued a Resolution56 on July 5, 2011 requiring the parties to the 10 cases to
move in the premises.

A copy of the Resolution dated July 5, 2011 was served upon and received by Atty.
Renato G. Dela Cruz (Dela Cruz), City Legal Officer of Manila, on behalf of the City of
Manila, Mayor Lim, Vice Mayor Atienza, the City Council of Manila/Sangguniang
Panlungsod ng Maynila, and City Treasurer Acevedo, the petitioners in G.R. No. 120051
and respondents in the other nine cases.1âwphi1 Atty. Dela Cruz filed a Manifestation57
informing the Court that despite exerting effort, he could no longer locate the records
for the 10 cases. The former lawyers who handled the cases had long ceased to be
connected with the City of Manila and both were already deceased. Thus, Atty. Dela
Cruz prayed that he be furnished copies of the petitions and pleadings in the cases and
be given a freshperiod of 10 days from receipt thereof to submit his compliance with
the Resolution dated July 5, 2011. The Court granted Atty. Cruz’s prayer in a
Resolution58 dated April 24, 2012. Atty. Dela Cruz once more moved for an extension of
time to comply with the Resolution dated July 5, 2011, which the Court granted in a
Resolution59 dated November 20, 2012.

In a Resolution60 dated July 16, 2013, the Court took notice that Atty. Dela Cruz failed
to comply with the Resolution dated July 5, 2011 within the extended period which
expired on November 8, 2012. Resultantly, the Court resolved to require Atty. Dela Cruz
to(a) show cause why he should not be disciplinarily dealt with or held in contempt for
such failure; and (b) comply with the Resolution dated July 5, 2011, both within 10
days from notice.

Atty. Sitro G. Tajonera (Tajonera) of the Office of the City Legal Officer of Manila filed a
Manifestation and Motion for Leave to Withdraw Petition in G.R. No. 12005161 dated
August 12, 2013. Atty. Tajonera moved for the withdrawal of the Petition inG.R. No.
120051 on the ground that the issues therein had been rendered mootand academic by
the Decisions of the Court in Coca-Cola Bottlers Philippines, Inc. v. City of Manila62 and
City of Manila v. Coca-Cola Bottlers Philippines, Inc.63 (Coca-Cola cases), which declared
with finality the unconstitutionality of Section 21 of the Manila Revenue Code, as
amended.

Atty. Dela Cruz likewise filed a Compliance with the Court’s Show Cause Resolution
dated July 16, 2013. According to Atty. Dela Cruz, he already resigned as City Legal
Officerof Manila effective May 31, 2013. Still, Atty. Dela Cruz explained:

c. Due to the multifarious duties that undersigned attended to and the many legal
problems that confronted the Mayor whom he had to assist in resolving them, he
inadvertently overlooked the deadline set for submission of his compliance of the
Court’s directive which in fact lapsed without him having been reminded by Atty. Karen
Peralta of the unfulfilled obligation to this Honorable Court.

d. For this, he acknowledges thathe was remiss in his duty to the Court and in
delegating it to another.

[e.] Undersigned begs the Court’s clemency on his inability to submit the pleading
required of him and his fault in relying on his subordinate-lawyer to assist him in
complying with the Court’s directive.

[f.] Undersigned assures the Court that henceforth, he shall not commit the same
mistake or any neglect of duty or lack of respect to the Court.64

II

ARGUMENTS OF THE PARTIES

There is only one vital issue in all the 10 cases: Whether or not Section 21(B) of the
Manila Revenue Code, as amended, was in conformity with the Constitution and the
laws and, therefore, valid.

There are two fundamental and opposing positions on the issue. Presented below are
summaries of the arguments in support of each.

Section 21(B) of the Manila Revenue

Code, as amended, was

constitutional and valid.

The City of Manila, Mayor Lim, Vice Mayor Atienza, the Sangguniang Panlungsod ng
Maynila, and City Treasurer Acevedo argued that Section 21(B) was constitutional and
valid. RTC-Branch 32, in its Decision dated August 28, 1995 in Civil Case Nos. 94-
68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and
94-69028, and the Court of Appeals, in its Decision dated March 29, 1996 in CA-G.R. SP
No. 39188, adopted the same position.

The 1987 Constitution granted LGUs the power to create their own sources of revenue
and tolevy taxes, fees, and charges subject to the guidelines and limitations provided
by Congress, consistent with the policy of local autonomy. This grant was reiterated in
Section 129 of the LGC and the scope of tax powers of a city such as Manila is
described in Section 151 also of the LGC. Hence, the Constitution and Congress,
through the LGC, expressly granted LGUs the general power to tax.

The enactment of Section 21(B) of the Manila Revenue Code, as amended, is statutorily
ingrained. It is based on the exempting clause at the beginning of Section 133, in
conjunction with Section 143(h), of the LGC. The relevant provisions of the Code are
reproduced below: 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:

xxxx

(j) Taxes on the gross receipts of transportation contractors and persons engaged in
the transportation of passengers or freight by hire and common carriers by air, land or
water,except as provided in this Code;

SEC. 143. Tax on Business.– The municipality may impose taxes on the following
businesses:

xxxx

(h) On any business, not otherwise specified in the preceding paragraphs, which the
sanggunian concerned may deem proper to tax: Provided, That on any business subject
to the excise, value-added or percentage tax under the National Internal Revenue
Code, as amended,the rate of tax shall not exceedtwo percent (2%) of gross sales or
receipts of the preceding calendar year.

The sanggunian concerned may prescribe a schedule of graduated tax rates but in no
case to exceed the rates prescribed herein. (Emphases supplied.)

Inasmuch as "transportation contractors, persons who transport passenger or freight

for hire, and common carriers by land, air or water," are engaged in business subject to
excise, value added, or percentage tax under the National Internal Revenue Code
(NIRC), as amended, then the City of Manila could lawfully levy local business tax under
Section 21(B) of the Manila Revenue Code, as amended. It is irrelevant which of
Sections 133(j) and 143(h) of the LGC is the special orgeneral provision since there is
an exempting clause in Section 133, that is, "Unless otherwise provided herein," which
means that even if the businesses enumerated therein are exempted from the levy of
local tax, if there is a provision to the contrary, such as Section 143(h), the Sanggunian
concerned could still impose the local tax. As an alternative argument, Section 133(j) of
the LGC is the general provision on the limitations on the taxing power of the LGUs,
while Section 143(h) of the LGC is the specific provision on the businesses which the
LGUs could tax; and per the rules of statutory construction, the latter prevails over the
former. To rule otherwise and adopt the construction put forward by the opposing
parties would render Section 143(h) of the LGC a hollow decorative provision with no
subject to tax.

Moreover, the business tax imposed by Section 21(B) of the Manila Revenue Code, as
amended, complied with the limitations and conditions in the LGC for a valid local tax:
(1) The rate of tax did not exceed 2% of gross sales or receipts of the preceding
calendar year; (2) The tax is consistent with the basic policy of local autonomy; (3) The
tax is not unjust, excessive, oppressive, confiscatory, or contrary to declared national
policy; and (4) That a prior public hearing was conducted for the purpose of enacting
the Manila Revenue Code, as amended. Section 21(B) of the Manila Revenue Code, as
amended, also enjoyed the presumption of constitutionality and validity. This
presumption can only be overridden by overwhelming evidence to the contrary. In
Drilon v. Lim,65 the Court already declared the Manila Revenue Code as valid given that
the procedural requirements for the enactment of the same had been observed. Lastly,
taxes are the lifeblood of the nation. Tax exemptions are construed strictly against the
taxpayer, and the burden is upon the person claiming exemption from the tax to show
a clear grant of exemption by organic law or statute.

Section 21(B) of the Manila Revenue

Code, as amended, was null and void
for being contrary to the Constitution
and the LGC.

On the other end of the spectrum, MAS; Maersk, et al.; Eastern Shipping; William Lines,
et al.; PSTC; OFSI; Cosco, et al.; Sulpicio Lines; AISL; and Dongnama and Kyowa,
asserted that Section 21(B) of the Manila Revenue Code, as amended, was null and
void because it violated the Constitution and the LGC. It was the position affirmed by
RTC-Branch 43 in its Decision dated April 3, 1995 in Civil Case No. 94-69052.

Under the Philippine system of government, the power of taxation, while inherent in the
State in view of its sovereign prerogatives, is not inherent in municipal corporations or
LGUs. LGUs may exercise the power only if and to the extent that it is delegated to
them. One of the common limitations on the power to tax of LGUs is Section 133(j) of
the LGC, carried over from the Local Tax Code of 1973.
Section 133(j) expressly states that the taxing powers of the LGUs shall not extend to
the transportation business. Section 133(j) of the LGC is a special provision, which
prevails over Section 143(h) of the same Code, a general provision. This interpretation
would give effect to both Sections 133(j) and 143(h) of the LGC, and contrary to the
assertion of the City of Manila and its public officials, would not render Section 143(h)
useless, meaningless, and nugatory. There are other businesses which the LGUs may
tax under Section 143(h). Besides, incase of any doubt, any tax ordinance or revenue
measure shall be construed strictly against the LGU enacting it and liberally in favor of
the taxpayer, for taxes, being burdens, are not to be presumed beyond what the
applicable statute expressly and clearly declares.

In addition, although Section 21(B) of the Manila Revenue Code, as amended, imposed
what was denominated as a "business tax," in reality it was a percentage or sales tax.
Business tax is imposed on the privilege of doing business, though it may be computed
as a percentage of gross sales. For business tax, there is no set ratio between volume
of sales and the amount of tax. Cities and municipalities are given the power to impose
business tax under Section 143(h) of the LGC. In contrast, percentage or sales tax is
based on gross sales or receipts. The percentage bears a direct relationship to the sales
or receipts generated by a business, without regard for the extent of operation or size
of the business. Cities and municipalities may validly impose a tax on business, but
consonant with the limitations on local taxation, they may not impose percentage or
sales tax on top of what is already imposed in the NIRC. Section 21(B) of the Manila
Revenue Code, as amended, imposing on "transportation contractors, persons who
transport passenger or freight for hire, and common carriers by land, air or water," a
tax of 50% of 1% of the gross sales orreceipts from the preceding year on top of the
national taxes already imposed by the NIRC was unjust, unfair, excessive, confiscatory,
and in restraint of economic trade.

And finally, Section 21(B) of the Manila Revenue Code, as amended, violated the rule
on uniformity in taxation. Uniformity in taxation should not be construed in a pure
geographical sense, i.e., that the questioned tax was imposed with the same force and
effect on all businesses located in Manila. Shipping companies should be differentiated
from other businesses. Aside from the risks and responsibilities the shipping companies
shoulder, their services are not confined within the territorial limits of Manila alone but
extend to other parts of the world. It is not uniformity for the shipping companies to be
classed and taxed under the same category with other common carriers domiciled and
plying Manila territory 24 hours a day.

III
RULING OF THE COURT

Resolution of pending incidents in

several cases.
Before delving into the merits of the 10 cases, there are pending incidents in three
cases that first need to be addressed:

(1) G.R. No. 120051: The City Legal Officerof Manila, as counsel for the City of Manila,
Mayor Lim, and City Treasurer Acevedo, petitioners in G.R. No. 120051, filed a
Manifestation and Motion for Leave to Withdraw Petition in G.R. No. 120051, onthe
ground that the issues therein had been rendered moot and academic by the Decisions
of the Court in the Coca-Cola cases, which declared with finality the unconstitutionality
of Section 21 of the Manila Revenue Code, as amended.

The Court resolves to deny the motion to withdraw.

There already had been an exchange of pleadings between the parties in G.R. No.
120051, i.e., Petition, Comment, and Reply. In a Resolution dated December 2, 1997,
the Court also already considered G.R. No. 120051 and all the other nine consolidated
cases submitted for deliberation. At this stage, the decision to grant or not to grant the
motion to withdraw is fully within the discretion of the Court.66

The Court denies the motion to withdraw because the assertion by the City Legal
Officer of Manila that the Coca-Cola cases already rendered the issues in G.R. No.
120051 moot and academic is erroneous. The Court did not declare in the Coca-Cola
cases that Section 21 of the Manila Revenue Code, as amended, was unconstitutional.
What the Court held in the two Coca-Cola cases was that Ordinance Nos. 7988 and
8011 (approved by then Mayor Atienza on February 25, 2000 and February 22, 2001,
respectively), amending Section 21 of the Manila Revenue Code, werenull and void for
(a) failure to comply with the publication requirement for tax ordinances under Section
188 of the LGC; and (b) deletion of an exempting proviso found in Section 143(h) of
the LGC and the prior Section 21 of the Manila Revenue Code, which opened the door
to the double taxation of Coca-Cola. Section 21 of the Manila Revenue Code, as it was
amended by Ordinance No. 7807, and more specifically, paragraph (B) thereof, was not
the subject of a constitutional review by the Court in the Coca-Cola cases.

As for Atty. Dela Cruz’s Compliance with the Court’s Show Cause Resolution, the Court
finds the same satisfactory, although he is reminded to be more conscientious of his
duties as legal counsel in the future, despite the heavy volume of his work load.

(2) G.R. No. 121613: In a Resolution dated October 23, 1995, the Court dismissed the
Petition of Maersk, et al., for the latter’s failure to deposit sheriff’s fee and clerk’s
commission in the total amount of ₱202.00; and in light of said dismissal, noted without
action the Supplemental Petition and Motion of Maersk, et al., praying for the
confirmation of the Writ of Preliminary Injunction restored by RTC-Branch 32 and
deletion of RTC Branch 32 from the caption of G.R. No. 121613 for not being a
necessary party. In their pending Motion for Reconsideration of the Resolution dated
October 23, 1995, Maersk, et al., prayed that the Court give due course to and squarely
resolve their Petition and Supplemental Petition and Motion.

The Court resolves to grant the Motion for Reconsideration of Maersk, et al. It sets
aside the Resolution dated October 23, 1995; reinstates the Petition of Maersk, et al., in
G.R. No. 121613; and gives due course to the Petition and Supplemental Petition and
Motion of Maersk, et al., in the said case.

Of particular relevance to the plight of Maersk, et al., herein is the following discussion
of the Court in Ayala Land, Inc. v. Carpo67:

To be sure, the remedy of appeal is a purely statutory right and one who seeks to avail
thereof must comply with the statute or rule. For this reason, payment of the full
amount of the appellate court docket and other lawful fees within the reglementary
period is mandatory and jurisdictional. However, as we have ruled in Aranas v. Endona,
the strict application of the jurisdictional nature of the above rule on payment of
appellate docket fees may be mitigated under exceptional circumstances to better serve
the interest of justice. As early as 1946, in the case of Segovia v. Barrios, we ruled that
where an appellant in good faith paid less than the correct amount for the docket fee
because that was the amount he was required to pay by the clerk of court, and he
promptly paid the balance, it is error to dismiss his appeal because – every citizen has
the right to assume and trust that a public officer charged by law with certain duties
knows his duties and performs them in accordance with law. To penalize such citizen
for relying upon said officer in all good faith is repugnant to justice.

The ruling in Segoviawas applied by this Court in subsequent cases where an

appellant’s right to appeal was threatened by the mistake of public officers in
computing the correct amount of docket fee. Respondents draw attention to Rule 41,
§4 of the 1997 Rules of Civil Procedure which provides that the appellate court docket
and other lawful fees must be paid in full to the clerk of the court which rendered the
judgment or final order appealed from within the period for taking the appeal. They
argue that this Rule has overruled the decision in Segovia.

This contention is untenable. Rule41, §4 must be read in relation to Rule 50, §1(c)
which provides that:

An appeal may be dismissed by the Court of Appeals, on its own motion oron that of
the appellee, on the following grounds:

xxxx

(c) Failure of the appellant to pay the docket and other lawful fees as provided in
Section 4 of Rule 41.

xxxx
With the exception of §1(b), which refers to the failure to file notice of appeal or the
record on appeal within the period prescribed by these Rules, the grounds enumerated
in Rule 50, §1 are merely directory and not mandatory. This is plain from the use of the
permissive "may" in the text of the statute. Despite the jurisdictional nature of the rule
on payment of docket fee, therefore, the appellate court still has the discretion to relax
the rule in meritorious cases. The ruling in Segoviais still good law which the appellate
court, in the exercise of its discretion, must apply in circumstances such as that in the
present case where an appellant was, from the start, ready and willing to pay the
correct amount of docket fee, but was unable to do so due to the error of an officer of
the court in computing the correct amount. To hold otherwise would be unjust and
unwarranted. (Citations omitted.)

The Court notes that Revised Circular No. 1-88, effective July 1, 1991, which was cited
in the Resolution dated October 23, 1995 as basis for the dismissal of the Petition of
Maersk, et al., also used the word "may" in the first paragraph thereof:

(1) Payment of docketing and other fees.– Section 1 of Rule 45 requires that petitions
for review be filed and the required fees paid within the prescribed period. Unless
exempted by law or rule, such fees must be fully paid in accordance with this Circular;
otherwise, the Court maydeny the petition outright.The same rule shall govern petitions
under Rule 65. (Emphasis supplied.) Hence, denial of the petition for review outright for
failure to pay docketing and other fees within the prescribed period was also directory
and not mandatory upon the Court under Revised Circular No. 1-88.

In the exercise of its discretion, the Court determines that there was meritorious reason
why Maersk, et al., paid docket and other legal fees within the prescribed period, but
short of the ₱202.00 for sheriff’s fee and clerk’s commission. Maersk, et al., were
already assessed and required to pay the docket and legal fees when they filed their
Motion for Extension of Time to File Petition for Review on Certiorari. The Motion did
not yet indicate that the intended Petition would include a prayer for a TRO, so the
receiving clerk did not assess Maersk, et al., for sheriff’s fee and clerk’s commission.
When Maersk, et al., actually filed their Petition with prayer for the issuance of a writ of
preliminary injunction and TRO, they were no longer assessed additional fees by the
receiving clerk. Maersk, et al., found out about the deficiency in their legal fees upon
their receipt of the Resolution dated October 23, 1995 already dismissing their Petition
and noting without action their Supplemental Petition and Motion. Maersk, et al.,
immediately filed a Motion for Reconsideration of said Resolution, and also deposited
their balance of ₱202.00 with the Court.

Given the circumstances, Maersk, et al., cannot be faulted for their failure to pay the
required legal fees for such failure was clearly not a dilatory tactic nor intended to
circumvent the Rules of Court. On the contrary, the subsequent payment by Maersk, et
al., of the ₱202.00 deficiency even before the Court had passed upon their Motion for
Reconsideration was indicative of their good faith and willingness to comply with the
Rules.68

Acting on the Supplemental Petition and Motion of Maersk, et al., the Court further
resolves to NOTE WITHOUT ACTION the prayer to confirm the Writ of Preliminary
Injunction restored by RTC-Branch 32 in light of the present judgment, and to
GRANTthe prayer to delete RTCBranch 32 from the caption of the caseas it was not a
necessary party.

(3) G.R. No. 122335: In a Resolution dated January 31, 1996, the Court referred the
Petition of Sulpicio Lines to the Court of Appeals. There is a pending Motion for
Reconsideration of the Resolution dated January 31, 1996 filed by Sulpicio Lines
seeking the withdrawal of the Resolution dated January 31, 1996 and transmittal of the
rolloof G.R. No. 122335 from the Court of Appeals back to the Court.

The Court resolves to grant the Motion for Reconsideration of Sulpicio Lines. It sets
aside the Resolution dated January 31, 1996 and gives due course to the Petition of
Sulpicio Lines in G.R. No. 122335.

The Petition for Review on Certiorari of Sulpicio Lines, filed under Rule 42 of the old
Rules of Court, should not have been referred to the Court of Appeals. It is true that
under Section 9, paragraph (3) of Batas Pambansa Blg. 129, the Court of Appeals has
"(e)xclusive appellate jurisdiction over all final judgments, resolutions, orders orawards
of Regional Trial Courts x x x." However, Rule 42 of the old Rules of Court, then in
effect, allowed an appeal straight from the RTC (formerly called Court of First Instance)
to the Supreme Court when the appeal raised pure questions of law:

RULE 42
APPEAL FROM COURTS OF FIRST INSTANCE
TO SUPREME COURT

Section 1. Procedure.– The procedure of appeal to the Supreme Court from Courts of
First Instance shall be governed by the same rules governing appeals to the Court of
Appeals, except as hereinafter provided.

Section 2. Appeals on pure question of law.– Where the appellant states in his notice of
appeal or record on appeal that he will raise only questions of law, no other question
shall be allowed, and the evidence need not be elevated.

A cursory reading of the Petition for Review on Certiorariof Sulpicio Lines would readily
reveal that it appealed the Decision dated August 28, 1995 of RTC-Branch 32 in Civil
Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940,
94-68941,and 94-69028 based only on questions of law. The Petition did not raise any
question of fact and did not require the presentation or elevation of evidence.

In G.R. No. 124855, Dongnama and Kyowa questioned the Resolution dated October
23, 1995, which similarly referred their original Petition for Certiorari, docketed as G.R.
No. 122120, to the Court of Appeals, where it was docketed as CA-G.R. SP No. 39188.
The Resolution dated October 23, 1995 cited as basis for the referral Section 9,
paragraph (1) of Batas Pambansa Blg. 129 which gave the Court of Appeals "[o]riginal
jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas corpus,and quo
warranto,and auxiliary writs or processes, whether or not in aid of its appellate
jurisdiction." The Court, however, will no longer address the propriety of the referral of
the original Petition of Dongnama and Kyowa to the Court of Appeals since said issue
has become moot and academic after the appellate court rendered its Decision in CA-
G.R. SP No. 39188 on March 29, 1996. The Court will simply treat the Petition in G.R.
No. 124855 as an appeal of the Decision dated March 29,1996 of the Court of Appeals
in CAG.R. SP No. 39188.

Ruling on the merits of the 10 Petitions.

The Court rules in favor of MAS; Maersk, et al.; Eastern Shipping; William Lines, et al.;
PSTC; OFSI; Cosco, et al.; Sulpicio Lines; AISL; and Dongnama and Kyowa. Section
21(B) of the Manila Revenue Code, as amended, was null and void for being beyond
the power of the City of Manila and its public officials to enact, approve, and implement
under the LGC.

It is already well-settled that although the power to tax is inherent in the State, the
same is not true for the LGUs to whom the power must be delegated by Congress and
must be exercised within the guidelines and limitations that Congress may provide. The
Court expounded in Pelizloy Realty Corporation v. The Province of Benguet69 that:

The power to tax "is an attribute of sovereignty," and as such, inheres in the State.
Such, however, is not true for provinces, cities, municipalities and barangays as they
are not the sovereign; rather, they are mere "territorial and political subdivisions of the
Republic of the Philippines".

The rule governing the taxing power of provinces, cities, municipalities and barangays
is summarized in Icard v. City Council of Baguio:

It is settled that a municipal corporation unlike a sovereign state is clothed with no

inherent power of taxation. The charter or statute must plainly show an intent to confer
that power or the municipality, cannot assume it. And the power when granted is to be
construed in strictissimi juris. Any doubt or ambiguity arising out of the term used in
granting that power must be resolved against the municipality. Inferences, implications,
deductions – all these – have no place in the interpretation of the taxing power of a
municipal corporation.

Therefore, the power of a province to tax is limited to the extent that such power is
delegated to it either by the Constitution or by statute. Section 5, Article X of the 1987
Constitution is clear on this point:

Section 5. 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.

Per Section 5, Article X of the 1987 Constitution, "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." Nevertheless, such authority is "subject to such
guidelines and limitations as the Congress may provide".

In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted

Republic Act No. 7160, otherwise known as the Local Government Code of 1991. Book
II of the LGC governs local taxation and fiscal matters.

Relevant provisions of Book II of the LGC establish the parameters of the taxing powers
of LGUs found below.

First, Section 130 provides for the following fundamental principles governing the taxing
powers of LGUs:

1. Taxation shall be uniform in each LGU.

2. Taxes, fees, charges and other impositions shall:

a. be equitable and based asfar as practicable on the taxpayer’s

ability to pay;

b. be levied and collected only for public purposes;

c. not be unjust, excessive, oppressive, or confiscatory;

d. not be contrary to law, public policy, national economic policy, or

in the restraint of trade.

3. The collection of local taxes, fees, charges and other impositions shall
in no case be let to any private person.

4. The revenue collected pursuant to the provisions of the LGC shall inure
solely to the benefit of, and be subject to the disposition by, the LGU
levying the tax, fee, charge or other imposition unless otherwise
specifically provided by the LGC.

5. Each LGU shall, as far as practicable, evolve a progressive system of

 taxation.

Second, Section 133 provides for the common limitations on the taxing powers of LGUs.
x x x. (Underscoring and citations omitted.)

Among the common limitations on the taxing power of LGUs is Section 133(j) of the
LGC, which states that "[u]nless otherwise provided herein," the taxing power of LGUs
shall not extend to "[t]axes on the gross receipts of transportation contractors and
persons engaged in the transportation of passengers or freight by hire and common
carriers by air, land or water, except as provided in this Code[.]"

Section 133(j) of the LGC clearly and unambiguously proscribes LGUs from imposing
any tax on the gross receipts of transportation contractors, persons engaged in the
transportation of passengers or freight by hire, and common carriers by air, land,
orwater. Yet, confusion arose from the phrase "unless otherwise provided herein,"
found at the beginning of the said provision. The City of Manila and its public officials
insisted that said clause recognized the power of the municipality or city, under Section
143(h) of the LGC, to impose tax "on any business subject to the excise, value-added or
percentage tax under the National Internal Revenue Code, as amended." And it was
pursuant to Section 143(h) of the LGC that the City of Manila and its public officials
enacted, approved,and implemented Section 21(B) of the Manila Revenue Code, as
amended.

The Court is not convinced. Section 133(j) of the LGC prevails over Section 143(h) of
the same Code, and Section 21(B) of the Manila Revenue Code, as amended, was
manifestly in contravention of the former.

First, Section 133(j) of the LGC is a specific provision that explicitly withholds from any
LGU, i.e., whether the province, city, municipality, or barangay, the power to tax the
gross receipts of transportation contractors, persons engaged in the transportation of
passengers or freight by hire, and common carriers by air, land, or water.

In contrast, Section 143 of the LGC defines the general power of the municipality (as
well as the city, if read in relation to Section 15170 of the same Code) to tax businesses
within its jurisdiction. While paragraphs (a) to (g) thereof identify the particular
businesses and fix the imposable tax rates for each, paragraph (h) is apparently the
"catch-all provision" allowing the municipality to impose tax "on any business, not
otherwise specified in the preceding paragraphs, which the sanggunian concerned may
deem proper to tax[.]"

The succeeding proviso of Section 143(h) of the LGC, viz., "Provided, That on any
business subject to the excise, value-added or percentage tax under the National
Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%)
of gross sales or receipts of the preceding calendar year[,]" is not a specific grant of
power to the municipality or city to impose business tax on the gross sales or receipts
of such a business. Rather, the proviso only fixes a maximum rate of imposable
business tax in case the business taxed under Section 143(h) of the LGC happens to be
subject to excise, value added, or percentage tax under the NIRC.

The omnibus grant of power to municipalities and cities under Section 143(h) of the
LGC cannot overcome the specific exception/exemption in Section 133(j) of the same
Code. This is in accord with the rule on statutory construction that specific provisions
must prevail over general ones.71 A special and specific provision prevails over a general
provision irrespective of their relative positions in the statute. Generalia specialibus non
derogant. 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 enactmentmust be operative, and the general enactment must be
taken to affect only such cases within its general language as are not within the
provisions of the particular enactment.72

In the case at bar, the sanggunian of the municipality or city cannot enact an ordinance
imposing business tax on the gross receipts of transportation contractors, persons
engaged in the transportation of passengers or freight by hire, and common carriers by
air, land, or water, when said sanggunian was already specifically prohibited from doing
so. Any exception to the express prohibition under Section 133(j) of the LGC should be
just as specific and unambiguous. Second, the construction adopted by the Court gives
effect to both Sections 133(j) and 143(h) of the LGC. In construing a law, care should
be taken that every part thereof be given effect and a construction that could render a
provision inoperative should be avoided, and inconsistent provisions should be
reconciled whenever possible as parts of a harmonious whole.73

As pointed out by William Lines, et al., in their Petition, despite the prohibition against
LGUs imposing tax on the gross receipts of transportation contractors, persons engaged
in the transportation of passengers or freight by hire, and common carriers by air, land,
or water, under Section 133(j) of the LGC, there are still other multiple businesses
subject to excise, value added, or percentage tax under the NIRC, which the
municipalities and cities can still tax pursuant to Section 143(h) of the LGC, such as:

1) Hotels and motels under Sec. 113 of the NIRC;

2) Caterers, taxed under Sec. 114 of the NIRC;

3) Dealers in securities, taxed under Sec. 116 of the NIRC;

4) Franchise holders, taxed under Sec. 117 of the NIRC;

5) Senders of overseas dispatch, message or communication originating in

the Philippines, taxed under Sec. 118 of the NIRC;
 6) Banks and non-bank financial intermediaries, taxed under Sec. 119 of
the NIRC;

7) Finance companies, taxed under Sec. 120 of the NIRC; 8) Agents of

foreign insurance companies, taxed under Sec. 122 of the NIRC;

9) Amusement places, taxed under Sec. 123 of the NIRC;

10) Winners in horse races, taxed under Sec. 124 of the NIRC; and

11) Those who sell, barter, or exchange shares of stocks, taxed under
Sec. 124-A of the NIRC.74

Thus, Section 143(h) of the LGC would not be "a hollow decorative provision with no
subject to tax." On the contrary, it would be Section 133(j) of the LGC which would
become inoperative should the Court accept the construction proffered by the City of
Manila and its public officials, because then, there would be no instance at all when the
gross receipts of the transportation contractors, persons engaged in the transportation
of passengers or freight by hire, and common carriers by air, land, or water, would not
be subject to tax by the LGUs.

Third, Section 5(b) of the LGC itself, on Rules of Interpretation, provides:

SEC. 5. Rules of Interpretation.– In the interpretation of the provisions of this Code, the
following rules shall apply:

xxxx

(b) In case of doubt, any tax ordinance or revenue measure shall be construed strictly
against the local government unit enacting it, and liberally in favor of the taxpayer. Any
tax exemption, incentive or relief granted by any local government unit pursuant to the
provisions of this Code shall be construed strictly against the person claiming it[.]

The Court strictly construes Section 21(B) of the Manila Revenue Code, as amended,
against the City ofManila and its public officials and liberally in favor of the
transportation contractors, persons engaged in the transportation of passengers or
freight by hire, and common carriers by air, land, or water. Strictly assessed against the
guidelines and limitations set forth in the LGC, Section 21(B) of the Manila Revenue
Code, as amended, was enacted ultra vires.

And fourth, the construction adopted by the Court is in accordance with the consistent
intention of the laws to withhold from the LGUs the power to tax transportation
contractors,persons engaged in the transportation of passengers or freight by hire, and
common carriers by air, land, or water.
Even prior to Section 133(j) of the LGC, Section 5(e) of Presidential Decree No. 231,
otherwise known as The Local Tax Code, as amended, already limited the taxing
powers of LGUs as follows:

SEC. 5. Common limitations on the taxing powers of local government. – The exercise
of the taxing powers of provinces, cities, municipalities and barrios shall not extend to
the imposition of the following:

xxxx

(e) Taxes on the business of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carries by air, land or water
except as otherwise provided in this Code, and taxes or fees for the registration of
motor vehicles and for the issuance of all kinds of licenses or permits for the driving
thereof;

The Court, in First Philippine Industrial Corp. v. Court of Appeals,75 expounded on the
lawmakers’ reason for exempting the gross receipts of common carriers from the taxing
powers of the LGUs:

From the foregoing disquisition, there is no doubt that petitioner is a "common carrier"
and, therefore, exempt from the business tax as provided for in Section 133 (j), of the
Local Government Code x x x

xxxx

The deliberations conducted in the House of Representatives on the Local Government

Code of 1991 are illuminating:

"MR. AQUINO (A). Thank you, Mr. Speaker.

Mr. Speaker, we would like to proceed to page 95, line 1. It states: "SEC. 121 (now
Sec. 131). Common Limitations on the Taxing Powers of Local Government Units." . . .

MR. AQUINO (A.). Thank you Mr. Speaker.

Still on page 95, subparagraph 5, on taxes on the business of transportation. This

appears to be one of those being deemed to be exempted from the taxing powers of
the local government units. May we know the reason why the transportation business is
being excluded from the taxing powers of the local government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec.
131), line 16, paragraph 5. It states that local government units may not impose taxes
on the business of transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can
see there that provinces have the power to impose a tax on business enjoying a
franchise at the rate of not more than one-half of 1 percent of the gross annual
receipts. So, transportation contractors who are enjoying a franchise would be subject
to tax by the province. That is the exception, Mr. Speaker.

What we want to guard against here, Mr. Speaker is the imposition of taxes by local
government units on the carrier business.1âwphi1 Local government units may impose
taxes on top of what is already being imposed by the National Internal Revenue Code
which is the so-called "common carriers tax." We do not want a duplication of this tax,
so we just provided for an exception under Section 125 (now Section 137) that a
province may impose this tax at a specific rate.

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . .

It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier’s tax."

Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. To tax petitioner again on its
gross receipts in its transportation of petroleum business would defeat the purpose of
the Local Government Code. (Citations omitted.)

Consistent with the foregoing legislative intent, Republic Act No. 7716, more popularly
known as the Expanded Value-Added Tax (E-VAT) Law, which took effect after the LGC
on May 28, 1994, expressly amended the NIRC of 1977 and added to Section 115 of
the latter on "Percentage tax on carriers and keepers of garages," the following
proscription: "The gross receipts of common carriers derived from their incoming and
outgoing freight shall not be subjected to the local taxes imposed under Republic Act
No. 7160, otherwise known as the Local Government Code of 1991."

IV
DISPOSITIVE PORTION

WHEREFORE, in view of the foregoing, the Court hereby RESOLVES:

1. In G.R. No. 120051: (a) to DENY the Motion to Withdraw the Petition
filed by the Office of the City Legal Officer on behalf of the City of Manila,
Mayor Atienza, and City Treasurer Acevedo; and (b) to DECLARE as
SATISFACTORY the Compliance submitted by Atty. Dela Cruz;

2. In G.R. No. 121613: (a) to GRANT the Motion for Reconsideration of

Maersk, et al.; (b) to SET ASIDE the Resolution dated October 23, 1995;
(c) to REINSTATE the Petition of Maersk, et al.; (d) to GIVE DUE COURSE
 to the Petition and the Supplemental Petition and Motion of Maersk, et al.;
( e) as regards the Supplemental Petition and Motion of Maersk, et al., to
NOTE WITHOUT ACTION the prayer to confirm the Writ of Preliminary
Injunction restored by RTC-Branch 32 in light of the present judgment,
and to GRANT the prayer to delete RTC Branch 32 from the caption of the
case for not being a necessary party; and

3. In G.R. No. 122335: (a) to GRANT the Motion for Reconsideration of

Sulpicio Lines; (b) to SET ASIDE the Resolution dated January 31, 1996;
and (c) to GIVE DUE COURSE to the Petition of Sulpicio Lines.

Furthermore, the Court hereby DECIDES:

1. To DECLARE Section 21(B) of the Manila Revenue Code, as amended,

null and void for being in violation of the guidelines and limitations on the
taxing powers of the LGUs under the LGC;

2. In G.R. No. 120051: (a) to DENY the Petition of the City of Manila,
Mayor Lim, and City Treasurer Acevedo; and (b) to AFFIRM the Decision
dated April 3, 1995 of RTC-Branch 43 in Civil Case No. 94-69052; and

3. In G.R. Nos. 121613, 121675, 121704, 121720-28, 121847-55, 122333,

122335, 122349, and 124855: (a) to GRANT the Petitions of Maersk, et
al.; Eastern Shipping; William Lines, et al.; PSTC; OFSI; Cosco, et al.;
Sulpicio Lines; AISL; and Dongnama and Kyowa, respectively; (b) to
REVERSE and SET ASIDE the Decision dated August 28, 1995 of RTC
Branch 32 in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919,
94-68936, 94-68939, 94-68940, 94-68941, and 94-69028, and the
Decision dated March 29, 1996 of the Court of Appeals in CA-G.R. SP No.
39188; (c) to ORDER the City of Manila to refund to Maersk, et al.;
Eastern Shipping; William Lines, et al.; PSTC; OFSI; Cosco, et al.; Sulpicio
Lines; AISL; and Dongnama and Kyowa the business taxes assessed and
collected against said corporations under Section 21 (B) of the Manila
Revenue Code, as amended; and ( d) to MAKE PERMANENT the Writs of
Preliminary Injunction restored by RTC-Branch 32 during the pendency of
the Petitions at bar.

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
Malacañang 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.1äwphï1.ñët

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.

G.R. No. 204429 February 18, 2014

SMART COMMUNICATIONS, INC., Petitioner,

vs.
MUNICIPALITY OF MALVAR, BATANGAS, Respondent.

DECISION

CARPIO, J.:

The Case

This petition for review1 challenges the 26 June 2012 Decision2 and 13 November 2012
Resolution3 of the Court of Tax. Appeals (CTA) En Banc.
Th e CTA En Banc affirmed the 17 December 2010 Decision4 and 7 April 2011
Resolution5 of the CTA First Division, which in turn affirmed the 2 December 2008
Decision6 and 21 May 2009 Order7 of the Regional Trial Court of Tanauan City,
Batangas, Branch 6. The trial court declared void the assessment imposed by
respondent Municipality of Malvar, Batangas against petitioner Smart Communications,
Inc. for its telecommunications tower for 2001 to July 2003 and directed respondent to
assess petitioner only for the period starting 1 October 2003.

The Facts

Petitioner Smart Communications, Inc. (Smart) is a domestic corporation engaged in

the business of providing telecommunications services to the general public while
respondent Municipality of Malvar, Batangas (Municipality) is a local government unit
created by law.

In the course of its business, Smart constructed a telecommunications tower within the
territorial jurisdiction of the Municipality. The construction of the tower was for the
purpose of receiving and transmitting cellular communications within the covered area.

On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An
Ordinance Regulating the Establishment of Special Projects."

On 24 August 2004, Smart received from the Permit and Licensing Division of the Office
of the Mayor of the Municipality an assessment letter with a schedule of payment for
the total amount of ₱389,950.00 for Smart’s telecommunications tower. The letter reads
as follows:

This is to formally submit to your good office your schedule of payments in the
Municipal Treasury of the Local Government Unit of Malvar, province of Batangas which
corresponds to the tower of your company built in the premises of the municipality, to
wit:

TOTAL PROJECT COST: PHP

11,000,000.00

For the Year 2001-2003

50% of 1% of the total project cost Php55,000.00

Add: 45% surcharge 24,750.00

 Php79,750.00

Multiply by 3 yrs. (2001, 2002, 2003) Php239,250.00

For the year 2004

1% of the total project cost Php110,000.00

37% surcharge 40,700.00

==========

Php150,700.00

TOTAL Php389,950.00

Hoping that you will give this matter your preferential attention.8

Due to the alleged arrears in the payment of the assessment, the Municipality also
caused the posting of a closure notice on the telecommunications tower.

On 9 September 2004, Smart filed a protest, claiming lack of due process in the
issuance of the assessment and closure notice. In the same protest, Smart challenged
the validity of Ordinance No. 18 on which the assessment was based.

In a letter dated 28 September 2004, the Municipality denied Smart’s protest.

On 17 November 2004, Smart filed with Regional Trial Court of Tanauan City, Batangas,
Branch 6, an "Appeal/Petition" assailing the validity of Ordinance No. 18. The case was
docketed as SP Civil Case No. 04-11-1920.

On 2 December 2008, the trial court rendered a Decision partly granting Smart’s
Appeal/Petition. The trial court confined its resolution of the case to the validity of the
assessment, and did not rule on the legality of Ordinance No. 18. The trial court held
that the assessment covering the period from 2001 to July 2003 was void since
Ordinance No. 18 was approved only on 30 July 2003. However, the trial court declared
valid the assessment starting 1 October 2003, citing Article 4 of the Civil Code of the
Philippines,9 in relation to the provisions of Ordinance No. 18 and Section 166 of
Republic Act No. 7160 or the Local Government Code of 1991 (LGC).10 The dispositive
portion of the trial court’s Decision reads:
WHEREFORE, in light of the foregoing, the Petition is partly GRANTED. The assessment
dated August 24, 2004 against petitioner is hereby declared null and void insofar as the
assessment made from year 2001 to July 2003 and respondent is hereby prohibited
from assessing and collecting, from petitioner, fees during the said period and the
Municipal Government of Malvar, Batangas is directed to assess Smart Communications,
Inc. only for the period starting October 1, 2003.

No costs.

SO ORDERED.11

The trial court denied the motion for reconsideration in its Order of 21 May 2009.

On 8 July 2009, Smart filed a petition for review with the CTA First Division, docketed
as CTA AC No. 58.

On 17 December 2010, the CTA First Division denied the petition for review. The
dispositive portion of the decision reads:

WHEREFORE, the Petition for Review is hereby DENIED, for lack of merit. Accordingly,
the assailed Decision dated December 2, 2008 and the Order dated May 21, 2009 of
Branch 6 of the Regional Trial Court of Tanauan City, Batangas in SP. Civil Case No. 04-
11-1920 entitled "Smart Communications, Inc. vs. Municipality of Malvar, Batangas" are
AFFIRMED.

SO ORDERED.12

On 7 April 2011, the CTA First Division issued a Resolution denying the motion for
reconsideration.

Smart filed a petition for review with the CTA En Banc, which affirmed the CTA First
Division’s decision and resolution. The dispositive portion of the CTA En Banc’s 26 June
2012 decision reads:

WHEREFORE, premises considered, the present Petition for Review is hereby

DISMISSED for lack of merit.1âwphi1

Accordingly, the assailed Decision dated December 17, 2010 and Resolution dated April
7, 2011 are hereby AFFIRMED.

SO ORDERED.13

The CTA En Banc denied the motion for reconsideration.

Hence, this petition.

 The Ruling of the CTA En Banc

The CTA En Banc dismissed the petition on the ground of lack of jurisdiction. The CTA
En Banc declared that it is a court of special jurisdiction and as such, it can take
cognizance only of such matters as are clearly within its jurisdiction. Citing Section 7(a),
paragraph 3, of Republic Act No. 9282, the CTA En Banc held that the CTA has
exclusive appellate jurisdiction to review on appeal, decisions, orders or resolutions of
the Regional Trial Courts in local tax cases originally resolved by them in the exercise of
their original or appellate jurisdiction. However, the same provision does not confer on
the CTA jurisdiction to resolve cases where the constitutionality of a law or rule is
challenged.

The Issues

The petition raises the following arguments:

1. The [CTA En Banc Decision and Resolution] should be reversed and set aside
for being contrary to law and jurisprudence considering that the CTA En Banc
should have exercised its jurisdiction and declared the Ordinance as illegal.

2. The [CTA En Banc Decision and Resolution] should be reversed and set aside
for being contrary to law and jurisprudence considering that the doctrine of
exhaustion of administrative remedies does not apply in [this case].

3. The [CTA En Banc Decision and Resolution] should be reversed and set aside
for being contrary to law and jurisprudence considering that the respondent has
no authority to impose the so-called "fees" on the basis of the void ordinance.14

The Ruling of the Court

The Court denies the petition.

On whether the CTA has jurisdiction over the present case

Smart contends that the CTA erred in dismissing the case for lack of jurisdiction. Smart
maintains that the CTA has jurisdiction over the present case considering the "unique"
factual circumstances involved.

The CTA refuses to take cognizance of this case since it challenges the constitutionality
of Ordinance No. 18, which is outside the province of the CTA.

Jurisdiction is conferred by law. Republic Act No. 1125, as amended by Republic Act No.
9282, created the Court of Tax Appeals. Section 7, paragraph (a), sub-paragraph (3)15
of the law vests the CTA with the exclusive appellate jurisdiction over "decisions, orders
or resolutions of the Regional Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction."

The question now is whether the trial court resolved a local tax case in order to fall
within the ambit of the CTA’s appellate jurisdiction This question, in turn, depends
ultimately on whether the fees imposed under Ordinance No. 18 are in fact taxes.

Smart argues that the "fees" in Ordinance No. 18 are actually taxes since they are not
regulatory, but revenue-raising. Citing Philippine Airlines, Inc. v. Edu,16 Smart contends
that the designation of "fees" in Ordinance No. 18 is not controlling.

The Court finds that the fees imposed under Ordinance No. 18 are not taxes.

Section 5, Article X of the 1987 Constitution provides that "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 government."

Consistent with this constitutional mandate, the LGC grants the taxing powers to each
local government unit. Specifically, Section 142 of the LGC grants municipalities the
power to levy taxes, fees, and charges not otherwise levied by provinces. Section 143
of the LGC provides for the scale of taxes on business that may be imposed by
municipalities17 while Section 14718 of the same law provides for the fees and charges
that may be imposed by municipalities on business and occupation.

The LGC defines the term "charges" as referring to pecuniary liability, as rents or fees
against persons or property, while the term "fee" means "a charge fixed by law or
ordinance for the regulation or inspection of a business or activity."19

In this case, the Municipality issued Ordinance No. 18, which is entitled "An Ordinance
Regulating the Establishment of Special Projects," to regulate the "placing, stringing,
attaching, installing, repair and construction of all gas mains, electric, telegraph and
telephone wires, conduits, meters and other apparatus, and provide for the correction,
condemnation or removal of the same when found to be dangerous, defective or
otherwise hazardous to the welfare of the inhabitant[s]."20 It was also envisioned to
address the foreseen "environmental depredation" to be brought about by these
"special projects" to the Municipality.21 Pursuant to these objectives, the Municipality
imposed fees on various structures, which included telecommunications towers.

As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to
regulate the "placing, stringing, attaching, installing, repair and construction of all gas
mains, electric, telegraph and telephone wires, conduits, meters and other apparatus"
listed therein, which included Smart’s telecommunications tower. Clearly, the purpose of
the assailed Ordinance is to regulate the enumerated activities particularly related to
the construction and maintenance of various structures. The fees in Ordinance No. 18
are not impositions on the building or structure itself; rather, they are impositions on
the activity subject of government regulation, such as the installation and construction
of the structures.22

Since the main purpose of Ordinance No. 18 is to regulate certain construction activities
of the identified special projects, which included "cell sites" or telecommunications
towers, the fees imposed in Ordinance No. 18 are primarily regulatory in nature, and
not primarily revenue-raising. While the fees may contribute to the revenues of the
Municipality, this effect is merely incidental. Thus, the fees imposed in Ordinance No. 18
are not taxes.

In Progressive Development Corporation v. Quezon City,23 the Court declared that "if
the generating of revenue is the primary purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally
revenue is also obtained does not make the imposition a tax."

In Victorias Milling Co., Inc. v. Municipality of Victorias,24 the Court reiterated that the
purpose and effect of the imposition determine whether it is a tax or a fee, and that the
lack of any standards for such imposition gives the presumption that the same is a tax.

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

Contrary to Smart’s contention, Ordinance No. 18 expressly provides for the standards
which Smart must satisfy prior to the issuance of the specified permits, clearly
indicating that the fees are regulatory in nature.

These requirements are as follows:

SECTION 5. Requirements and Procedures in Securing Preliminary Development Permit.

The following documents shall be submitted to the SB Secretary in triplicate:

a) zoning clearance
 b) Vicinity Map

c) Site Plan

d) Evidence of ownership

e) Certificate true copy of NTC Provisional Authority in case of Cellsites,

telephone or telegraph line, ERB in case of gasoline station, power plant, and
other concerned national agencies

f) Conversion order from DAR is located within agricultural zone.

g) Radiation Protection Evaluation.

h) Written consent from subdivision association or the residence of the area

concerned if the special projects is located within the residential zone.

i) Barangay Council Resolution endorsing the special projects.

SECTION 6. Requirement for Final Development Permit – Upon the expiration of 180
days and the proponents of special projects shall apply for final [development permit]
and they are require[d] to submit the following:

a) evaluation from the committee where the Vice Mayor refers the special project

b) Certification that all local fees have been paid.

Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and
Smart is questioning the constitutionality of the ordinance, the CTA correctly dismissed
the petition for lack of jurisdiction. Likewise, Section 187 of the LGC,25 which outlines
the procedure for questioning the constitutionality of a tax ordinance, is inapplicable,
rendering unnecessary the resolution of the issue on non-exhaustion of administrative
remedies.

On whether the imposition of the fees in Ordinance No. 18 is ultra vire Smart argues
that the Municipality exceeded its power to impose taxes and fees as provided in Book
II, Title One, Chapter 2, Article II of the LGC. Smart maintains that the mayor’s permit
fees in Ordinance No. 18 (equivalent to 1% of the project cost) are not among those
expressly enumerated in the LGC.

As discussed, the fees in Ordinance No.18 are not taxes. Logically, the imposition does
not appear in the enumeration of taxes under Section 143 of the LGC.

Moreover, even if the fees do not appear in Section 143 or any other provision in the
LGC, the Municipality is empowered to impose taxes, fees and charges, not specifically
enumerated in the LGC or taxed under the Tax Code or other applicable law. Section
186 of the LGC, granting local government units wide latitude in imposing fees,
expressly provides:

Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units
may exercise the power to levy taxes, fees or charges on any base or subject not
otherwise specifically enumerated herein or taxed under the provisions of the National
Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes,
fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to
declared national policy: Provided, further, That the ordinance levying such taxes, fees
or charges shall not be enacted without any prior public hearing conducted for the
purpose.

Smart further argues that the Municipality is encroaching on the regulatory powers of
the National Telecommunications Commission (NTC). Smart cites Section 5(g) of
Republic Act No. 7925 which provides that the National Telecommunications
Commission (NTC), in the exercise of its regulatory powers, shall impose such fees and
charges as may be necessary to cover reasonable costs and expenses for the regulation
and supervision of the operations of telecommunications entities. Thus, Smart alleges
that the regulation of telecommunications entities and all aspects of its operations is
specifically lodged by law on the NTC.

To repeat, Ordinance No. 18 aims to regulate the "placing, stringing, attaching,

installing, repair and construction of all gas mains, electric, telegraph and telephone
wires, conduits, meters and other apparatus" within the Municipality. The fees are not
imposed to regulate the administrative, technical, financial, or marketing operations of
telecommunications entities, such as Smart’s; rather, to regulate the installation and
maintenance of physical structures – Smart’s cell sites or telecommunications tower.
The regulation of the installation and maintenance of such physical structures is an
exercise of the police power of the Municipality. Clearly, the Municipality does not
encroach on NTC’s regulatory powers.

The Court likewise rejects Smart’s contention that the power to fix the fees for the
issuance of development permits and locational clearances is exercised by the Housing
and Land Use Regulatory Board (HLURB). Suffice it to state that the HLURB itself
recognizes the local government units’ power to collect fees related to land use and
development. Significantly, the HLURB issued locational guidelines governing
telecommunications infrastructure.1âwphi1 Guideline No. VI relates to the collection of
locational clearance fees either by the HLURB or the concerned local government unit,
to wit:

VI. Fees
The Housing and Land Use Regulatory Board in the performance of its functions shall
collect the locational clearance fee based on the revised schedule of fees under the
special use project as per Resolution No. 622, series of 1998 or by the concerned LGUs
subject to EO 72.26

On whether Ordinance No. 18 is valid and constitutional

Smart contends that Ordinance No. 18 violates Sections 130(b)(3)27 and 186 of the LGC
since the fees are unjust, excessive, oppressive and confiscatory. Aside from this bare
allegation, Smart did not present any evidence substantiating its claims. In Victorias
Milling Co., Inc. v. Municipality of Victorias,28 the Court rejected the argument that the
fees imposed by respondent therein are excessive for lack of evidence supporting such
claim, to wit:

An ordinance carries with it the presumption of validity. The question of reasonableness

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

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

On the constitutionality issue, Smart merely pleaded for the declaration of

unconstitutionality of Ordinance No. 18 in the Prayer of the Petition, without any
argument or evidence to support its plea. Nowhere in the body of the Petition was this
issue specifically raised and discussed. Significantly, Smart failed to cite any
constitutional provision allegedly violated by respondent when it issued Ordinance No.
18.

Settled is the rule that every law, in this case an ordinance, is presumed valid. To strike
down a law as unconstitutional, Smart has the burden to prove a clear and unequivocal
breach of the Constitution, which Smart miserably failed to do. In Lawyers Against
Monopoly and Poverty (LAMP) v. Secretary of Budget and Management,29 the Court
held, thus:

To justify the nullification of the law or its implementation, there must be a clear and
unequivocal, not a doubtful, breach of the Constitution. In case of doubt in the
sufficiency of proof establishing unconstitutionality, the Court must sustain legislation
because "to invalidate [a law] based on xx x baseless supposition is an affront to the
wisdom not only of the legislature that passed it but also of the executive which
approved it." This presumption of constitutionality can be overcome only by the clearest
showing that there was indeed an infraction of the Constitution, and only when such a
conclusion is reached by the required majority may the Court pronounce, in the
discharge of the duty it cannot escape, that the challenged act must be struck down.

WHEREFORE, the Court DENIES the petition.

SO ORDERED.

Smart puts up a cell-cite tower in Malvar, Batangas alright? So.. enter Municipality of Malvar imposing an ordinance
aiming to regulate the establishment of special projects. It assessed Smart an amount of 389,950.00 for the
telecommunications tower that the latter constructed. Smart now contends the same is a tax, and is unduly
oppressive and ultra vires. (kala ko ultra magnetic top) CTA (Court of Tax Appeal) dismissed the case for lack of
jurisdiction because the same is NOT a tax. RTC affirmed the CTA ruling and held that LGUs have the power to
impose fees.

Ahah.. so its a regulatory fee huh?.. now we're getting somewhere.. I think I almost gave you the decision.

FACTS

Smart constructed a telecommunications tower within the territorial jurisdiction of the Municipality of Malvar,
Batangas. The construction of the tower was for the purpose of receiving and transmitting cellular communications
within the covered area.

Subsequently, Municipality of Malvar passed Ordinance No. 18 series of 2003, entitled "An Ordinance Regulating
the Establishment of Special Projects."

Thereafter, Smart received from the Permit and Licensing Division of the Office of the Mayor of the Municipality an
assessment letter with a schedule of payment for the total amount of P389,950.00 for Smart’s telecommunications
tower. And due to arrears in the payment of the assessment, the Municipality also caused the posting of a closure
notice on the telecommunications tower.

Uh oh..

So Smart filed a protest in the Court of Tax Appeal claiming lack of due process in the issuance of the assessment
and closure notice. In the same protest, Smart challenged the validity of Ordinance No. 18 on which the assessment
was based.
CTA dismissed the case for lack of jurisdiction stating the same is NOT a tax, therefore not cognizant by said court.
But the RTC which heard the case partially granted Smart’s petition. The thing is, it did not rule on the legality of
Ordinance No. 18. The RTC affirmed the CTA ruling and held that LGUs have the power to impose fees.

Here's SMART’s arguments:

CTA erred in refusing to take cognizance of the case and for dismissing the case for lack of jurisdiction considering
the “unique” factual circumstances involved. The fees imposed in Ordinance No. 18 are actually taxes since they are
not regulatory but rather, revenue-raising.

Furthermore Smart averred Municipality is encroaching on the regulatory powers of the National Telecommunications
Commission (NTC). Smart cites Section 5(g) of RA 7925 which provides that the NTC, in the exercise of its regulatory
powers, shall impose such fees and charges as may be necessary to cover reasonable costs and expenses for the
regulation and supervision of the operations of telecommunications entities.

Thus, Smart alleges that the regulation of telecommunications entities and all aspects of its operations is specifically
lodged by law on the NTC.

Malvar’s arguments:

Said Ordinance is not a tax ordinance but a regulatory fee imposed to regulate the “placing, stringing, attaching,
installing, repair and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other
apparatus, and provide for the correction, condemnation or removal of the same when found to be dangerous,
defective or otherwise hazardous to the welfare of the inhabitant.

It was also envisioned to address the foreseen "environmental depredation" to be brought about by these "special
projects" to the Municipality.

Pursuant to these objectives, the Municipality imposed fees on various structures, which included
telecommunications towers.

The fees are not imposed to regulate the administrative, technical, financial, or marketing operations of
telecommunications entities, such as Smart’s but rather, to regulate the installation and maintenance of physical
structures such as Smart’s cell sites or telecommunications tower.

ISSUE:
WON 1. the fees are taxes and 2. WON CTA should have take cognizance of the case.

RULING:

Court said NO to both issues raised. Court DENIES the petition.

1st Issue:

Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the identified special
projects, which included "cell sites" or telecommunications towers, the fees imposed in Ordinance No. 18 are
primarily regulatory in nature, and not primarily revenue-raising.

While the fees may contribute to the revenues of the Municipality, this effect is merely incidental. Thus, the
fees imposed in Ordinance No. 18 are not taxes.

Court points out in the following jurisprudence:

Progressive Development Corporation v. Quezon City:

If the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if
regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a
tax.

Victorias Milling Co., Inc. v. Municipality of Victorias:

The purpose and effect of the imposition determine whether it is a tax or a fee, and that the lack of any standards for
such imposition gives the presumption that the same is a tax.

Ordinance No. 18 expressly provides for the standards which Smart must satisfy prior to the issuance of the specified
permits, clearly indicating that the fees are regulatory in nature.

And even if the fees do not appear in Section 143 or any other provision in the LGC, the Municipality is empowered to
impose taxes, fees and charges, not specifically enumerated in the LGC or taxed under the Tax Code or other
applicable law according to Section 186 of the LGC. Thus they don’t encroach on NTC’s powers.

2nd Issue:
Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and Smart is questioning the
constitutionality of the ordinance, the CTA correctly dismissed the petition for lack of jurisdiction.

Likewise, Section 187 of the LGC, which outlines the procedure for questioning the constitutionality of a tax
ordinance, is inapplicable, rendering unnecessary the resolution of the issue on non-exhaustion of administrative
remedies.

Court said..

An ordinance carries with it the presumption of validity. The question of reasonableness though is open to judicial
inquiry. Much should be left thus to the discretion of municipal authorities.

Courts will go slow in writing off an ordinance as unreasonable unless the amount is so excessive as to be
prohibitive, arbitrary, unreasonable, oppressive, or confiscatory.

A rule which has gained acceptance is that factors relevant to such an inquiry are the municipal conditions as a whole
and the nature of the business made subject to imposition.

To justify the nullification of the law or its implementation, there must be a clear and unequivocal, not a doubtful,
breach of the Constitution.

In case of doubt in the sufficiency of proof establishing unconstitutionality, "the Court must sustain legislation
because "to invalidate [a law] based on baseless supposition is an affront to the wisdom not only of the
legislature that passed it but also of the executive which approved it."

So Smart loses this case.