G.R. No. 120082 September 11, 1996 MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. HON.

FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor HON. TOMAS R. OSMEA, and EUSTAQUIO B. CESA, respondents.

Sec. 14. Tax Exemptions. The authority shall be exempt from realty taxes imposed by the National Government or any of its political subdivisions, agencies and instrumentalities . . . On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner (Lot Nos. 913G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-A), located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79. Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which exempt it from payment of realty taxes. It was also asserted that it is an instrumentality of the government performing governmental functions, citing section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local government units: Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangay shall not extend to the levy of the following: a) . . . xxx xxx xxx o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. (Emphasis supplied) Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Governmental Code that took effect on January 1, 1992: Sec. 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons whether natural or juridical,including government-owned or controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938, non-stock, and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied) xxx xxx xxx

DAVIDE, JR., J.: For review under Rule 45 of the Rules of Court on a pure question of law are the decision of 22 March 19951 of the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing the petition for declaratory relief in Civil Case No. CEB-16900 entitled "Mactan Cebu International Airport Authority vs. City of Cebu", and its order of 4, May 1995 2 denying the motion to reconsider the decision. We resolved to give due course to this petition for its raises issues dwelling on the scope of the taxing power of local government-owned and controlled corporations. The uncontradicted factual antecedents are summarized in the instant petition as follows: Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to "principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, . . . and such other Airports as may be established in the Province of Cebu . . . (Sec. 3, RA 6958). It is also mandated to: a) encourage, promote and develop international and domestic air traffic in the Central Visayas and Mindanao regions as a means of making the regions centers of international trade and tourism, and accelerating the development of the means of transportation and communication in the country; and b) upgrade the services and facilities of the airports and to formulate internationally acceptable standards of airport accommodation and service. Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter.

Sec. 234. Exemptions from Real Property taxes. . . . (a) . . . xxx xxx xxx (c) . . . Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code. As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter was compelled to pay its tax account "under protest" and thereafter filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu, Branch 20, on December 29, 1994. MCIAA basically contended that the taxing powers of local government units do not extend to the levy of taxes or fees of any kind on an instrumentality of the national government. Petitioner insisted that while it is indeed a government-owned corporation, it nonetheless stands on the same footing as an agency or instrumentality of the national government. Petitioner insisted that while it is indeed a governmentowned corporation, it nonetheless stands on the same footing as an agency or instrumentality of the national government by the very nature of its powers and functions. Respondent City, however, asserted that MACIAA is not an instrumentality of the government but merely a government-owned corporation performing proprietary functions As such, all exemptions previously granted to it were deemed withdrawn by operation of law, as provided under Sections 193 and 234 of the Local Government Code when it took effect on January 1, 1992. 3 The petition for declaratory relief was docketed as Civil Case No. CEB-16900. In its decision of 22 March 1995, 4 the trial court dismissed the petition in light of its findings, to wit: A close reading of the New Local Government Code of 1991 or RA 7160 provides the express cancellation and withdrawal of exemption of taxes by government owned and controlled corporation per Sections after the effectivity of said Code on January 1, 1992, to wit: [proceeds to quote Sections 193 and 234] Petitioners claimed that its real properties assessed by respondent City Government of Cebu are exempted from paying realty taxes in view of the exemption granted under RA 6958 to pay the same (citing Section 14 of RA 6958).

However, RA 7160 expressly provides that "All general and special laws, acts, city charters, decress [sic], executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly." ([f], Section 534, RA 7160). With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption provided for in RA 6958 creating petitioner had been expressly repealed by the provisions of the New Local Government Code of 1991. So that petitioner in this case has to pay the assessed realty tax of its properties effective after January 1, 1992 until the present. This Court's ruling finds expression to give impetus and meaning to the overall objectives of the New Local Government Code of 1991, RA 7160. "It is hereby declared the policy of the State that the territorial and political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as selfreliant communities and make them more effective partners in the attainment of national goals. Towards this end, the State shall provide for a more responsive and accountable local government structure instituted through a system of decentralization whereby local government units shall be given more powers, authority, responsibilities, and resources. The process of decentralization shall proceed from the national government to the local government units. . . . 5 Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order, the petitioner filed the instant petition based on the following assignment of errors: I RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT. II RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES TO THE CITY OF CEBU. Anent the first assigned error, the petitioner asserts that although it is a government-owned or controlled corporation it is mandated to perform functions in the same category as an instrumentality of Government. An instrumentality of Government is one created to perform governmental functions primarily to promote certain aspects of the economic life of the people. 6 Considering its task "not merely to efficiently operate and manage the Mactan-Cebu International Airport, but more importantly, to carry out the Government policies of promoting and developing the Central Visayas and Mindanao regions as centers of international trade and tourism, and accelerating the development of the means of transportation and communication in the country," 7 and that it is an attached agency of the Department of Transportation and Communication (DOTC), 8 the petitioner "may stand in [sic] the same footing as an agency or instrumentality of the national government." Hence, its tax exemption privilege under Section 14 of

its Charter "cannot be considered withdrawn with the passage of the Local Government Code of 1991 (hereinafter LGC) because Section 133 thereof specifically states that the taxing powers of local government units shall not extend to the levy of taxes of fees or charges of any kind on the national government its agencies and instrumentalities." As to the second assigned error, the petitioner contends that being an instrumentality of the National Government, respondent City of Cebu has no power nor authority to impose realty taxes upon it in accordance with the aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine Amusement and Gaming Corporation; 9 Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original character, PD 1869. All its shares of stock are owned by the National Government. . . . PAGCOR has a dual role, to operate and regulate gambling casinos. The latter joke is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579). This doctrine emanates from the "supremacy" of the National Government over local government. Justice Holmes, speaking for the Supreme Court, make references to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them. (Antieau Modern Constitutional Law, Vol. 2, p. 140) Otherwise mere creature of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a toll for regulation" (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. (Emphasis supplied) It then concludes that the respondent Judge "cannot therefore correctly say that the questioned provisions of the Code do not contain any distinction between a governmental function as against one performing merely proprietary ones such that the exemption privilege withdrawn under the said Code would apply to allgovernment corporations." For it is clear from Section 133, in relation to

Section 234, of the LGC that the legislature meant to exclude instrumentalities of the national government from the taxing power of the local government units. In its comment respondent City of Cebu alleges that as local a government unit and a political subdivision, it has the power to impose, levy, assess, and collect taxes within its jurisdiction. Such power is guaranteed by the Constitution 10 and enhanced further by the LGC. While it may be true that under its Charter the petitioner was exempt from the payment of realty taxes, 11 this exemption was withdrawn by Section 234 of the LGC. In response to the petitioner's claim that such exemption was not repealed because being an instrumentality of the National Government, Section 133 of the LGC prohibits local government units from imposing taxes, fees, or charges of any kind on it, respondent City of Cebu points out that the petitioner is likewise a government-owned corporation, and Section 234 thereof does not distinguish between government-owned corporation, and Section 234 thereof does not distinguish between government-owned corporation, and Section 234 thereof does not distinguish between government-owned or controlled corporations performing governmental and purely proprietary functions. Respondent city of Cebu urges this the Manila International Airport Authority is a governmental-owned corporation, 12 and to reject the application of Basco because it was "promulgated . . . before the enactment and the singing into law of R.A. No. 7160," and was not, therefore, decided "in the light of the spirit and intention of the framers of the said law. As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it. Nevertheless, effective limitations thereon may be imposed by the people through their Constitutions. 13 Our Constitution, for instance, provides that the rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system of taxation. 14 So potent indeed is the power that it was once opined that "the power to tax involves the power to destroy." 15 Verily, taxation is a destructive power which interferes with the personal and property for the support of the government. Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer. 16 But since taxes are what we pay for civilized society, 17or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayers and liberally in favor of the taxing authority. 18 A claim of exemption from tax payment must be clearly shown and based on language in the law too plain to be mistaken. 19 Elsewise stated, taxation is the rule, exemption therefrom is the exception. 20However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operations. 21 The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution. 22 Under the latter, the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which, however, must be consistent with the basic policy of local autonomy. There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to

this rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-impairment clause of the Constitution. 23 The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by local government units of their power to tax, the scope thereof or its limitations, and the exemption from taxation. Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units as follows: Sec. 133. Common Limitations on the Taxing Power of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: (a) Income tax, except when levied on banks and other financial institutions; (b) Documentary stamp tax; (c) Taxes on estates, "inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein (d) Customs duties, registration fees of vessels and wharfage on wharves, tonnage dues, and all other kinds of customs fees charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned: (e) Taxes, fees and charges and other imposition upon goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise or charges for wharfages, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise; (f) Taxes fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen; (g) Taxes on business enterprise certified to be the Board of Investment as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from the date of registration; (h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products;

(i) Percentage or value added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein; (j) Taxes on the gross receipts of transportation contractor and person engage in the transportation of passengers of freight by hire and common carriers by air, land, or water, except as provided in this code; (k) Taxes on premiums paid by ways reinsurance or retrocession; (l) Taxes, fees, or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving of thereof, except, tricycles; (m) Taxes, fees, or other charges on Philippine product actually exported, except as otherwise provided herein; (n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprise and Cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative Code of the Philippines; and (o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS. (emphasis supplied) Needless to say the last item (item o) is pertinent in this case. The "taxes, fees or charges" referred to are "of any kind", hence they include all of these, unless otherwise provided by the LGC. The term "taxes" is well understood so as to need no further elaboration, especially in the light of the above enumeration. The term "fees" means charges fixed by law or Ordinance for the regulation or inspection of business activity, 24 while "charges" are pecuniary liabilities such as rents or fees against person or property. 25 Among the "taxes" enumerated in the LGC is real property tax, which is governed by Section 232. It reads as follows: Sec. 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila Area may levy on an annual ad valorem tax on real property such as land, building, machinery and other improvements not hereafter specifically exempted. Section 234 of LGC provides for the exemptions from payment of real property taxes and withdraws previous exemptions therefrom granted to natural and juridical persons, including government owned and controlled corporations, except as provided therein. It provides:

Sec. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof had been granted, for reconsideration or otherwise, to a taxable person; (b) Charitable institutions, churches, parsonages or convents appurtenants thereto, mosques nonprofits or religious cemeteries and all lands, building and improvements actually, directly, and exclusively used for religious charitable or educational purposes; (c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; (d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and; (e) Machinery and equipment used for pollution control and environmental protection. Except as provided herein, any exemptions from payment of real property tax previously granted to or presently enjoyed by, all persons whether natural or juridical, including all government owned or controlled corporations are hereby withdrawn upon the effectivity of his Code. These exemptions are based on the ownership, character, and use of the property. Thus; (a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered cooperatives. (b) Character Exemptions. Exempted from real property taxes on the basis of their character are: (i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages or convents appurtenant thereto, mosques, and (iii) non profit or religious cemeteries. (c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and exclusive use to which they are devoted are: (i) all

lands buildings and improvements which are actually, directed and exclusively used for religious, charitable or educational purpose; (ii) all machineries and equipment actually, directly and exclusively used or by local water districts or by government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; and (iii) all machinery and equipment used for pollution control and environmental protection. To help provide a healthy environment in the midst of the modernization of the country, all machinery and equipment for pollution control and environmental protection may not be taxed by local governments. 2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical persons including government-owned or controlled corporations are withdrawn upon the effectivity of the Code. 26 Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. It provides: Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical, including government-owned, or controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non stock and non profit hospitals and educational constitutions, are hereby withdrawn upon the effectivity of this Code. On the other hand, the LGC authorizes local government units to grant tax exemption privileges. Thus, Section 192 thereof provides: Sec. 192. Authority to Grant Tax Exemption Privileges. Local government units may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary. The foregoing sections of the LGC speaks of: (a) the limitations on the taxing powers of local government units and the exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use of exceptions of provisos in these section, as shown by the following clauses: (1) "unless otherwise provided herein" in the opening paragraph of Section 133; (2) "Unless otherwise provided in this Code" in section 193; (3) "not hereafter specifically exempted" in Section 232; and

(4) "Except as provided herein" in the last paragraph of Section 234 initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in section 133 seems to be inaccurately worded. Instead of the clause "unless otherwise provided herein," with the "herein" to mean, of course, the section, it should have used the clause "unless otherwise provided in this Code." The former results in absurdity since the section itself enumerates what are beyond the taxing powers of local government units and, where exceptions were intended, the exceptions were explicitly indicated in the text. For instance, in item (a) which excepts the income taxes "when livied on banks and other financial institutions", item (d) which excepts "wharfage on wharves constructed and maintained by the local government until concerned"; and item (1) which excepts taxes, fees, and charges for the registration and issuance of license or permits for the driving of "tricycles". It may also be observed that within the body itself of the section, there are exceptions which can be found only in other parts of the LGC, but the section interchangeably uses therein the clause "except as otherwise provided herein" as in items (c) and (i), or the clause "except as otherwise provided herein" as in items (c) and (i), or the clause "excepts as provided in this Code" in item (j). These clauses would be obviously unnecessary or mere surplusages if the opening clause of the section were" "Unless otherwise provided in this Code" instead of "Unless otherwise provided herein". In any event, even if the latter is used, since under Section 232 local government units have the power to levy real property tax, except those exempted therefrom under Section 234, then Section 232 must be deemed to qualify Section 133. Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as laid down in Section 133 the taxing powers of local government units cannot extend to the levy of inter alia, "taxes, fees, and charges of any kind of the National Government, its agencies and instrumentalties, and local government units"; however, pursuant to Section 232, provinces, cities, municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial used thereof has been granted, for consideration or otherwise, to a taxable person", as provided in item (a) of the first paragraph of Section 234. As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except upon the effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938, non stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234, which enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the exemption in so far as the real property taxes are concerned by limiting the retention only to those enumerated there-in; all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as the real property is owned by the Republic of the Philippines, or any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to taxable person for consideration or otherwise. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except

as provided in the said section, and the petitioner is, undoubtedly, a governmentowned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said section is qualified by Section 232 and 234. In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing powers of the local government units cannot extend to the levy of: (o) taxes, fees, or charges of any kind on the National Government, its agencies, or instrumentalities, and local government units. I must show that the parcels of land in question, which are real property, are any one of those enumerated in Section 234, either by virtue of ownership, character, or use of the property. Most likely, it could only be the first, but not under any explicit provision of the said section, for one exists. In light of the petitioner's theory that it is an "instrumentality of the Government", it could only be within be first item of the first paragraph of the section by expanding the scope of the terms Republic of the Philippines" to embrace . . . . . . "instrumentalities" and "agencies" or expediency we quote: (a) real property owned by the Republic of the Philippines, or any of the Philippines, or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. This view does not persuade us. In the first place, the petitioner's claim that it is an instrumentality of the Government is based on Section 133(o), which expressly mentions the word "instrumentalities"; and in the second place it fails to consider the fact that the legislature used the phrase "National Government, its agencies and instrumentalities" "in Section 133(o),but only the phrase "Republic of the Philippines or any of its political subdivision "in Section 234(a). The terms "Republic of the Philippines" and "National Government" are not interchangeable. The former is boarder and synonymous with "Government of the Republic of the Philippines" which the Administrative Code of the 1987 defines as the "corporate governmental entity though which the functions of the government are exercised through at the Philippines, including, saves as the contrary appears from the context, the various arms through which political authority is made effective in the Philippines, whether pertaining to the autonomous reason, the provincial, city, municipal or barangay subdivision or other forms of local government." 27 These autonomous regions, provincial, city, municipal or barangay subdivisions" are the political subdivision. 28 On the other hand, "National Government" refers "to the entire machinery of the central government, as distinguished from the different forms of local Governments." 29 The National Government then is composed of the three great departments the executive, the legislative and the judicial. 30 An "agency" of the Government refers to "any of the various units of the Government, including a department, bureau, office instrumentality, or

government-owned or controlled corporation, or a local government or a distinct unit therein;" 31 while an "instrumentality" refers to "any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy; usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned and controlled corporations". 32 If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment of real property taxes under the last sentence of the said section to the agencies and instrumentalities of the National Government mentioned in Section 133(o), then it should have restated the wording of the latter. Yet, it did not Moreover, that Congress did not wish to expand the scope of the exemption in Section 234(a) to include real property owned by other instrumentalities or agencies of the government including government-owned and controlled corporations is further borne out by the fact that the source of this exemption is Section 40(a) of P.D. No. 646, otherwise known as the Real Property Tax Code, which reads: Sec 40. Exemption from Real Property Tax. The exemption shall be as follows: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any government-owned or controlled corporations so exempt by is charter: Provided, however, that this exemption shall not apply to real property of the above mentioned entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person. Note that as a reproduced in Section 234(a), the phrase "and any governmentowned or controlled corporation so exempt by its charter" was excluded. The justification for this restricted exemption in Section 234(a) seems obvious: to limit further tax exemption privileges, specially in light of the general provision on withdrawal of exemption from payment of real property taxes in the last paragraph of property taxes in the last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local governments 33 and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. 34 The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted to government-owned and controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and there was a need for this entities to share in the requirements of the development, fiscal or otherwise, by paying the taxes and other charges due from them. 35

The crucial issues then to be addressed are: (a) whether the parcels of land in question belong to the Republic of the Philippines whose beneficial use has been granted to the petitioner, and (b) whether the petitioner is a "taxable person". Section 15 of the petitioner's Charter provides: Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands, buildings and other properties, movable or immovable, belonging to or presently administered by the airports, and all assets, powers, rights, interests and privileges relating on airport works, or air operations, including all equipment which are necessary for the operations of air navigation, acrodrome control towers, crash, fire, and rescue facilities are hereby transferred to the Authority: Provided however, that the operations control of all equipment necessary for the operation of radio aids to air navigation, airways communication, the approach control office, and the area control center shall be retained by the Air Transportation Office. No equipment, however, shall be removed by the Air Transportation Office from Mactan without the concurrence of the authority. The authority may assist in the maintenance of the Air Transportation Office equipment. The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan International AirPort in the Province of Cebu", 36 which belonged to the Republic of the Philippines, then under the Air Transportation Office (ATO). 37 It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then administered by the Lahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real property taxes. This section involves a "transfer" of the "lands" among other things, to the petitioner and not just the transfer of the beneficial use thereof, with the ownership being retained by the Republic of the Philippines. This "transfer" is actually an absolute conveyance of the ownership thereof because the petitioner's authorized capital stock consists of, inter alia "the value of such real estate owned and/or administered by the airports." 38 Hence, the petitioner is now the owner of the land in question and the exception in Section 234(c) of the LGC is inapplicable. Moreover, the petitioner cannot claim that it was never a "taxable person" under its Charter. It was only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax. Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the forgoing disquisitions, it had already become even if it be conceded to be an "agency" or "instrumentality" of the Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner. Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Philippine Amusement and Gaming Corporation 39 is unavailing since it was decided before the effectivity of the LGC. Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government

performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom. WHEREFORE, the instant petition is DENIED. The challenged decision and order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED. No pronouncement as to costs. SO ORDERED. Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.

On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration (Ibid., pp. 2834), but the same was denied in a Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant petition. This Court, in a Resolution dated March 13, 1969, gave due course to the petition (Ibid., p. 40). Petitioner-appellant raised three (3) assignments of error, to wit: I The lower court erred in holding that the petitioner-appellant is engaged in business as stevedore, the work of unloading and loading of a vessel in port, contrary to the evidence on record. II The lower court erred in not holding that the business in which petitionerappellant is engaged, is part and parcel of the shipping industry.

G.R. No. L-30232 July 29, 1988 LUZON STEVEDORING CORPORATION, petitioner-appellant, vs. COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL REVENUE, respondents-appellees. H. San Luis & V.L. Simbulan for petitioner-appellant.

III The lower court erred in not allowing the refund sought by petitionerappellant. The instant petition is without merit. The pivotal issue in this case is whether or not petitioner's tugboats" can be interpreted to be included in the term "cargo vessels" for purposes of the tax exemption provided for in Section 190 of the National Internal Revenue Code, as amended by Republic Act No. 3176. Said law provides: Sec. 190. Compensating tax. ... And Provided further, That the tax imposed in this section shall not apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to specific tax or those for consignment abroad and are to form part thereof or to articles to be used by the importer himself as passenger and/or cargo vessel, whether coastwise or oceangoing, including engines and spare parts of said vessel. .... Petitioner contends that tugboats are embraced and included in the term cargo vessel under the tax exemption provisions of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176. He argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former towing the latter for loading and unloading of a vessel in part, constitute a single vessel. Accordingly, it concludes that the engines, spare parts and equipment imported by it and used in the repair and maintenance of its tugboats are exempt from compensating tax (Rollo, p. 23). On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are not "Cargo vessel" because they are neither designed nor used for carrying and/or transporting persons or goods by themselves but are mainly employed for towing and pulling purposes. As such, it cannot be claimed that the tugboats in question are used in carrying and transporting passengers or cargoes as a common carrier by water, either coastwise or

PARAS, J.: This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in CTA Case No. 1484, "Luzon Stevedoring Corporation v. Hon. Ramon Oben, Commissioner, Bureau of Internal Revenue", denying the various claims for tax refund; and the February 20, 1969 Resolution of the same court denying the motion for reconsideration. Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats, imported various engine parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, on January 2, 1964, it filed a Petition for Review (Rollo, pp. 14-18) with the Court of Tax Appeals, docketed therein as CTA Case No. 1484, praying among others, that it be granted the refund of the amount of P33,442.13. The Court of Tax Appeals, however, in a Decision dated October 21, 1969 (Ibid., pp. 22-27), denied the various claims for tax refund. The decretal portion of the said decision reads: WHEREFORE, finding petitioner's various claims for refund amounting to P33,442.13 without sufficient legal justification, the said claims have to be, as they are hereby, denied. With costs against petitioner.

oceangoing and, therefore, not within the purview of Section 190 of the Tax Code, as amended by Republic Act No. 3176 (Brief for Respondents-Appellees, pp. 45). This Court has laid down the rule that "as the power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or its rate, must be strictly construed, and the same must be coached in clear and unmistakable terms in order that it may be applied." (84 C.J.S. pp. 659-800), More specifically stated, the general rule is that any claim for exemption from the tax statute should be strictly construed against the taxpayer (Acting Commissioner of Customs v. Manila Electric Co. et al., 69 SCRA 469 [1977] and Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA 142 [1975]). As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be declared exempt from the compensating tax, it is indispensable that the requirements of the amendatory law be complied with, namely: (1) the engines and spare parts must be used by the importer himself as a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo vessel must be used in coastwise or oceangoing navigation (Decision, CTA Case No. 1484; Rollo, p. 24). As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic Act No. 3176 limit tax exemption from the compensating tax to imported items to be used by the importer himself as operator of passenger and/or cargo vessel (Ibid., p. 25). As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows: A tugboat is a strongly built, powerful steam or power vessel, used for towing and, now, also used for attendance on vessel. (Webster New International Dictionary, 2nd Ed.) A tugboat is a diesel or steam power vessel designed primarily for moving large ships to and from piers for towing barges and lighters in harbors, rivers and canals. (Encyclopedia International Grolier, Vol. 18, p. 256). A tug is a steam vessel built for towing, synonymous with tugboat. (Bouvier's Law Dictionary.) (Rollo, p. 24). Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where a provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense being entertained to justify non-compliance. All that has to be done is to apply it in every case that falls within its terms (Allied Brokerage Corp. v. Commissioner of Customs, L-27641, 40 SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]). And, even if construction and interpretation of the law is insisted upon, following another fundamental rule that statutes are to be construed in the light of purposes to be achieved and the evils sought to be remedied (People v. Purisima etc., et al., L-42050-66, 86 SCRA 544 [1978], it will be noted that the legislature in amending Section 190 of the Tax Code by Republic Act 3176, as appearing in the records, intended to provide incentives and inducements to bolster the shipping industry and not the business of stevedoring, as manifested in the sponsorship speech of Senator Gil Puyat (Rollo, p. 26).

On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found that no evidence was adduced by petitioner-appellant that tugboats are passenger and/or cargo vessels used in the shipping industry as an independent business. On the contrary, petitioner-appellant's own evidence supports the view that it is engaged as a stevedore, that is, the work of unloading and loading of a vessel in port; and towing of barges containing cargoes is a part of petitioner's undertaking as a stevedore. In fact, even its trade name is indicative that its sole and principal business is stevedoring and lighterage, taxed under Section 191 of the National Internal Revenue Code as a contractor, and not an entity which transports passengers or freight for hire which is taxed under Section 192 of the same Code as a common carrier by water (Decision, CTA Case No. 1484; Rollo, p. 25). Under the circumstances, there appears to be no plausible reason to disturb the findings and conclusion of the Court of Tax Appeals. As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority (Reyes v. Commissioner of Internal Revenue, 24 SCRA 199 [1981]), which is not present in the instant case. PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the Court of Tax Appeals is AFFIRMED. SO ORDERED. Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

G.R. No. L-18330

July 31, 1963

JOSE DE BORJA, petitioner-appellee, vs. VICENTE G. GELLA, ET AL., respondents-appellants. David Guevara for petitioner-appellee. Office of the Solicitor General for respondent-appellant Treasurer of the Philippines. Assistant City Fiscal H. A. Avendano for respondent-appellant Treasurer of Pasay City. BAUTISTA ANGELO, J.: Jose de Borja has been delinquent in the payment of his real estate taxes since 1958 for properties located in the City of Manila and Pasay City and has offered to pay them with two negotiable, certificates of indebtedness Nos. 3064 and 3065 in the amounts of P793.40 and P717.69, respectively. Borja was, however, a mere assignee of the aforesaid negotiable certificates, the applicants for backpay rights covered by them being respectively Rafael Vizcaya and Pablo Batario Luna.

The offers to pay the estate taxes in question were rejected by the city treasurers of both Manila and Pasay cities on the ground of their limited negotiability under Section 2, Republic Act No. 304, as amended by Republic Act 800, and in the case of the city treasurer of Manila on the further ground that he was ordered not to accept them by the city mayor, for which reason Borja was prompted to bring the question to the Treasurer of the Philippines who opined, among others, that the negotiable certificates cannot be accepted as payment of real estate taxes inasmuch as the law provides for their acceptance from their backpay holder only or the original applicant himself, but not his assignee. In his letter of April 29, 1960 to the Treasurer of the Philippines, however, Borja entertained hope that the certificates would be accepted for payment in view of the fact that they are already long past due and redeemable, but his hope was frustrated. So on June 30, 1960, Borja filed an action against the treasurers of both the City of Manila and Pasay City, as well as the Treasurer of the Philippines, to impel them to execute an act which the law allegedly requires them to perform, to wit: to accept the above-mentioned certificates of indebtedness considering that they were already due and redeemable so as not to deprive him illegally of his privilege to pay his obligation to the government thru such means. Respondents in due time filed their answer setting up the reasons for their refusal to accept the certificates, and after the requisite trial was held, the court a quo rendered judgment the dispositive part of which reads: WHEREFORE, the treasurers of the City of Manila and Pasay City, their agents and other persons acting in their behalf are hereby enjoined from including petitioner's properties in the payment of real estate, taxes, and to sell them at public auction and respondent Treasurer of the Philippines, and the treasurers of the City of Manila and Pasay City are hereby ordered to accept petitioner's Negotiable Certificates of Indebtedness Nos. 3064 and 3065 in the sums of P793.40 and P717.39 in payment of real estate taxes of his properties in the City of Manila and Pasay City, respectively, without costs. Respondents took this appeal on purely questions of law.1wph1.t Reduced to bare essentials, the 12 errors assigned by appellants may be boiled down to the following: (a) has appellee the right to apply to the payment of his real estate taxes to the government of Manila and Pasay cities the certificates of indebtedness he holds while appellants have the correlative legal duty to accept the certificates in payment of said taxes?; (b) can compensation be invoked to extinguish appellee's real estate tax liability between the latter's obligation and the credit represented by said certificates of indebtedness? Anent the first issue, the pertinent legal provision to be reckoned with is Section 2 of Republic Act No. 304, as amended by Republic Act No. 800, which in part reads: SEC. 2. The Treasurer of the Philippines shall, upon application, and within one year from the approval of this Act, and under such rules and regulations as may be promulgated by the Secretary of Finance, acknowledge and file requests for the recognition of the right to the salaries and wages as provided in section one hereof, and notice of such acknowledgment shall be issued to the applicant which shall state the total amount of such salaries or wages due to the applicant, and certify that it shall be redeemed by the Government of the Philippines within ten years from the date of their issuance without interest: Provided, that upon application . . . a certificate of indebtedness may be issued by the Treasurer of the Philippines covering the whole or part of the total salaries or wages the right to which has been duly acknowledged and recognized, provided that the face value of such certificate of indebtedness shall not exceed the amount that the applicant may need for the payment of (1) obligations subsisting at the time of the approval

of this Act for which the applicant may directly be liable to the Government or to any of its branches or instrumentalities, or the corporations owned or controlled by the Government, or to any citizen of the Philippines, who may be willing to accept the same for such settlement; (2) his taxes; . . . and Provided, also, That any person who is not an alien, bank or other financial institution at least sixty per centum of whose capital is owned by Filipinos may, notwithstanding any provision of its charter, articles of incorporation, by-laws, or rules and regulations to the contrary, accept or discount at not more than three and one-half per centum per annum for ten years a negotiable certificate of indebtedness which shall be issued by the Treasurer of the Philippines upon application by a holder of a back pay acknowledgment. . . . . To begin with, it cannot be contended that appellants are in duty bound to accept the negotiable certificates of indebtedness held by appellee in payment of his real estate taxes for the simple reason that they were not obligations subsisting at the time of the approval of Republic Act No. 304 which took effect on June 18, 1948. It should be noted that the real estate taxes in question have reference to those due in 1958 and subsequent years. The law is explicit that in order that a certificate may be used in payment of an obligation the same must be subsisting at the time of its approval even if we hold that a tax partakes of this character, neither can it be contended that appellee can compel the government to accept the alleged certificates of indebtedness in payment of his real estate taxes under proviso No. 2 abovequoted also for the reason that in order that such payment may be allowed the tax must be owed by the applicant himself . This is the correct implication that may be drawn from the use by the law of the words "his taxes". Verily, the right to use the backpay certificate in settlement of taxes is given only to the applicant and not to any holder of any negotiable certificate to whom the law only gives the right to have it discounted by a Filipino citizen or corporation under certain limitations. Here appellee is not himself the applicant of the certificate, in question. He is merely an assignee thereof, or a subsequent holder whose right is at most to have it discounted upon maturity or to negotiate it in the meantime. A fortiori, it may be included that, not having the right to use said certificates to pay his taxes, appellee cannot compel appellants to accept them as he requests in the present petition for mandamus. As a consequence, we cannot but hold that mandamus does not lie against appellants because they have in no way neglected to perform an act enjoined upon them by law as a duty, nor have they unlawfully excluded appellee from the use or enjoyment of a right to which be is entitled.1 We are aware of the cases2 cited by the court a quo wherein the government banking institutions were ordered to accept the backpay certificates of petitioners in payment of their indebtedness to them, but they are not here in point because in the cases mentioned the petitioners were applicants and original holders of the corresponding backpay certificates. Here appellee is not. With regard to the second issue, i.e., whether compensation can be invoked insofar as the two obligations are concerned, Articles 1278 and 1279 of the new Civil Code provide: ART. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. ART. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they two liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. It is clear from the above legal provisions that compensation cannot be effected with regard to the two obligations in question. In the first place, the debtor insofar as the certificates of indebtedness are concerned is the Republic of the Philippines, whereas the real estate taxes owed by appellee are due to the City of Manila and Pasay City, each one of which having a distinct and separate personality from our Republic. With regard to the certificates, the creditor is the appellee while the debtor is the Republic of the Philippines. And with regard to the taxes, the creditors are the City of Manila and Pasay City while the debtor is the appellee. It appears, therefore, that each one of the obligors concerning the two obligations is not at the same time the principal creditor of the other. It cannot also be said for certain that the certificates are already due. Although on their faces the certificates issued to appellee state that they are redeemable on June 18, 1958, yet the law does not say that they are redeemable from its approval on June 18, 1948 but "within ten years from the date of issuance" of the certificates. There is no certainty, therefore, when the certificates are really redeemable within the meaning of the law. Since the requisites for the accomplishment of legal compensation cannot be fulfilled, the latter cannot take place with regard to the two obligations as found by the court a quo. WHEREFORE, the decision appealed from is reversed. The petition for mandamus is dismissed. The injunction issued against respondents-appellants is hereby lifted. No costs. Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur. Bengzon, C.J., took no part.

Revenue advising the latter that it purchased from Dee Hong Lue the entire stock of surplus properties which the said Dee Hong Lue had bought from the Foreign Liquidation Commission and that as it assumed Dee Hong Lue's obligation to pay the 3-1/2% sales tax on said surplus goods, it was remitting the sum of P43,750.00 in his behalf as deposit to answer for the payment of said sales tax with the understanding that it would later be adjusted after the determination of the exact consideration of the sale. On January 31, 1948, the syndicate again wrote the Collector requesting the refund of P1,103.28 representing alleged excess payment of sales tax due to the adjustment and reduction of the purchase price in the amount of P31,522.18. Said letter was referred to an agent for verification and report. On September 18, 1951, after a thorough investigation of the facts and circumstances surrounding the transaction, the agent reported (1) that Dee Hong Lue purchased the surplus goods as trustee for the Central Syndicate which was in the process of organization at the time of the bidding; (2) that it was the representatives of the Central Syndicate that removed the surplus goods from their base at Leyte on February 21, 1947; (3) that the syndicate must have realized a gross profit of 18.8% from its sales thereof; and (4) that if the sales tax were to be assessed on its gross sales it would still be liable for the amount of P33,797.88 as deficiency sales tax and surcharge in addition to the amount of P43,750.00 which the corporation had deposited in the name of Dee Hong Lue as estimated sales tax due from the latter. Based on the above findings of the agent in charge of the investigation, the Collector decided that the Central Syndicate was the importer and original seller of the surplus goods in question and, therefore, the one liable to pay the sales tax. Accordingly, on January 4, 1952, the Collector assessed against the syndicate the amount of P33,797.88 and P300.00 as deficiency sales tax, inclusive of the 25% surcharge and compromise penalty, respectively, and on the same date, in a separate letter, he denied the request of the syndicate for the refund of the sum of P1,103.28. On September 8, 1954, the Central Syndicate elevated the case to the Court of Tax Appeals questioning the ruling of the Collector which denies its claim for refund as well as the assessment made against it of the sum of P33,797.88, plus the sum of P300.00 as compromise penalty, as stated above. The Collector filed his answer thereto wherein he reiterated his ruling and prayed that the Central Syndicate be ordered to pay the deficiency sales tax and surcharge as demanded in his letters dated January 4, 1952 and August 5, 1954. On October 28, 1954, the syndicate filed a motion requesting that the issue of prescription it has raised against the collection of the tax be first determined as a preliminary question, but action thereon was deferred by the Court of Tax Appeals until after the trial of the case on the merits. On November 5, 1954, the Collector filed a motion requiring the syndicate to file a bond to guarantee the payment of the tax assessed against it which motion was denied by the Court of Tax Appeals on the ground that cannot be legally done it appearing that the syndicate is already a non-existing entity due to the expiration of its corporate existence. In view of this development, the Collector filed a motion to dismiss the appeal on the ground of lack of personality on the part of the syndicate, which met an opposition on the part of the latter, but on January 25, 1955, the Court of Tax Appeals issued a resolution dismissing the appeal primarily on the ground that the Central Syndicate has no personality to maintain the action then pending before it. From this order the syndicate appealed to the Supreme Court wherein it intimated that the appeal should not be dismissed because it could be substituted by its successors-in-interest, to wit: Tan Tiong Bio, Yu Khe Thai, Alfonso Sycip, Dee Hong Lue, Lim Shui Ty, Sy Seng Tong, Sy En, Co Giap and David Sycip. And taking cue from this suggestion, this Court ruled against the dismissal and held: "The resolution appealed from is set aside and the respondent court is ordered to permit the substitution of the officers and directors of the defunct Central Syndicate as appellants, and to proceed with the hearing of the appeal upon its merits." In permitting the substitution, this Court labored under the premise that said officers and directors "may be held personally liable for the unpaid

G.R. No. L-15778

April 23, 1962

TAN TIONG BIO, ET AL., petitioners, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. Sycip, Salazar and Associates for petitioners. Office of the Solicitor General for respondent. BAUTISTA ANGELO, J.: On October 19, 1946, the Central Syndicate, a corporation organized under the laws of the Philippines, thru its General Manager, David Sycip, sent a letter to the Collector of Internal

deficiency assessments made by the Collector of Internal Revenue against the defunct syndicate." After trial, the Court of Tax Appeals rendered decision the dispositive part of which reads as follows: WHEREFORE, in view of the foregoing considerations, the decision of the Collector of Internal Revenue appealed from is hereby affirmed, except with regard to the imposition of the compromise penalty of P300.00 the collection of which is unauthorized and illegal in the absence of a compromise agreement between the parties. (Collector of Internal Revenue vs. University of Sto. Tomas, G. R. No. L11274, November 28, 1958; Collector of Internal Revenue vs. Bautista & Tan, G.R. No. L-12250, May 27, 1959.) . The petitioners Tan Tiong Bio, Yu Khe Thai, Lim Shui Ty, Alfonso Sycip, Sy En alias Sy Seng Sui, Dee Hong Lue, and Sy Seng Tong, who appear in the Articles of Incorporation of the Central Syndicate Annex A (pp. 60-66, CTA rec.) as incorporators and directors of the corporation, the second named being in addition its President and the seventh its Treasurer, are hereby ordered to pay jointly and severally, to the Collector of Internal Revenue, the sum of P33,797.88 as deficiency sales tax and surcharge on the surplus goods purchased by them from the Foreign Liquidation Commission on July 5, 1946, from which they realized an estimated gross sales of P1,447,551.65, with costs. .. Petitioners interposed the present appeal. The important issues to be determined in this appeal are: (1) whether the importer of the surplus goods in question the sale of which is subject to the present tax liability is Dee Hong Lue or the Central Syndicate who has been substituted by the present petitioners; (2) whether the deficiency sales tax which is now sought to be collected has already prescribed; and (3) the Central Syndicate having already been dissolved because of the expiration of its corporate existence, whether the sales tax in question can be enforced against its successors-in-interest who are the present petitioners. 1. Petitioners contend that the Central Syndicate cannot be held liable for the deficiency sales tax in question because it is not the importer of the surplus goods purchased from the Foreign Liquidation Commission for the reason that said surplus goods were purchased by Dee Hong Lue as shown by the contract executed between him and the Foreign Liquidation Commission and the fact that the Central Syndicate only purchased the same from Dee Hong Lue and not from the Foreign Liquidation Commission as shown by Exhibit 13. This contention cannot be sustained. As correctly observed by the Court of Tax Appeals, the overwhelming evidence presented by the Collector points to the conclusion that Dee Hong Lue purchased the surplus goods in question not for himself but for the Central Syndicate which was then in the process of incorporation such that the deed of sale Exhibit 13 which purports to show that Dee Hong Lue sold said goods to the syndicate for a consideration of P1,250,000.00 (the same amount paid by Dee Hong Lue to the Foreign Liquidation Commission) "is but a ruse to evade payment of a greater amount of percentage tax." The aforesaid conclusion of the lower court was arrived at after a thorough analysis of the evidence on record, pertinent portion of which we quote hereunder with approval: Exhibit "38-A" for the respondent (p. 178, BIR rec.) shows that as early as July 23, 1946, or before the organization and incorporation of Central Syndicate, Mr. David Sycip, who was subsequently appointed General Manager of the corporation,

together with Messrs. Sy En alias Sy Seng Sui (one of the incorporators of Central Syndicate), Serge Gordeof and Chin Siu Bun (an employee of the same corporation), for and in the name of Central Syndicate then in the process of organization, went to Leyte to take over the surplus properties sold by the FLC to Dee Hong Lue, which the latter held in trust for the corporation. Exhibit 38-A, which is a certificate issued by no less than David Sycip himself who was subsequently appointed General Manager of the corporation admits in express terms the following "... the surplus property sold by the Foreign Liquidation Commission to Dee Hong Lue (and held in trust by the latter for the Syndicate ...." (Emphasis ours.) We give full weight and credence to the adverse admissions made by David Sycip against the petitioners as appearing in his certificate Exhibit 38-A (p. 178, BIR rec.) considering that at the time he made them, he was a person jointly interested with the petitioners in the transaction over which there was yet no controversy over any sales tax liability. (Secs. 11 and 33, Rule 123, Rules of Court; Clem vs. Forbeso, Tex. Cir App. 10 S.W. 2d 223; Street vs. Masterson, Tex. Cir. App. 277 S.W. 407.) . Exhibit '39' for the respondent (pp. 184-187, BIR rec.) which is a letter of Mr. Yu Khe Thai President, Director and biggest stockholder of Central Syndicate (Exhibit A, pp. 60-65, CTA rec.) dated September 17, 1946 and addressed to the Commanding General AFWESPAC, Manila, contains the following categorical admissions which corroborate the admissions made by David Sycip; that the socalled Leyte 'Mystery Pile' surplus properties were owned by Central Syndicate by virtue of a purchase from the FLC, effected in the name of Dee Hong Lue on July 5, 1946, inasmuch as Central Syndicate was then still in the process of organization; that Dee Hong Lue held the said surplus properties in trust until the mere formal turnover to the corporation on August 20, 1946, when the corporation had already been organized and incorporated under the laws of the Philippines; and that on July 23, 1946 viz., twenty-two (22) days before the incorporation of Central Syndicate on August 15, 1946 'our General Manager, Mr. David Sycip accompanied by one of our directors, Mr. Sy En, arrived in Leyte to take over the properties.' Before passing on to the rest of the evidence supporting the finding of respondent, we would like to call attention to this significant detail. It is stated in the letter, Exhibit 39 (pp. 184-187, BIR rec.) of Mr. Yu Khe Thai that 'on July 23, 1946, our General Manager, Mr. David Sycip, accompanied by one of our directors, Mr. Sy En, arrived in Leyte to take over the properties,' We ask: Why was there such a hurry on the part of the promoters of Central Syndicate in taking over the surplus properties when the formal agreement, Exhibit 13 (p. 66, BIR rec.), purporting to be a contract of sale of the 'Mystery Pile' between Dee Hong Lue as vendor, and the Central Syndicate, as vendee, for the amount of P1,250,000.00, was effected twenty-eight (28) days later viz., on August 20, 1946? Is this not another clear and unmistakable indication that from the very start, as is the theory of the respondent, the real purchasers of the 'Mystery Pile' from the FLC and as such the 'importers' of the goods, were the Central Syndicate and/or the group of big financiers composing it before said corporation was incorporated on August 15, 1946; and, that Dee Hong Lue acted merely as agent of these persons when he purchased the pile from the FLC? As a general rule, one does not exercise all the acts of ownership over a property especially if it involves a big amount until after the documents evidencing such ownership are fully accomplished. Moreover, it appears that on October 3, 1946, Dee Hong Lue was investigated by Major Primitivo San Agustin, Jr., G-2 of the Philippine Army, because of the discovery of some gun parts found in his shipment of surplus material from Palo, Leyte.

In his sworn statement, Exhibit 16 (pp. 133-139, BIR rec.) before said officer, Dee Hong Lue admitted the following: That he paid the FLC the amount of P1,250,000.00 "with the checks of Yu Khe Thai, maybe also Alfonso Sycip and my checks with many others"; that "at the beginning I was trying to buy the pile for myself without telling other people and other friends of mine." "Watkins came to me and he bid for me for P600,000 or P700,000, but later on when the price went up to P1,250,000, I talked to my friends who said I could get money." "So, I bought it with their checks and mine" (Exhibit 16-B, p. 138, BIR rec.) and, that after buying the "Mystery Pile", he (Dee Hong Lue) never inspected the same personally. (p. 141, BIR rec.) In his affidavit, Exhibit 15 (p. 144, BIR rec.) Dee Hong Lue admitted that of the amount of P1,250,000.00 which he paid in two installments sometime in July, 1946, to the FLC, P1,181,250.00 (should be P1,181,000.00) of the amount came from the following: Yu Khe Thai who advanced to him P250,000.00; Sy Seng Tong P375,000.00; Alfonso Z. Sycip - P375,000.00; Tan Tiong Bio - P125,000.00; Robert Dee Se Wee P25,000.00; and, Jose S. Lim P31,000.00 that his understanding with these persons was that should they eventually join him in Central Syndicate, such advances would be adjusted to constitute their investments; and, that soon after the "Mystery Pile" was purchased from the FLC, all the above-named persons with the exception of Robert Dee Se Wee and Jose S. Lim, formed the Central Syndicate and a re-allocation of shares was made corresponding to the amounts advanced by them. Added to these, we have before us other documentary evidence for the respondent consisting of Exhibits 18, 19, 20, 21, 23, 24, 25, 26, 27, 28 and 29 (pp. 85, 88, 92-96, 99-103, 117-128, 119-120, 121-128, BIR rec.) all tending to prove the same thing - that the Central Syndicate and/or the group of big financiers composing it and not Dee Hong Lue was the real purchaser (importer) of the "Mystery Pile" from the FLC; that in the contract of sale between Dee Hong Lue and the FLC the former acted principally as agent (Article 1930, New Civil Code) of the petitioners Yu Khe Thai, Sy Seng Tong, Alfonso Z. Sycip and Tan Tiong Bio who advanced the purchased price of P1,125,000.00 out of the P1,250,000.00 paid to the FLC, Dee Hong Lue being the purchaser in his own right only with respect to the amount of P69,000.00; and, that the deed, Exhibit 13 (p. 77, BIR rec.) purporting to show that Dee Hong Lue sold the "Mystery Pile" to the Central Syndicate for consideration of P1,250.000.00 is but a ruse to evade payment of a greater amount of percentage tax. 1wph1.t To our mind, the deed of sale, Exhibit 13 (p. 66, BIR rec.) as well as the circumstances surrounding the incorporation of the Central Syndicate, are shrouded with as much mystery as the so-called "Mystery Pile" subject of the transaction. But, as oil is to water, the truth and underlying motives behind these transactions have to surface in the end. Petitioners would want us to believe that Dee Hong Lue bought in his own right and for himself the surplus goods in question for P1,250,000.00 from the FLC and then, by virtue of a valid contract of sale, Exhibit 13 (p. 66, BIR rec.) transferred and conveyed the same to the Central Syndicate at cost. If this be so, what need was there for Dee Hong Lue to agree in the immediate organization and incorporation of the Central Syndicate with six other capitalists when he could very well have disposed of the surplus goods to the public in his individual capacity and keep all the profits to himself without sharing 9/10th of it to the other six incorporators and stockholders of the newly incorporated Syndicate. It appears that Dee Hong Lue "sold" the pile to the Central Syndicate for exactly the same price barely forty-six (46) days after acquiring it from FLC and exactly five (5) days after the Syndicate was registered with the Securities and Exchange

Commission on August 19, 1946. This is indeed most unusual for a businessman like Dee Hong Lue who, it is to be presumed, was out to make a killing when he acquired the surplus goods from the FLC for the staggering amount of P1,750,000.00 in cash. Again, why did Dee Hong Lue waste all his time and effort not to say his good connections with the FLC by acquiring the goods from that agency only to sell it for the same amount to the Central Syndicate? This would have been understandable if Dee Hong Lue were the biggest and controlling stockholder of the Syndicate. He could perhaps reason out to himself, "the profits which I am sacrificing now in this sale to the Syndicate, I will get it anyway in the form of dividends from it after it shall have disposed of all the "Mystery Pile" to the public.' But then, how could this be possible when Dee Hong Lue was the smallest subscriber to the capital stock of the Syndicate? It appears from the Articles of Incorporation that of the authorized capital stock of the corporation in the amount of P500,000.00, Dee Hong Lue subscribes to only P20,000.00 or 1/25th of the capital stock authorized and of this amount only P5,000.00 was paid by him at the time of incorporation. So here is an experienced businessman like Dee Hong Lue who, following the theory of petitioners' counsel, bought the "'Mystery Pile" for himself for P1,250,000.00 in cash, and after a few days sold the same at cost to a corporation wherein he owned only 1/25th of the authorized capital stock and wherein he was not even an officer, thus doling out to the other six incorporators and stockholders net profits in the sum conservatively estimated by the respondent to be P206,116.45 out of a total of P229,073.83 which normally could all go to him. We take judicial notice of the fact that as a result of our immense losses in property throughout the archipelago the during the Japanese occupation, either through destruction or systematic commandering by the enemy and our forces, surplus properties commanded a very good price in the open market after the liberation and that quite a number of surplus dealers made immense fortunes out of it. We believe the respondent was quite charitable if not more than fair to the Central Syndicate in computing the profits realized by it in the resale of the "Mystery Pile" to the public at only 18.8% of the acquisition price. Now, from the side of the Central Syndicate. This corporation, as its articles of incorporation, Exhibit A (pp. 60-66, CTA rec.) will show, was incorporated on August 15, 1946 with an authorized capital stock of P500,000.00 of which P200,000.00 worth was subscribed by seven (7) persons and P50,000.00 paid-up in cash at the time of incorporation. Five (5) days after its incorporation, as the Deed of Sale, Exhibit 13 (p. 66, BIR rec.) purports to show, the said corporation bought from Dee Hong Lue the "Mystery Pile" for P1,250,000.00 in cash. This is indeed quite phenomenal and fantastic not to say the utmost degree of finance considering that the corporation had a subscribed capital stock of only P200,000.00 of which only P50,000.00 was paid-up at the time of incorporation and with not the least proof showing that it never borrowed money in its own name from outside source to raise the enormous amount allegedly paid to Dee Hong Lue nor evidence to show that it had by then in so short a time is five (5) days accumulated a substantial reserve to meet Dee Hong Lue's selling price. Furthermore, at first blush it would seem quite difficult to understand why the seven (7) incorporators and stockholders of the Central Syndicate formed a corporation with a subscribed capital stock of only P200,000.00, and with cash on hand of only P50,000.00 knowing fully well that there was a transaction awaiting the newly registered corporation involving an outlay of P1,250,000.00 in cash. We believe this was done after mature deliberation and for some ulterior motive. As we see it, the only logical answer is that the incorporator wanted to limit whatever civil liability that might arise in favor of third persons, as the present tax liability has now arisen, up to the amount of their subscriptions, although the surplus deal

they transacted and which we believe was the only purpose in the incorporation of the Central Syndicate, was very much over and above their authorized capital. Moreover, by limiting its capital, the corporation was also able to save on incidental expenses, such as attorney's fee and the filing fee paid to the Securities and Exchange Commission, which were based on the amount of the authorized capital stock. Another mystery worth unravelling is what happened to the P1,181,240.00 (should be P1,181,000.00) which Dee Hong Lue in his affidavit, Exhibit 15 (p. 144, BIR rec.) claims to have received from Messrs. Uy Khe Thai, Sy Seng Tong, Alfonso Z. Sycip, Tan Tiong Bio (all incorporators of the Syndicate) and two others as 'advances' with which to pay the FLC. There is no evidence on record to show that Dee Hong Lue ever returned this amount to those six (6) persons after he supposedly received P1,250,000.00 from the newly incorporated Syndicate by virtue of the Deed of Sale, Exhibit 13. This is the explanation that Dee Hong Lue gave in this regard as appearing in his affidavit, Exhibit 15: "That soon after the above-mentioned property was purchased, the above parties, with the exception of Robert Dee Se Wee and Jose S. Lim decided to join the proposed Central Syndicate and a re-allocation of shares was made for the reason that some of the above parties in turn had to get advances from third parties." If this were true, why was it that Messrs. Yu Khe Thai, Sy Seng Tong, Alfonso Z. Sycip and Tan Tiong Bio who advanced P250,000.00; P375,000.00 and P125,000.00 to Dee Hong Lue were made to appear in the Articles of incorporation of the Central Syndicate as having subscribed to shares worth only P40,000.00; P30,000.00; P30,000.00 and P20,000.00 and of having paid only P10,000.00, P7,500.00, P7,500.00, and P5,000.00 on their subscriptions, respectively? Would it not be more in keeping with corporate practice, following the explanation of Dee Hong Lue, to just credit those four (4) persons in the corporation with shares worth the amount advanced by them to Dee Hong Lue? On the basis of the above figures, the re-allocation of shares in favor of the four (4) incorporators who advanced enormous sums for the Syndicate seems at first glance to be totally disproportionate and unfair to them. However, in the final analysis it is not so as we will now show. Immediately after the incorporation of the Syndicate, as the evidence shows, Dee Hong Lue was made to execute a deed of transfer under the guise of a contract of sale, conveying full and complete ownership of the "Mystery Pile" to the newly organized corporation. So we have, on the face of the Articles of Incorporation and Exhibit 13, a corporation with assets worth only P50,000.00 cash owning properties worth over a million pesos. Obviously, the incorporators of the Syndicate, particularly those four who advanced enormous sums to Dee Hong Lue, are not ordinary businessmen who could easily be taken for a ride. With the precipitated execution of the "Deed of Sale" by Dee Hong Lue in favor of the Syndicate, transferring and conveying ownership over the entire pile to the latter, the recoupment of their advances from the newly acquired assets of the corporation was sufficiently secured, and at the same time, by making the document appear to be a deed of sale instead of a deed of transfer as it should be under Article 1891 of the New Civil Code, they have reduced (at least attempted to) their sales tax liability with the argument that Dee Hong Lue was the original "purchaser" or "importer" of the goods and therefore the taxable sale was that one made by him to the Syndicate and not the sales made by the latter to the public. After going over the Articles of Incorporation of the Central Syndicate and the other circumstances of this case, we draw the conclusion that it was organized just for this particular transaction that its life span was expressly limited to two (2) years from and after the date of incorporation just to give it time to dispose of the "Mystery Pile" to the public and then liquidate all its assets among the seven incorporators-stockholders as in fact it was done on August 15, 1948; that from the very start, the seven (7) incorporators had intended it to be a closed corporation without the least intention of ever selling to other persons the

remaining authorized capital stock of P300,000.00 still unsubscribed; and, that upon its liquidation, the seven (7) incorporators composing it got much more than their investments including those who advanced P1,181,000.00 to the FLC for the corporation. Petitioners would dispute the finding that Dee Hong Lue merely acted as a trustee of the Central Syndicate when he purchased the surplus goods in question from the Foreign Liquidation Commission on July 5, 1946 considering that on that date the syndicate has not yet been incorporated on the theory that no legal relation may exist between parties one of whom has yet no legal existence. Technically this may be true, but the fact remains that it cannot be denied that Dee Hong Lue purchased the goods on behalf of those who advanced the money for the purchase thereof who later became the incorporators and only stockholders of the syndicate with the understanding that the amounts they had respectively advanced would be their investment and would represent their interest in the corporation. And this is further evidenced by the fact that this purchase made by Dee Hong Lue was later approved and adopted as the act of the Central Syndicate itself as can be gleaned from the certificate executed by David Sycip, general manager of said syndicate, on September 16, 1946, wherein he emphasized that the persons named therein (from whom Dee Hong Lue obtained the money) merely acted on behalf of the syndicate and in fact were the ones who went to Leyte to take over the aforesaid surplus goods. In any event, even if Dee Hong Lue may be deemed as the purchaser of the surplus goods in his own right, nevertheless, the corporation still may be regarded as the importer of the same goods for the reason that Dee Hong Lue transferred to it all his rights and interests in the contract with the Foreign Liquidation Commission, and it was said corporation that took delivery thereof from the place where they were stored in Leyte as may be seen from the letter of Dee Hong Lue to the Foreign Liquidation Commission dated September 2, 1946 and the letter of the Central Syndicate to the said Commission bearing the same date. Under these facts, it is clear that the Central Syndicate is the importer of the surplus goods as correctly observed by Judge Umali in his concurring opinion, from which we quote: . It is now well settled that a person who bought surplus goods from the Foreign Liquidation Commission and who removed the goods bought from the U.S. military bases in the Philippines is considered an importer of such goods and is subject to the sales tax or compensating tax, as the case may be. (Go Cheng Tee v. Meer, 47 O.G. 269; Saura Import and Export v. Meer, G.R. No. L-2927, Jan. 26, 1951; P.M.P. Navigation v. Meer, G.R. No. L-4621, March 24, 1953; Soriano y Cia v. Coll. of Int. Rev., 51 O.G. 4548.) In this case it appearing that the Central Syndicate was the owner of the 'Mystery Pile' before its removal from Base K and that it was the one which actually took delivery thereof and removed the same from the U.S. military base, it is the importer within the meaning of Section 186 of the Revenue Code, as it stood before the enactment of Republic Act No. 594, and its sales of the surplus goods are the original sales taxable under said section and not the sale to it by Dee Hong Lue. 2. Since the Central Syndicate, as we have already pointed out, was the importer of the surplus goods in question, it was its duty under Section 183 of the Internal Revenue Code to file a return of its gross sales within 20 days after the end of each quarter in order that the office of the internal revenue may assess the sales tax that may be due thereon, but, as the record shows, the Central Syndicate failed to file any return of its quarterly sales on the pretext that it was Dee Hong Lue who imported the surplus goods and it merely purchased them from said importer. This is in fact what the syndicate intended to impress upon the Collector when it wrote to him its letter of October 19, 1946 informing him that it purchased from Dee Hong Lue the entire stock of the surplus goods which the latter had bought from the Foreign Liquidation Commission and was therefore depositing in his name the sum of P43,750.00 to answer for his sales tax liability, but this letter certainly cannot be considered as a return that may set in operation the application of the prescriptive period provided for in Section 331 of the Tax Code, for, evidently, said letter if at all could only be considered as

such in behalf of Dee Hong Lue and not in behalf of the Central Syndicate because such is the only nature and import of the letter. Besides, how can such letter be considered as a return of the sales of the Central Syndicate when it was only on February 21, 1947 when it removed the surplus goods in question from their base at Leyte? How can such return inure to the benefit of the syndicate when the same surplus goods which were removed on said date could not have been sold by the corporation earlier than the aforesaid date? It is obvious that the letter of October 19, 1946 cannot possibly be considered as a return filed by the syndicate and so cannot serve as basis for the computation of the prescriptive period of five years prescribed by law. Nor can the fact that the Collector did not include in the assessment a surcharge of 50% serve as an argument that a return had already been filed, for such failure can only mean that an oversight had been committed in the non-inclusion of said surcharge. The syndicate having failed to file its quarterly returns as required by Section 183 of the Tax Code, the period that has to be reckoned with is that embodied in Section 332 of the same Code which provides that in case of failure to file the return the tax may be assessed within 10 years after discovery of the falsity, fraud or omission of the payment of the proper tax. Since it appears that the Collector discovered the failure of the syndicate to file the return only on September 12, 1951 he has therefore up to September 18, 1961 within which to assess or collect the deficiency tax in question. Consequently the assessment made on January 4, 1952 was made within the prescribed period. 3. Petitioners argue (1) that the Court of Tax Appeals acted in excess of its jurisdiction in holding them liable as officers or directors of the defunct Central Syndicate for the tax liability of the latter; (2) that petitioners cannot be held liable for said tax liability there being no statutory provision in this jurisdiction authorizing the government to proceed against the stockholders of a defunct corporation as transferees of the corporate assets upon liquidation; (3) that assuming that the stockholders can be held so liable, they are only liable to the extent of the benefits derived by them from the corporation and there is no evidence showing that petitioners had been the beneficiaries of the defunct syndicate; (4) that considering that the Collector instituted the present action on September 23, 1954 when he filed his answer to the appeal of petitioners, said action was already barred by prescription pursuant to Sections 77 and 78 of the Corporation Law which allows corporations to continue as a body corporate only for three years from its dissolution; and (5) that assuming that petitioners are liable to pay the tax, their liability is not solidary, but only limited to the benefits derived by them from the corporation. It should be stated at the outset that it was petitioners themselves who caused their substitution as parties in the present case, being the successors-in-interest of the defunct syndicate, when they appealed this case to the Supreme Court for which reason the latter Court declared that "the respondent Court of Tax Appeals should have allowed the substitution of its former officers and directors is parties-appellants, since they are proper parties in interest insofar as they may be (and in fact are) held personally liable for the unpaid deficiency assessments made by the Collector of Internal Revenue against the defunct Syndicate." In fact, because of this directive their substitution was effected. They cannot, therefore, be now heard to complain if they are made responsible for the tax liability of the defunct syndicate whose representation they assumed and whose assets were distributed among them. In the second place, there is good authority to the effect that the creditor of a dissolved corporation may follow its assets once they passed into the hands of the stockholders. Thus, recognized are the following rules in American jurisprudence: The dissolution of a corporation does not extinguish the debts due or owing to it (Bacon v. Robertson, 18 How. 480, 15 L. Ed., 406; Curron v. State, 16 How. 304, 14 L. Ed., 705). A creditor of a dissolve corporation may follow its assets, as in the nature of a trust fund, into the hands of its stockholders (MacWilliams v. Excelsier Coal Co. [1924] 298 Fed. 384). An indebtedness of a corporation to the federal government for income and excess profit taxes is not extinguished

by the dissolution of the corporation (Quinn v. McLeudon, 152 Ark. 271, 238 S.W., 32). And it has been stated, with reference to the effect of dissolution upon taxes due from a corporation, "that the hands of the government cannot, of course, collect taxes from a defunct corporation, it loses thereby none of its rights to assess taxes which had been due from the corporation, and to collect them from persons, who by reason of transactions with the corporation, hold property against which the tax can be enforced and that the legal death of the corporation no more prevents such action than would the physical death of an individual prevent the government from assessing taxes against him and collecting them from his administrator, who holds the property which the decedent had formerly possessed" (Wonder Bakeries Co. v. U.S. [1934] Ct. Cl. 6 F. Supp. 288). Bearing in mind that our corporation law is of American origin, the foregoing authorities have persuasive effect in considering similar cases in this jurisdiction. This must have been taken into account when in G.R. No. L-8800 this Court said that petitioners could be held personally liable for the taxes in question as successors-in-interest of the defunct corporation. Considering that the Central Syndicate realized from the sale of the surplus goods a net profit of P229,073.83, and that the sale of said goods was the only transaction undertaken by said syndicate, there being no evidence to the contrary, the conclusion is that said net profit remained intact and was distributed among the stockholders when the corporation liquidated and distributed its assets on August 15, 1948, immediately after the sale of the said surplus goods. Petitioners are therefore the beneficiaries of the defunct corporation and as such should be held liable to pay the taxes in question. However, there being no express provision requiring the stockholders of the corporation to be solidarily liable for its debts which liability must be express and cannot be presumed, petitioners should be held to be liable for the tax in question only in proportion to their shares in the distribution of the assets of the defunct corporation. The decision of the trial court should be modified accordingly. WHEREFORE, with the above modification, we hereby affirm the decision appealed from, with costs against petitioners. Bengzon, C.J., Padilla, Labrador, Concepcion, Reyes. J.B.L., Paredes and Dizon, JJ., concur. Barrera, J., took no part.

G.R. No. L-7859

December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme Ledesma, plaintiff-appellant, vs. J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee. Ernesto J. Gonzaga for appellant. Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act. Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the imposition of the export taxes." In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12 per centum of the assessed value of such land. According to section 6 of the law SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law. First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial position of the Philippine sugar in the United States market, and ultimately to insure its continued existence notwithstanding the loss of that market and the consequent necessity of meeting competition in the free markets of the world; Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof the mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field so that all might continue profitably to engage therein;lawphi1.net Third, to limit the production of sugar to areas more economically suited to the production thereof; and Fourth, to afford labor employed in the industry a living wage and to improve their living and working conditions: Provided, That the President of the Philippines may, until the adjourment of the next regular session of the National Assembly, make the necessary disbursements from the fund herein created (1) for the establishment and operation of sugar experiment station or stations and the undertaking of researchers (a) to increase the recoveries of the centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate higher yielding varieties of sugar cane more adaptable to different district conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the other by-products of the

industry, (f) to determine what crop or crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other problems the solution of which would help rehabilitate and stabilize the industry, and (2) for the improvement of living and working conditions in sugar mills and sugar plantations, authorizing him to organize the necessary agency or agencies to take charge of the expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement from the fund herein created of the necessary amount or amounts needed for salaries, wages, travelling expenses, equipment, and other sundry expenses of said agency or agencies. Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 19481949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the case directly to this Court (Judiciary Act, section 17). The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121). As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign. (128 Sp. 857). Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the

state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579). That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251). From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It may be that other industries are also in need of similar protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied;" and that "the legislative authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893). Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to experimental stations to seek increase of efficiency in sugar production, utilization of by-products and solution of allied problems, as well as to the improvements of living and working conditions in sugar mills or plantations, without any part of such money being channeled directly to private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400). The decision appealed from is affirmed, with costs against appellant. So ordered. Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

CASTRO, J.: This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by Republic Act 2631,2 which provides as follows: To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for the period from August nineteen to September thirty every year the printing and issue of semi-postal stamps of different denominations with face value showing the regular postage charge plus the additional amount of five centavos for the said purpose, and during the said period, no mail matter shall be accepted in the mails unless it bears such semi-postal stamps: Provided, That no such additional charge of five centavos shall be imposed on newspapers. The additional proceeds realized from the sale of the semi-postal stamps shall constitute a special fund and be deposited with the National Treasury to be expended by the Philippine Tuberculosis Society in carrying out its noble work to prevent and eradicate tuberculosis. The respondent Postmaster General, in implementation of the law, thereafter issued four (4) administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15, 1960). All these administrative orders were issued with the approval of the respondent Secretary of Public Works and Communications. The pertinent portions of Adm. Order 3 read as follows: Such semi-postal stamps could not be made available during the period from August 19 to September 30, 1957, for lack of time. However, two denominations of such stamps, one at "5 + 5" centavos and another at "10 + 5" centavos, will soon be released for use by the public on their mails to be posted during the same period starting with the year 1958. xxx xxx xxx

During the period from August 19 to September 30 each year starting in 1958, no mail matter of whatever class, and whether domestic or foreign, posted at any Philippine Post Office and addressed for delivery in this country or abroad, shall be accepted for mailing unless it bears at least one such semi-postal stamp showing the additional value of five centavos intended for the Philippine Tuberculosis Society. In the case of second-class mails and mails prepaid by means of mail permits or impressions of postage meters, each piece of such mail shall bear at least one such semi-postal stamp if posted during the period above stated starting with the year 1958, in addition to being charged the usual postage prescribed by existing regulations. In the case of business reply envelopes and cards mailed during said period, such stamp should be collected from the addressees at the time of delivery. Mails entitled to franking privilege like those from the office of the President, members of Congress, and other offices to which such privilege has been granted, shall each also bear one such semi-postal stamp if posted during the said period. Mails posted during the said period starting in 1958, which are found in street or post-office mail boxes without the required semi-postal stamp, shall be returned to the sender, if known, with a notation calling for the affixing of such stamp. If the sender is unknown, the mail matter shall be treated as nonmailable and forwarded to the Dead Letter Office for proper disposition.

G.R. No. L-23645

October 29, 1968

BENJAMIN P. GOMEZ, petitioner-appellee, vs. ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. VALENCIA, in his capacity as Secretary of Public Works and Communications, and DOMINGO GOPEZ, in his capacity as Acting Postmaster of San Fernando, Pampanga, respondent-appellants. Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee. Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C. Zaballero and Solicitor Dominador L. Quiroz for respondents-appellants.

Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows: In the case of the following categories of mail matter and mails entitled to franking privilege which are not exempted from the payment of the five centavos intended for the Philippine Tuberculosis Society, such extra charge may be collected in cash, for which official receipt (General Form No. 13, A) shall be issued, instead of affixing the semi-postal stamp in the manner hereinafter indicated: 1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of five centavos for the Philippine Tuberculosis Society shall be collected on each separately-addressed piece of second-class mail matter, and the total sum thus collected shall be entered in the same official receipt to be issued for the postage at the second-class rate. In making such entry, the total number of pieces of second-class mail posted shall be stated, thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered separate from the postage in both of the official receipt and the Record of Collections. 2. First-class and third-class mail permits. Mails to be posted without postage affixed under permits issued by this Bureau shall each be charged the usual postage, in addition to the five-centavo extra charge intended for said society. The total extra charge thus received shall be entered in the same official receipt to be issued for the postage collected, as in subparagraph 1. 3. Metered mail. For each piece of mail matter impressed by postage meter under metered mail permit issued by this Bureau, the extra charge of five centavos for said society shall be collected in cash and an official receipt issued for the total sum thus received, in the manner indicated in subparagraph 1. 4. Business reply cards and envelopes. Upon delivery of business reply cards and envelopes to holders of business reply permits, the five-centavo charge intended for said society shall be collected in cash on each reply card or envelope delivered, in addition to the required postage which may also be paid in cash. An official receipt shall be issued for the total postage and total extra charge received, in the manner shown in subparagraph 1. 5. Mails entitled to franking privilege. Government agencies, officials, and other persons entitled to the franking privilege under existing laws may pay in cash such extra charge intended for said society, instead of affixing the semi-postal stamps to their mails, provided that such mails are presented at the post-office window, where the five-centavo extra charge for said society shall be collected on each piece of such mail matter. In such case, an official receipt shall be issued for the total sum thus collected, in the manner stated in subparagraph 1. Mail under permits, metered mails and franked mails not presented at the postoffice window shall be affixed with the necessary semi-postal stamps. If found in mail boxes without such stamps, they shall be treated in the same way as herein provided for other mails. Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and Instrumentalities Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as amended, exempts "copies of periodical publications received for mailing under any class of mail matter, including newspapers and magazines admitted as second-class mail."

The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in San Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014 Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp required by the statute, it was returned to the petitioner. In view of this development, the petitioner brough suit for declaratory relief in the Court of First Instance of Pampanga, to test the constitutionality of the statute, as well as the implementing administrative orders issued, contending that it violates the equal protection clause of the Constitution as well as the rule of uniformity and equality of taxation. The lower court declared the statute and the orders unconstitutional; hence this appeal by the respondent postal authorities. For the reasons set out in this opinion, the judgment appealed from must be reversed. I. Before reaching the merits, we deem it necessary to dispose of the respondents' contention that declaratory relief is unavailing because this suit was filed after the petitioner had committed a breach of the statute. While conceding that the mailing by the petitioner of a letter without the additional anti-TB stamp was a violation of Republic Act 1635, as amended, the trial court nevertheless refused to dismiss the action on the ground that under section 6 of Rule 64 of the Rules of Court, "If before the final termination of the case a breach or violation of ... a statute ... should take place, the action may thereupon be converted into an ordinary action." The prime specification of an action for declaratory relief is that it must be brought "before breach or violation" of the statute has been committed. Rule 64, section 1 so provides. Section 6 of the same rule, which allows the court to treat an action for declaratory relief as an ordinary action, applies only if the breach or violation occurs after the filing of the action but before the termination thereof.3 Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing of this action, then indeed the remedy of declaratory relief cannot be availed of, much less can the suit be converted into an ordinary action. Nor is there merit in the petitioner's argument that the mailing of the letter in question did not constitute a breach of the statute because the statute appears to be addressed only to postal authorities. The statute, it is true, in terms provides that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamps." It does not follow, however, that only postal authorities can be guilty of violating it by accepting mails without the payment of the anti-TB stamp. It is obvious that they can be guilty of violating the statute only if there are people who use the mails without paying for the additional anti-TB stamp. Just as in bribery the mere offer constitutes a breach of the law, so in the matter of the antiTB stamp the mere attempt to use the mails without the stamp constitutes a violation of the statute. It is not required that the mail be accepted by postal authorities. That requirement is relevant only for the purpose of fixing the liability of postal officials. Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit was filed not only with respect to the letter which he mailed on September 15, 1963, but also with regard to any other mail that he might send in the future. Thus, in his complaint, the petitioner prayed that due course be given to "other mails without the semipostal stamps which he may deliver for mailing ... if any, during the period covered by Republic Act 1635, as amended, as well as other mails hereafter to be sent by or to other mailers which bear the required postage, without collection of additional charge of five

centavos prescribed by the same Republic Act." As one whose mail was returned, the petitioner is certainly interested in a ruling on the validity of the statute requiring the use of additional stamps. II. We now consider the constitutional objections raised against the statute and the implementing orders. 1. It is said that the statute is violative of the equal protection clause of the Constitution. More specifically the claim is made that it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the population and that even among postal patrons the statute discriminatorily grants exemption to newspapers while Administrative Order 9 of the respondent Postmaster General grants a similar exemption to offices performing governmental functions. . The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid upon the exercise of a privilege, namely, the privilege of using the mails. As such the objections levelled against it must be viewed in the light of applicable principles of taxation. To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions.4 This power has aptly been described as "of wide range and flexibility."5 Indeed, it is said that in the field of taxation, more than in other areas, the legislature possesses the greatest freedom in classification.6 The reason for this is that traditionally, classification has been a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden.7 That legislative classifications must be reasonable is of course undenied. But what the petitioner asserts is that statutory classification of mail users must bear some reasonable relationship to the end sought to be attained, and that absent such relationship the selection of mail users is constitutionally impermissible. This is altogether a different proposition. As explained in Commonwealth v. Life Assurance Co.:8 While the principle that there must be a reasonable relationship between classification made by the legislation and its purpose is undoubtedly true in some contexts, it has no application to a measure whose sole purpose is to raise revenue ... So long as the classification imposed is based upon some standard capable of reasonable comprehension, be that standard based upon ability to produce revenue or some other legitimate distinction, equal protection of the law has been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910). We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration that it sanctions invidious discrimination, which is all that the Constitution forbids. The remedy for unwise legislation must be sought in the legislature. Now, the classification of mail users is not without any reason. It is based on ability to pay, let alone the enjoyment of a privilege, and on administrative convinience. In the allocation of the tax burden, Congress must have concluded that the contribution to the anti-TB fund can be assured by those whose who can afford the use of the mails. The classification is likewise based on considerations of administrative convenience. For it is now a settled principle of law that "consideration of practical administrative convenience and

cost in the administration of tax laws afford adequate ground for imposing a tax on a well recognized and defined class."9 In the case of the anti-TB stamps, undoubtedly, the single most important and influential consideration that led the legislature to select mail users as subjects of the tax is the relative ease and convenienceof collecting the tax through the post offices. The small amount of five centavos does not justify the great expense and inconvenience of collecting through the regular means of collection. On the other hand, by placing the duty of collection on postal authorities the tax was made almost self-enforcing, with as little cost and as little inconvenience as possible. And then of course it is not accurate to say that the statute constituted mail users into a class. Mail users were already a class by themselves even before the enactment of the statue and all that the legislature did was merely to select their class. Legislation is essentially empiric and Republic Act 1635, as amended, no more than reflects a distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in fact is living law; to disregard [them] and concentrate on some abstract identities is lifeless logic."10 Granted the power to select the subject of taxation, the State's power to grant exemption must likewise be conceded as a necessary corollary. Tax exemptions are too common in the law; they have never been thought of as raising issues under the equal protection clause. It is thus erroneous for the trial court to hold that because certain mail users are exempted from the levy the law and administrative officials have sanctioned an invidious discrimination offensive to the Constitution. The application of the lower courts theory would require all mail users to be taxed, a conclusion that is hardly tenable in the light of differences in status of mail users. The Constitution does not require this kind of equality. As the United States Supreme Court has said, the legislature may withhold the burden of the tax in order to foster what it conceives to be a beneficent enterprise.11 This is the case of newspapers which, under the amendment introduced by Republic Act 2631, are exempt from the payment of the additional stamp. As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity from taxation. The State cannot be taxed without its consent and such consent, being in derogation of its sovereignty, is to be strictly construed.12 Administrative Order 9 of the respondent Postmaster General, which lists the various offices and instrumentalities of the Government exempt from the payment of the anti-TB stamp, is but a restatement of this well-known principle of constitutional law. The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the exclusion of other diseases which, it is said, are equally a menace to public health. But it is never a requirement of equal protection that all evils of the same genus be eradicated or none at all.13 As this Court has had occasion to say, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied."14 2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for a public purpose as no special benefits accrue to mail users as taxpayers, and second, because it violates the rule of uniformity in taxation. The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society, established

and safeguarded by the devotion of taxes to public purposes. Any other view would preclude the levying of taxes except as they are used to compensate for the burden on those who pay them and would involve the abandonment of the most fundamental principle of government that it exists primarily to provide for the common good.15 Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a graduated tax. A tax need not be measured by the weight of the mail or the extent of the service rendered. We have said that considerations of administrative convenience and cost afford an adequate ground for classification. The same considerations may induce the legislature to impose a flat tax which in effect is a charge for the transaction, operating equally on all persons within the class regardless of the amount involved.16 As Mr. Justice Holmes said in sustaining the validity of a stamp act which imposed a flat rate of two cents on every $100 face value of stock transferred: One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The inequality of the tax, so far as actual values are concerned, is manifest. But, here again equality in this sense has to yield to practical considerations and usage. There must be a fixed and indisputable mode of ascertaining a stamp tax. In another sense, moreover, there is equality. When the taxes on two sales are equal, the same number of shares is sold in each case; that is to say, the same privilege is used to the same extent. Valuation is not the only thing to be considered. As was pointed out by the court of appeals, the familiar stamp tax of 2 cents on checks, irrespective of income or earning capacity, and many others, illustrate the necessity and practice of sometimes substituting count for weight ...17 According to the trial court, the money raised from the sales of the anti-TB stamps is spent for the benefit of the Philippine Tuberculosis Society, a private organization, without appropriation by law. But as the Solicitor General points out, the Society is not really the beneficiary but only the agency through which the State acts in carrying out what is essentially a public function. The money is treated as a special fund and as such need not be appropriated by law.18 3. Finally, the claim is made that the statute is so broadly drawn that to execute it the respondents had to issue administrative orders far beyond their powers. Indeed, this is one of the grounds on which the lower court invalidated Republic Act 1631, as amended, namely, that it constitutes an undue delegation of legislative power. Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain classes of mail matters (such as mail permits, metered mails, business reply cards, etc.), the five-centavo charge may be paid in cash instead of the purchase of the anti-TB stamp. It further states that mails deposited during the period August 19 to September 30 of each year in mail boxes without the stamp should be returned to the sender, if known, otherwise they should be treated as nonmailable. It is true that the law does not expressly authorize the collection of five centavos except through the sale of anti-TB stamps, but such authority may be implied in so far as it may be necessary to prevent a failure of the undertaking. The authority given to the Postmaster General to raise funds through the mails must be liberally construed, consistent with the principle that where the end is required the appropriate means are given.19 The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the additional charge but also that of the regular postage. In the case of business reply cards, for instance, it is obvious that to require mailers to affix the anti-TB stamp on their cards would be to make them pay much more because the cards likewise bear the amount of the regular postage.

It is likewise true that the statute does not provide for the disposition of mails which do not bear the anti-TB stamp, but a declaration therein that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamp" is a declaration that such mail matter is nonmailable within the meaning of section 1952 of the Administrative Code. Administrative Order 7 of the Postmaster General is but a restatement of the law for the guidance of postal officials and employees. As for Administrative Order 9, we have already said that in listing the offices and entities of the Government exempt from the payment of the stamp, the respondent Postmaster General merely observed an established principle, namely, that the Government is exempt from taxation. ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without pronouncement as to costs. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano, JJ., concur. Zaldivar, J., is on leave.

Separate Opinions FERNANDO, J., concurring: I join fully the rest of my colleagues in the decision upholding Republic Act No. 1635 as amended by Republic Act No. 2631 and the majority opinion expounded with Justice Castro's usual vigor and lucidity subject to one qualification. With all due recognition of its inherently persuasive character, it would seem to me that the same result could be achieved if reliance be had on police power rather than the attribute of taxation, as the constitutional basis for the challenged legislation. 1. For me, the state in question is an exercise of the regulatory power connected with the performance of the public service. I refer of course to the government postal function, one of respectable and ancient lineage. The United States Constitution of 1787 vests in the federal government acting through Congress the power to establish post offices.1 The first act providing for the organization of government departments in the Philippines, approved Sept. 6, 1901, provided for the Bureau of Post Offices in the Department of Commerce and Police.2 Its creation is thus a manifestation of one of the many services in which the government may engage for public convenience and public interest. Such being the case, it seems that any legislation that in effect would require increase cost of postage is well within the discretionary authority of the government. It may not be acting in a proprietary capacity but in fixing the fees that it collects for the use of the mails, the broad discretion that it enjoys is undeniable. In that sense, the principle announced in Esteban v. Cabanatuan City,3 in an opinion by our Chief Justice, while not precisely controlling furnishes for me more than ample support for the validity of the challenged legislation. Thus: "Certain exactions, imposable under an authority other than police power, are not subject, however, to qualification as to the amount chargeable, unless the Constitution or the pertinent laws provide otherwise. For instance, the rates of taxes, whether national or municipal, need not be reasonable, in the absence of such constitutional or statutory limitation. Similarly, when a municipal corporation fixes the fees for the use of its properties, such as public markets, it does not wield the police power, or even the power of taxation. Neither does it assert governmental authority. It exercises merely a proprietary function. And, like any private owner, it is in the absence of the aforementioned limitation, which does not exist in the Charter of Cabanatuan City (Republic Act No. 526)

free to charge such sums as it may deem best, regardless of the reasonableness of the amount fixed, for the prospective lessees are free to enter into the corresponding contract of lease, if they are agreeable to the terms thereof or, otherwise, not enter into such contract." 2. It would appear likewise that an expression of one's personal view both as to the attitude and awareness that must be displayed by inferior tribunals when the "delicate and awesome" power of passing on the validity of a statute would not be inappropriate. "The Constitution is the supreme law, and statutes are written and enforced in submission to its commands."4 It is likewise common place in constitutional law that a party adversely affected could, again to quote from Cardozo, "invoke, when constitutional immunities are threatened, the judgment of the courts."5 Since the power of judicial review flows logically from the judicial function of ascertaining the facts and applying the law and since obviously the Constitution is the highest law before which statutes must bend, then inferior tribunals can, in the discharge of their judicial functions, nullify legislative acts. As a matter of fact, in clear cases, such is not only their power but their duty. In the language of the present Chief Justice: "In fact, whenever the conflicting claims of the parties to a litigation cannot properly be settled without inquiring into the validity of an act of Congress or of either House thereof, the courts have, not only jurisdiction to pass upon said issue but, also, theduty to do so, which cannot be evaded without violating the fundamental law and paving the way to its eventual destruction."6 Nonetheless, the admonition of Cooley, specially addressed to inferior tribunals, must ever be kept in mind. Thus: "It must be evident to any one that the power to declare a legislative enactment void is one which the judge, conscious of the fallibility of the human judgment, will shrink from exercising in any case where he can conscientiously and with due regard to duty and official oath decline the responsibility."7 There must be a caveat however to the above Cooley pronouncement. Such should not be the case, to paraphrase Freund, when the challenged legislation imperils freedom of the mind and of the person, for given such an undesirable situation, "it is freedom that commands a momentum of respect." Here then, fidelity to the great ideal of liberty enshrined in the Constitution may require the judiciary to take an uncompromising and militant stand. As phrased by us in a recent decision, "if the liberty involved were freedom of the mind or the person, the standard of its validity of governmental acts is much more rigorous and exacting."8 So much for the appropriate judicial attitude. Now on the question of awareness of the controlling constitutional doctrines. There is nothing I can add to the enlightening discussion of the equal protection aspect as found in the majority opinion. It may not be amiss to recall to mind, however, the language of Justice Laurel in the leading case ofPeople v. Vera,9 to the effect that the basic individual right of equal protection "is a restraint on all the three grand departments of our government and on the subordinate instrumentalities and subdivisions thereof, and on many constitutional powers, like the police power, taxation and eminent domain."10 Nonetheless, no jurist was more careful in avoiding the dire consequences to what the legislative body might have deemed necessary to promote the ends of public welfare if the equal protection guaranty were made to constitute an insurmountable obstacle. A similar sense of realism was invariably displayed by Justice Frankfurter, as is quite evident from the various citations from his pen found in the majority opinion. For him, it would be a misreading of the equal protection clause to ignore actual conditions and settled practices. Not for him the at times academic and sterile approach to constitutional problems of this

sort. Thus: "It would be a narrow conception of jurisprudence to confine the notion of 'laws' to what is found written on the statute books, and to disregard the gloss which life has written upon it. Settled state practice cannot supplant constitutional guaranties, but it can establish what is state law. The Equal Protection Clause did not write an empty formalism into the Constitution. Deeply embedded traditional ways of carrying out state policy, such as those of which petitioner complains, are often tougher and truer law than the dead words of the written text."11 This too, from the same distinguished jurist: "The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same."12 Now, as to non-delegation. It is to be admitted that the problem of non-delegation of legislative power at times occasions difficulties. Its strict view has been announced by Justice Laurel in the aforecited case of People v. Verain this language. Thus: "In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to inquire whether the statute was complete in all its terms and provisions when it left the hands of the legislature so that nothing was left to the judgment of any other appointee or delegate of the legislature. .... InUnited States v. Ang Tang Ho ..., this court adhered to the foregoing rule; it held an act of the legislature void in so far as it undertook to authorize the Governor-General, in his discretion, to issue a proclamation fixing the price of rice and to make the sale of it in violation of the proclamation a crime."13 Only recently, the present Chief Justice reaffirmed the above view in Pelaez v. Auditor General,14 specially where the delegation deals not with an administrative function but one essentially and eminently legislative in character. What could properly be stigmatized though to quote Justice Cardozo, is delegation of authority that is "unconfined and vagrant, one not canalized within banks which keep it from overflowing."15 This is not the situation as it presents itself to us. What was delegated was power not legislative in character. Justice Laurel himself, in a later case, People v. Rosenthal,16 admitted that within certain limits, there being a need for coping with the more intricate problems of society, the principle of "subordinate legislation" has been accepted, not only in the United States and England, but in practically all modern governments. This view was reiterated by him in a 1940 decision, Pangasinan Transportation Co., Inc. v. Public Service Commission.17 Thus: "Accordingly, with the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency toward the delegation of greater powers by the legislature, and toward the approval of the practice by the courts." In the light of the above views of eminent jurists, authoritative in character, of both the equal protection clause and the non-delegation principle, it is apparent how far the lower court departed from the path of constitutional orthodoxy in nullifying Republic Act No. 1635 as amended. Fortunately, the matter has been set right with the reversal of its decision, the opinion of the Court, manifesting its fealty to constitutional law precepts, which have been reiterated time and time again and for the soundest of reasons.

G.R. No. 166006

March 14, 2008

PLANTERS PRODUCTS, INC., Petitioner, vs. FERTIPHIL CORPORATION, Respondent.

DECISION REYES, R.T., J.: THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the constitutionality of statutes, executive orders, presidential decrees and other issuances. The Constitution vests that power not only in the Supreme Court but in all Regional Trial Courts. The principle is relevant in this petition for review on certiorari of the Decision1 of the Court of Appeals (CA) affirming with modification that of the RTC in Makati City,2 finding petitioner Planters Products, Inc. (PPI) liable to private respondent Fertiphil Corporation (Fertiphil) for the levies it paid under Letter of Instruction (LOI) No. 1465. The Facts Petitioner PPI and private respondent Fertiphil are private corporations incorporated under Philippine laws.3 They are both engaged in the importation and distribution of fertilizers, pesticides and agricultural chemicals. On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which provided, among others, for the imposition of a capital recovery component (CRC) on the domestic sale of all grades of fertilizers in the Philippines.4 The LOI provides: 3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula a capital contribution component of not less than P10 per bag. This capital contribution shall be collected until adequate capital is raised to make PPI viable. Such capital contribution shall be applied by FPA to all domestic sales of fertilizers in the Philippines.5 (Underscoring supplied) Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount collected to the Far East Bank and Trust Company, the depositary bank of PPI. Fertiphil paid P6,689,144 to FPA from July 8, 1985 to January 24, 1986.6 After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI No. 1465, but PPI refused to accede to the demand.7 Fertiphil filed a complaint for collection and damages8 against FPA and PPI with the RTC in Makati. It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial of due process of law.9 Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which used the proceeds to maintain its monopoly of the fertilizer industry. In its Answer,10 FPA, through the Solicitor General, countered that the issuance of LOI No. 1465 was a valid exercise of the police power of the State in ensuring the stability of the fertilizer industry in the country. It also averred that Fertiphil did not sustain any damage from the LOI because the burden imposed by the levy fell on the ultimate consumer, not the seller. RTC Disposition

On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as follows: WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against the defendant Planters Product, Inc., ordering the latter to pay the former: 1) the sum of P6,698,144.00 with interest at 12% from the time of judicial demand; 2) the sum of P100,000 as attorneys fees; 3) the cost of suit. SO ORDERED.11 Ruling that the imposition of the P10 CRC was an exercise of the States inherent power of taxation, the RTC invalidated the levy for violating the basic principle that taxes can only be levied for public purpose, viz.: It is apparent that the imposition of P10 per fertilizer bag sold in the country by LOI 1465 is purportedly in the exercise of the power of taxation. It is a settled principle that the power of taxation by the state is plenary. Comprehensive and supreme, the principal check upon its abuse resting in the responsibility of the members of the legislature to their constituents. However, there are two kinds of limitations on the power of taxation: the inherent limitations and the constitutional limitations. One of the inherent limitations is that a tax may be levied only for public purposes: The power to tax can be resorted to only for a constitutionally valid public purpose. By the same token, taxes may not be levied for purely private purposes, for building up of private fortunes, or for the redress of private wrongs. They cannot be levied for the improvement of private property, or for the benefit, and promotion of private enterprises, except where the aid is incident to the public benefit. It is well-settled principle of constitutional law that no general tax can be levied except for the purpose of raising money which is to be expended for public use. Funds cannot be exacted under the guise of taxation to promote a purpose that is not of public interest. Without such limitation, the power to tax could be exercised or employed as an authority to destroy the economy of the people. A tax, however, is not held void on the ground of want of public interest unless the want of such interest is clear. (71 Am. Jur. pp. 371-372) In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the Fertilizer and Pesticide Authority pursuant to the P10 per bag of fertilizer sold imposition under LOI 1465 which, in turn, remitted the amount to the defendant Planters Products, Inc. thru the latters depository bank, Far East Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff, Fertiphil Corporation, which is a private domestic corporation, became poorer by the amount ofP6,698,144.00 and the defendant, Planters Product, Inc., another private domestic corporation, became richer by the amount of P6,698,144.00. Tested by the standards of constitutionality as set forth in the afore-quoted jurisprudence, it is quite evident that LOI 1465 insofar as it imposes the amount of P10 per fertilizer bag sold in the country and orders that the said amount should go to the defendant Planters Product, Inc. is unlawful because it violates the mandate that a tax can be levied only for a public

purpose and not to benefit, aid and promote a private enterprise such as Planters Product, Inc.12 PPI moved for reconsideration but its motion was denied.13 PPI then filed a notice of appeal with the RTC but it failed to pay the requisite appeal docket fee. In a separate but related proceeding, this Court14 allowed the appeal of PPI and remanded the case to the CA for proper disposition. CA Decision On November 28, 2003, the CA handed down its decision affirming with modification that of the RTC, with the following fallo: IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby AFFIRMED, subject to the MODIFICATION that the award of attorneys fees is hereby DELETED.15 In affirming the RTC decision, the CA ruled that the lis mota of the complaint for collection was the constitutionality of LOI No. 1465, thus: The question then is whether it was proper for the trial court to exercise its power to judicially determine the constitutionality of the subject statute in the instant case. As a rule, where the controversy can be settled on other grounds, the courts will not resolve the constitutionality of a law (Lim v. Pacquing, 240 SCRA 649 [1995]). The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of political departments are valid, absent a clear and unmistakable showing to the contrary. However, the courts are not precluded from exercising such power when the following requisites are obtaining in a controversy before it: First, there must be before the court an actual case calling for the exercise of judicial review. Second, the question must be ripe for adjudication. Third, the person challenging the validity of the act must have standing to challenge. Fourth, the question of constitutionality must have been raised at the earliest opportunity; and lastly, the issue of constitutionality must be the very lis mota of the case (Integrated Bar of the Philippines v. Zamora, 338 SCRA 81 [2000]). Indisputably, the present case was primarily instituted for collection and damages. However, a perusal of the complaint also reveals that the instant action is founded on the claim that the levy imposed was an unlawful and unconstitutional special assessment. Consequently, the requisite that the constitutionality of the law in question be the very lis mota of the case is present, making it proper for the trial court to rule on the constitutionality of LOI 1465.16 The CA held that even on the assumption that LOI No. 1465 was issued under the police power of the state, it is still unconstitutional because it did not promote public welfare. The CA explained: In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed under the said law was an invalid exercise of the States power of taxation inasmuch as it violated the inherent and constitutional prescription that taxes be levied only for public purposes. It reasoned out that the amount collected under the levy was remitted to the depository bank of PPI, which the latter used to advance its private interest.

On the other hand, appellant submits that the subject statutes passage was a valid exercise of police power. In addition, it disputes the court a quos findings arguing that the collections under LOI 1465 was for the benefit of Planters Foundation, Incorporated (PFI), a foundation created by law to hold in trust for millions of farmers, the stock ownership of PPI. Of the three fundamental powers of the State, the exercise of police power has been characterized as the most essential, insistent and the least limitable of powers, extending as it does to all the great public needs. It may be exercised as long as the activity or the property sought to be regulated has some relevance to public welfare (Constitutional Law, by Isagani A. Cruz, p. 38, 1995 Edition). Vast as the power is, however, it must be exercised within the limits set by the Constitution, which requires the concurrence of a lawful subject and a lawful method. Thus, our courts have laid down the test to determine the validity of a police measure as follows: (1) the interests of the public generally, as distinguished from those of a particular class, requires its exercise; and (2) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals (National Development Company v. Philippine Veterans Bank, 192 SCRA 257 [1990]). It is upon applying this established tests that We sustain the trial courts holding LOI 1465 unconstitutional. To be sure, ensuring the continued supply and distribution of fertilizer in the country is an undertaking imbued with public interest. However, the method by which LOI 1465 sought to achieve this is by no means a measure that will promote the public welfare. The governments commitment to support the successful rehabilitation and continued viability of PPI, a private corporation, is an unmistakable attempt to mask the subject statutes impartiality. There is no way to treat the self-interest of a favored entity, like PPI, as identical with the general interest of the countrys farmers or even the Filipino people in general. Well to stress, substantive due process exacts fairness and equal protection disallows distinction where none is needed. When a statutes public purpose is spoiled by private interest, the use of police power becomes a travesty which must be struck down for being an arbitrary exercise of government power. To rule in favor of appellant would contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private individuals.17 The CA did not accept PPIs claim that the levy imposed under LOI No. 1465 was for the benefit of Planters Foundation, Inc., a foundation created to hold in trust the stock ownership of PPI. The CA stated: Appellant next claims that the collections under LOI 1465 was for the benefit of Planters Foundation, Incorporated (PFI), a foundation created by law to hold in trust for millions of farmers, the stock ownership of PFI on the strength of Letter of Undertaking (LOU) issued by then Prime Minister Cesar Virata on April 18, 1985 and affirmed by the Secretary of Justice in an Opinion dated October 12, 1987, to wit: "2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include in its fertilizer pricing formula a capital recovery component, the proceeds of which will be used initially for the purpose of funding the unpaid portion of the outstanding capital stock of Planters presently held in trust by Planters Foundation, Inc. (Planters Foundation), which unpaid capital is estimated at approximately P206 million (subject to validation by Planters and Planters Foundation) (such unpaid portion of the outstanding capital stock of Planters being hereafter referred to as the Unpaid Capital), and subsequently for such capital increases as may be required for the continuing viability of Planters. The capital recovery component shall be in the minimum amount of P10 per bag, which will be added to the price of all domestic sales of fertilizer in the Philippines by any importer

and/or fertilizer mother company. In this connection, the Republic hereby acknowledges that the advances by Planters to Planters Foundation which were applied to the payment of the Planters shares now held in trust by Planters Foundation, have been assigned to, among others, the Creditors. Accordingly, the Republic, through FPA, hereby agrees to deposit the proceeds of the capital recovery component in the special trust account designated in the notice dated April 2, 1985, addressed by counsel for the Creditors to Planters Foundation. Such proceeds shall be deposited by FPA on or before the 15th day of each month. The capital recovery component shall continue to be charged and collected until payment in full of (a) the Unpaid Capital and/or (b) any shortfall in the payment of the Subsidy Receivables, (c) any carrying cost accruing from the date hereof on the amounts which may be outstanding from time to time of the Unpaid Capital and/or the Subsidy Receivables and (d) the capital increases contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the carrying cost shall be at such rate as will represent the full and reasonable cost to Planters of servicing its debts, taking into account both its peso and foreign currency-denominated obligations." (Records, pp. 42-43) Appellants proposition is open to question, to say the least. The LOU issued by then Prime Minister Virata taken together with the Justice Secretarys Opinion does not preponderantly demonstrate that the collections made were held in trust in favor of millions of farmers. Unfortunately for appellant, in the absence of sufficient evidence to establish its claims, this Court is constrained to rely on what is explicitly provided in LOI 1465 that one of the primary aims in imposing the levy is to support the successful rehabilitation and continued viability of PPI.18 PPI moved for reconsideration but its motion was denied.19 It then filed the present petition with this Court. Issues Petitioner PPI raises four issues for Our consideration, viz.: I THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY ATTACKED AND BE DECREED VIA A DEFAULT JUDGMENT IN A CASE FILED FOR COLLECTION AND DAMAGES WHERE THE ISSUE OF CONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF THE CASE. NEITHER CAN LOI 1465 BE CHALLENGED BY ANY PERSON OR ENTITY WHICH HAS NO STANDING TO DO SO. II LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE FERTILIZER SUPPLY AND DISTRIBUTION IN THE COUNTRY, AND FOR BENEFITING A FOUNDATION CREATED BY LAW TO HOLD IN TRUST FOR MILLIONS OF FARMERS THEIR STOCK OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION PURSUANT TO THE EXERCISE OF TAXATION AND POLICE POWER FOR PUBLIC PURPOSES. III THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY COMPONENT WAS REMITTED TO THE GOVERNMENT, AND BECAME GOVERNMENT FUNDS PURSUANT TO AN EFFECTIVE AND VALIDLY ENACTED LAW WHICH IMPOSED DUTIES AND CONFERRED RIGHTS BY VIRTUE OF

THE PRINCIPLE OF "OPERATIVE FACT" PRIOR TO ANY DECLARATION OF UNCONSTITUTIONALITY OF LOI 1465. IV THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT) FINDS NO APPLICATION IN THE INSTANT CASE.20 (Underscoring supplied) Our Ruling We shall first tackle the procedural issues of locus standi and the jurisdiction of the RTC to resolve constitutional issues. Fertiphil has locus standi because it suffered direct injury; doctrine of standing is a mere procedural technicality which may be waived. PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465 because it does not have a "personal and substantial interest in the case or will sustain direct injury as a result of its enforcement."21 It asserts that Fertiphil did not suffer any damage from the CRC imposition because "incidence of the levy fell on the ultimate consumer or the farmers themselves, not on the seller fertilizer company."22 We cannot agree. The doctrine of locus standi or the right of appearance in a court of justice has been adequately discussed by this Court in a catena of cases. Succinctly put, the doctrine requires a litigant to have a material interest in the outcome of a case. In private suits, locus standi requires a litigant to be a "real party in interest," which is defined as "the party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit."23 In public suits, this Court recognizes the difficulty of applying the doctrine especially when plaintiff asserts a public right on behalf of the general public because of conflicting public policy issues. 24 On one end, there is the right of the ordinary citizen to petition the courts to be freed from unlawful government intrusion and illegal official action. At the other end, there is the public policy precluding excessive judicial interference in official acts, which may unnecessarily hinder the delivery of basic public services. In this jurisdiction, We have adopted the "direct injury test" to determine locus standi in public suits. In People v. Vera,25 it was held that a person who impugns the validity of a statute must have "a personal and substantial interest in the case such that he has sustained, or will sustain direct injury as a result." The "direct injury test" in public suits is similar to the "real party in interest" rule for private suits under Section 2, Rule 3 of the 1997 Rules of Civil Procedure.26 Recognizing that a strict application of the "direct injury" test may hamper public interest, this Court relaxed the requirement in cases of "transcendental importance" or with "far reaching implications." Being a mere procedural technicality, it has also been held that locus standi may be waived in the public interest.27 Whether or not the complaint for collection is characterized as a private or public suit, Fertiphil has locus standi to file it. Fertiphil suffered a direct injury from the enforcement of LOI No. 1465. It was required, and it did pay, theP10 levy imposed for every bag of fertilizer sold on the domestic market. It may be true that Fertiphil has passed some or all of the levy to the ultimate consumer, but that does not disqualify it from attacking the constitutionality

of the LOI or from seeking a refund. As seller, it bore the ultimate burden of paying the levy. It faced the possibility of severe sanctions for failure to pay the levy. The fact of payment is sufficient injury to Fertiphil. Moreover, Fertiphil suffered harm from the enforcement of the LOI because it was compelled to factor in its product the levy. The levy certainly rendered the fertilizer products of Fertiphil and other domestic sellers much more expensive. The harm to their business consists not only in fewer clients because of the increased price, but also in adopting alternative corporate strategies to meet the demands of LOI No. 1465. Fertiphil and other fertilizer sellers may have shouldered all or part of the levy just to be competitive in the market. The harm occasioned on the business of Fertiphil is sufficient injury for purposes of locus standi. Even assuming arguendo that there is no direct injury, We find that the liberal policy consistently adopted by this Court on locus standi must apply. The issues raised by Fertiphil are of paramount public importance. It involves not only the constitutionality of a tax law but, more importantly, the use of taxes for public purpose. Former President Marcos issued LOI No. 1465 with the intention of rehabilitating an ailing private company. This is clear from the text of the LOI. PPI is expressly named in the LOI as the direct beneficiary of the levy. Worse, the levy was made dependent and conditional upon PPI becoming financially viable. The LOI provided that "the capital contribution shall be collected until adequate capital is raised to make PPI viable." The constitutionality of the levy is already in doubt on a plain reading of the statute. It is Our constitutional duty to squarely resolve the issue as the final arbiter of all justiciable controversies. The doctrine of standing, being a mere procedural technicality, should be waived, if at all, to adequately thresh out an important constitutional issue. RTC may resolve constitutional issues; the constitutional issue was adequately raised in the complaint; it is the lis mota of the case. PPI insists that the RTC and the CA erred in ruling on the constitutionality of the LOI. It asserts that the constitutionality of the LOI cannot be collaterally attacked in a complaint for collection.28 Alternatively, the resolution of the constitutional issue is not necessary for a determination of the complaint for collection.29 Fertiphil counters that the constitutionality of the LOI was adequately pleaded in its complaint. It claims that the constitutionality of LOI No. 1465 is the very lis mota of the case because the trial court cannot determine its claim without resolving the issue.30 It is settled that the RTC has jurisdiction to resolve the constitutionality of a statute, presidential decree or an executive order. This is clear from Section 5, Article VIII of the 1987 Constitution, which provides: SECTION 5. The Supreme Court shall have the following powers: xxxx (2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide,final judgments and orders of lower courts in: (a) All cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question. (Underscoring supplied)

In Mirasol v. Court of Appeals,31 this Court recognized the power of the RTC to resolve constitutional issues, thus: On the first issue. It is settled that Regional Trial Courts have the authority and jurisdiction to consider the constitutionality of a statute, presidential decree, or executive order. The Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation not only in this Court, but in all Regional Trial Courts.32 In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign Affairs,33 this Court reiterated: There is no denying that regular courts have jurisdiction over cases involving the validity or constitutionality of a rule or regulation issued by administrative agencies. Such jurisdiction, however, is not limited to the Court of Appeals or to this Court alone for even the regional trial courts can take cognizance of actions assailing a specific rule or set of rules promulgated by administrative bodies. Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts.34 Judicial review of official acts on the ground of unconstitutionality may be sought or availed of through any of the actions cognizable by courts of justice, not necessarily in a suit for declaratory relief. Such review may be had in criminal actions, as in People v. Ferrer35 involving the constitutionality of the now defunct Anti-Subversion law, or in ordinary actions, as in Krivenko v. Register of Deeds36 involving the constitutionality of laws prohibiting aliens from acquiring public lands. The constitutional issue, however, (a) must be properly raised and presented in the case, and (b) its resolution is necessary to a determination of the case, i.e., the issue of constitutionality must be the very lis mota presented.37 Contrary to PPIs claim, the constitutionality of LOI No. 1465 was properly and adequately raised in the complaint for collection filed with the RTC. The pertinent portions of the complaint allege: 6. The CRC of P10 per bag levied under LOI 1465 on domestic sales of all grades of fertilizer in the Philippines, isunlawful, unjust, uncalled for, unreasonable, inequitable and oppressive because: xxxx (c) It favors only one private domestic corporation, i.e., defendant PPPI, and imposed at the expense and disadvantage of the other fertilizer importers/distributors who were themselves in tight business situation and were then exerting all efforts and maximizing management and marketing skills to remain viable; xxxx (e) It was a glaring example of crony capitalism, a forced program through which the PPI, having been presumptuously masqueraded as "the" fertilizer industry itself, was the sole and anointed beneficiary;

7. The CRC was an unlawful; and unconstitutional special assessment and its imposition is tantamount to illegal exaction amounting to a denial of due process since the persons of entities which had to bear the burden of paying the CRC derived no benefit therefrom; that on the contrary it was used by PPI in trying to regain its former despicable monopoly of the fertilizer industry to the detriment of other distributors and importers.38 (Underscoring supplied) The constitutionality of LOI No. 1465 is also the very lis mota of the complaint for collection. Fertiphil filed the complaint to compel PPI to refund the levies paid under the statute on the ground that the law imposing the levy is unconstitutional. The thesis is that an unconstitutional law is void. It has no legal effect. Being void, Fertiphil had no legal obligation to pay the levy. Necessarily, all levies duly paid pursuant to an unconstitutional law should be refunded under the civil code principle against unjust enrichment. The refund is a mere consequence of the law being declared unconstitutional. The RTC surely cannot order PPI to refund Fertiphil if it does not declare the LOI unconstitutional. It is the unconstitutionality of the LOI which triggers the refund. The issue of constitutionality is the very lis mota of the complaint with the RTC. The P10 levy under LOI No. 1465 is an exercise of the power of taxation. At any rate, the Court holds that the RTC and the CA did not err in ruling against the constitutionality of the LOI. PPI insists that LOI No. 1465 is a valid exercise either of the police power or the power of taxation. It claims that the LOI was implemented for the purpose of assuring the fertilizer supply and distribution in the country and for benefiting a foundation created by law to hold in trust for millions of farmers their stock ownership in PPI. Fertiphil counters that the LOI is unconstitutional because it was enacted to give benefit to a private company. The levy was imposed to pay the corporate debt of PPI. Fertiphil also argues that, even if the LOI is enacted under the police power, it is still unconstitutional because it did not promote the general welfare of the people or public interest. Police power and the power of taxation are inherent powers of the State. These powers are distinct and have different tests for validity. Police power is the power of the State to enact legislation that may interfere with personal liberty or property in order to promote the general welfare,39 while the power of taxation is the power to levy taxes to be used for public purpose. The main purpose of police power is the regulation of a behavior or conduct, while taxation is revenue generation. The "lawful subjects" and "lawful means" tests are used to determine the validity of a law enacted under the police power.40 The power of taxation, on the other hand, is circumscribed by inherent and constitutional limitations. We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation power. While it is true that the power of taxation can be used as an implement of police power,41 the primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax.42 In Philippine Airlines, Inc. v. Edu,43 it was held that the imposition of a vehicle registration fee is not an exercise by the State of its police power, but of its taxation power, thus: It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of the Land Transportation and Traffic Code that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise funds for the

construction and maintenance of highways and to a much lesser degree, pay for the operating expenses of the administering agency. x x x Fees may be properly regarded as taxes even though they also serve as an instrument of regulation. Taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148). If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. The same provision appears as Section 59(b) in the Land Transportation Code. It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax or fee." x x x Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees" such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal to be revenue-raising. Thus, they are not mentioned by Sec. 59(b) of the Code as taxes like the motor vehicle registration fee and chauffeurs license fee. Such fees are to go into the expenditures of the Land Transportation Commission as provided for in the last proviso of Sec. 61.44(Underscoring supplied) The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The levy, no doubt, was a big burden on the seller or the ultimate consumer. It increased the price of a bag of fertilizer by as much as five percent.45 A plain reading of the LOI also supports the conclusion that the levy was for revenue generation. The LOI expressly provided that the levy was imposed "until adequate capital is raised to make PPI viable." Taxes are exacted only for a public purpose. The P10 levy is unconstitutional because it was not for a public purpose. The levy was imposed to give undue benefit to PPI. An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons.46 The reason for this is simple. The power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used only for a public purpose. It would be a robbery for the State to tax its citizens and use the funds generated for a private purpose. As an old United States case bluntly put it: "To lay with one hand, the power of the government on the property of the citizen, and with the other to bestow it upon favored individuals to aid private enterprises and build up private fortunes, is nonetheless a robbery because it is done under the forms of law and is called taxation."47 The term "public purpose" is not defined. It is an elastic concept that can be hammered to fit modern standards. Jurisprudence states that "public purpose" should be given a broad interpretation. It does not only pertain to those purposes which are traditionally viewed as essentially government functions, such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice. Thus, public money may now be used for the relocation of illegal settlers, low-cost housing and urban or agrarian reform. While the categories of what may constitute a public purpose are continually expanding in light of the expansion of government functions, the inherent requirement that taxes can only be exacted for a public purpose still stands. Public purpose is the heart of a tax law. When a tax law is only a mask to exact funds from the public when its true intent is to give undue benefit and advantage to a private enterprise, that law will not satisfy the requirement of "public purpose."

The purpose of a law is evident from its text or inferable from other secondary sources. Here, We agree with the RTC and that CA that the levy imposed under LOI No. 1465 was not for a public purpose. First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company. The purpose is explicit from Clause 3 of the law, thus: 3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula a capital contribution component of not less than P10 per bag. This capital contribution shall be collected until adequate capital is raised to make PPI viable. Such capital contribution shall be applied by FPA to all domestic sales of fertilizers in the Philippines.48 (Underscoring supplied) It is a basic rule of statutory construction that the text of a statute should be given a literal meaning. In this case, the text of the LOI is plain that the levy was imposed in order to raise capital for PPI. The framers of the LOI did not even hide the insidious purpose of the law. They were cavalier enough to name PPI as the ultimate beneficiary of the taxes levied under the LOI. We find it utterly repulsive that a tax law would expressly name a private company as the ultimate beneficiary of the taxes to be levied from the public. This is a clear case of crony capitalism. Second, the LOI provides that the imposition of the P10 levy was conditional and dependent upon PPI becoming financially "viable." This suggests that the levy was actually imposed to benefit PPI. The LOI notably does not fix a maximum amount when PPI is deemed financially "viable." Worse, the liability of Fertiphil and other domestic sellers of fertilizer to pay the levy is made indefinite. They are required to continuously pay the levy until adequate capital is raised for PPI. Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and deposited by FPA to Far East Bank and Trust Company, the depositary bank of PPI.49 This proves that PPI benefited from the LOI. It is also proves that the main purpose of the law was to give undue benefit and advantage to PPI. Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of Understanding50 dated May 18, 1985 signed by then Prime Minister Cesar Virata reveals that PPI was in deep financial problem because of its huge corporate debts. There were pending petitions for rehabilitation against PPI before the Securities and Exchange Commission. The government guaranteed payment of PPIs debts to its foreign creditors. To fund the payment, President Marcos issued LOI No. 1465. The pertinent portions of the letter of understanding read: Republic of the Philippines Office of the Prime Minister Manila LETTER OF UNDERTAKING May 18, 1985 TO: THE BANKING AND FINANCIAL INSTITUTIONS LISTED IN ANNEX A HERETO WHICH ARE CREDITORS (COLLECTIVELY, THE "CREDITORS") OF PLANTERS PRODUCTS, INC. ("PLANTERS")

Gentlemen: This has reference to Planters which is the principal importer and distributor of fertilizer, pesticides and agricultural chemicals in the Philippines. As regards Planters, the Philippine Government confirms its awareness of the following: (1) that Planters has outstanding obligations in foreign currency and/or pesos, to the Creditors, (2) that Planters is currently experiencing financial difficulties, and (3) thatthere are presently pending with the Securities and Exchange Commission of the Philippines a petition filed at Planters own behest for the suspension of payment of all its obligations, and a separate petition filed by Manufacturers Hanover Trust Company, Manila Offshore Branch for the appointment of a rehabilitation receiver for Planters. In connection with the foregoing, the Republic of the Philippines (the "Republic") confirms that it considers and continues to consider Planters as a major fertilizer distributor. Accordingly, for and in consideration of your expressed willingness to consider and participate in the effort to rehabilitate Planters, the Republic hereby manifests its full and unqualified support of the successful rehabilitation and continuing viability of Planters, and to that end, hereby binds and obligates itself to the creditors and Planters, as follows: xxxx 2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include in its fertilizer pricing formula a capital recovery component, the proceeds of which will be used initially for the purpose of funding the unpaid portion of the outstanding capital stock of Planters presently held in trust by Planters Foundation, Inc. ("Planters Foundation"), which unpaid capital is estimated at approximately P206 million (subject to validation by Planters and Planters Foundation) such unpaid portion of the outstanding capital stock of Planters being hereafter referred to as the "Unpaid Capital"), and subsequently for such capital increases as may be required for the continuing viability of Planters. xxxx The capital recovery component shall continue to be charged and collected until payment in full of (a) the Unpaid Capital and/or (b) any shortfall in the payment of the Subsidy Receivables, (c) any carrying cost accruing from the date hereof on the amounts which may be outstanding from time to time of the Unpaid Capital and/or the Subsidy Receivables, and (d) the capital increases contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the "carrying cost" shall be at such rate as will represent the full and reasonable cost to Planters of servicing its debts, taking into account both its peso and foreign currency-denominated obligations. REPUBLIC OF THE PHILIPPINES By: (signed) CESAR E. A. VIRATA Prime Minister and Minister of Finance51 It is clear from the Letter of Understanding that the levy was imposed precisely to pay the corporate debts of PPI. We cannot agree with PPI that the levy was imposed to ensure the stability of the fertilizer industry in the country. The letter of understanding and the plain

text of the LOI clearly indicate that the levy was exacted for the benefit of a private corporation. All told, the RTC and the CA did not err in holding that the levy imposed under LOI No. 1465 was not for a public purpose. LOI No. 1465 failed to comply with the public purpose requirement for tax laws. The LOI is still unconstitutional even if enacted under the police power; it did not promote public interest. Even if We consider LOI No. 1695 enacted under the police power of the State, it would still be invalid for failing to comply with the test of "lawful subjects" and "lawful means." Jurisprudence states the test as follows: (1) the interest of the public generally, as distinguished from those of particular class, requires its exercise; and (2) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals.52 For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public interest. The law was enacted to give undue advantage to a private corporation. We quote with approval the CA ratiocination on this point, thus: It is upon applying this established tests that We sustain the trial courts holding LOI 1465 unconstitutional.1awphilTo be sure, ensuring the continued supply and distribution of fertilizer in the country is an undertaking imbued with public interest. However, the method by which LOI 1465 sought to achieve this is by no means a measure that will promote the public welfare. The governments commitment to support the successful rehabilitation and continued viability of PPI, a private corporation, is an unmistakable attempt to mask the subject statutes impartiality. There is no way to treat the self-interest of a favored entity, like PPI, as identical with the general interest of the countrys farmers or even the Filipino people in general. Well to stress, substantive due process exacts fairness and equal protection disallows distinction where none is needed. When a statutes public purpose is spoiled by private interest, the use of police power becomes a travesty which must be struck down for being an arbitrary exercise of government power. To rule in favor of appellant would contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private individuals. (Underscoring supplied) The general rule is that an unconstitutional law is void; the doctrine of operative fact is inapplicable. PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is declared unconstitutional. It banks on the doctrine of operative fact, which provides that an unconstitutional law has an effect before being declared unconstitutional. PPI wants to retain the levies paid under LOI No. 1465 even if it is subsequently declared to be unconstitutional. We cannot agree. It is settled that no question, issue or argument will be entertained on appeal, unless it has been raised in the court a quo.53 PPI did not raise the applicability of the doctrine of operative fact with the RTC and the CA. It cannot belatedly raise the issue with Us in order to extricate itself from the dire effects of an unconstitutional law. At any rate, We find the doctrine inapplicable. The general rule is that an unconstitutional law is void. It produces no rights, imposes no duties and affords no protection. It has no legal effect. It is, in legal contemplation, inoperative as if it has not been passed.54 Being void, Fertiphil is not required to pay the levy. All levies paid should be refunded in

accordance with the general civil code principle against unjust enrichment. The general rule is supported by Article 7 of the Civil Code, which provides: ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall not be excused by disuse or custom or practice to the contrary. When the courts declare a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern. The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity and fair play.55 It nullifies the effects of an unconstitutional law by recognizing that the existence of a statute prior to a determination of unconstitutionality is an operative fact and may have consequences which cannot always be ignored. The past cannot always be erased by a new judicial declaration.56 The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden on those who have relied on the invalid law. Thus, it was applied to a criminal case when a declaration of unconstitutionality would put the accused in double jeopardy57 or would put in limbo the acts done by a municipality in reliance upon a law creating it.58 Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by Fertiphil under LOI No. 1465. It unduly benefited from the levy. It was proven during the trial that the levies paid were remitted and deposited to its bank account. Quite the reverse, it would be inequitable and unjust not to order a refund. To do so would unjustly enrich PPI at the expense of Fertiphil. Article 22 of the Civil Code explicitly provides that "every person who, through an act of performance by another comes into possession of something at the expense of the latter without just or legal ground shall return the same to him." We cannot allow PPI to profit from an unconstitutional law. Justice and equity dictate that PPI must refund the amounts paid by Fertiphil. WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November 28, 2003 is AFFIRMED. SO ORDERED.

G.R. No. 115455 August 25, 1994 ARTURO M. TOLENTINO, petitioner, vs. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents. G.R. No. 115525 August 25, 1994 JUAN T. DAVID, petitioner, vs. TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as

Secretary of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR REPRESENTATIVES, respondents. G.R. No. 115543 August 25, 1994 RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners, vs. THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents. G.R. No. 115544 August 25, 1994 PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA, petitioners, vs. HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents. G.R. No. 115754 August 25, 1994 CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE, respondent. G.R. No. 115781 August 25, 1994 KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT COALITION, INC., PHILIPPINE BIBLE SOCIETY, INC., and WIGBERTO TAADA,petitioners, vs. THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents. G.R. No. 115852 August 25, 1994 PHILIPPINE AIRLINES, INC., petitioner, vs. THE SECRETARY OF FINANCE, and COMMISSIONER OF INTERNAL REVENUE, respondents. G.R. No. 115873 August 25, 1994 COOPERATIVE UNION OF THE PHILIPPINES, petitioners, vs. HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal

Revenue, HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents. G.R. No. 115931 August 25, 1994 PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC., and ASSOCIATION OF PHILIPPINE BOOK-SELLERS, petitioners, vs. HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the Commissioner of Internal Revenue and HON. GUILLERMO PARAYNO, JR., in his capacity as the Commissioner of Customs, respondents. Arturo M. Tolentino for and in his behalf. Donna Celeste D. Feliciano and Juan T. David for petitioners in G.R. No. 115525. Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner R.S. Roco. Villaranza and Cruz for petitioners in G.R. No. 115544. Carlos A. Raneses and Manuel M. Serrano for petitioner in G.R. No. 115754. Salonga, Hernandez & Allado for Freedon From Debts Coalition, Inc. & Phil. Bible Society. Estelito P. Mendoza for petitioner in G.R. No. 115852. Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices for petitioners in G.R. No. 115873. R.B. Rodriguez & Associates for petitioners in G.R. No. 115931. Reve A.V. Saguisag for MABINI.

MENDOZA, J.: The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code. These are various suits for certiorari and prohibition, challenging the constitutionality of Republic Act No. 7716 on various grounds summarized in the resolution of July 6, 1994 of this Court, as follows: I. Procedural Issues:

A. Does Republic Act No. 7716 violate Art. VI, 24 of the Constitution? B. Does it violate Art. VI, 26(2) of the Constitution? C. What is the extent of the power of the Bicameral Conference Committee? II. Substantive Issues: A. Does the law violate the following provisions in the Bill of Rights (Art. III)? 1. 1 2. 4 3. 5 4. 10 B. Does the law violate the following other provisions of the Constitution? 1. Art. VI, 28(1) 2. Art. VI, 28(3) These questions will be dealt in the order they are stated above. As will presently be explained not all of these questions are judicially cognizable, because not all provisions of the Constitution are self executing and, therefore, judicially enforceable. The other departments of the government are equally charged with the enforcement of the Constitution, especially the provisions relating to them. I. PROCEDURAL ISSUES The contention of petitioners is that in enacting Republic Act No. 7716, or the Expanded Value-Added Tax Law, Congress violated the Constitution because, although H. No. 11197 had originated in the House of Representatives, it was not passed by the Senate but was simply consolidated with the Senate version (S. No. 1630) in the Conference Committee to produce the bill which the President signed into law. The following provisions of the Constitution are cited in support of the proposition that because Republic Act No. 7716 was passed in this manner, it did not originate in the House of Representatives and it has not thereby become a law: Art. VI, 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. Id., 26(2): No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in

its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeasand nays entered in the Journal. It appears that on various dates between July 22, 1992 and August 31, 1993, several bills 1 were introduced in the House of Representatives seeking to amend certain provisions of the National Internal Revenue Code relative to the value-added tax or VAT. These bills were referred to the House Ways and Means Committee which recommended for approval a substitute measure, H. No. 11197, entitled AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND 110 OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237 AND 238 OF TITLE IX, AND REPEALING SECTIONS 113 AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED The bill (H. No. 11197) was considered on second reading starting November 6, 1993 and, on November 17, 1993, it was approved by the House of Representatives after third and final reading. It was sent to the Senate on November 23, 1993 and later referred by that body to its Committee on Ways and Means. On February 7, 1994, the Senate Committee submitted its report recommending approval of S. No. 1630, entitled AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 105, 107, 108, AND 110 OF TITLE IV, 112 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 113, 114 and 116 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES It was stated that the bill was being submitted "in substitution of Senate Bill No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197." On February 8, 1994, the Senate began consideration of the bill (S. No. 1630). It finished debates on the bill and approved it on second reading on March 24, 1994. On the same day, it approved the bill on third reading by the affirmative votes of 13 of its members, with one abstention. H. No. 11197 and its Senate version (S. No. 1630) were then referred to a conference committee which, after meeting four times (April 13, 19, 21 and 25, 1994), recommended that "House Bill No. 11197, in consolidation with Senate Bill No. 1630, be approved in accordance with the attached copy of the bill as reconciled and approved by the conferees." The Conference Committee bill, entitled "AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION AND FOR

THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES," was thereafter approved by the House of Representatives on April 27, 1994 and by the Senate on May 2, 1994. The enrolled bill was then presented to the President of the Philippines who, on May 5, 1994, signed it. It became Republic Act No. 7716. On May 12, 1994, Republic Act No. 7716 was published in two newspapers of general circulation and, on May 28, 1994, it took effect, although its implementation was suspended until June 30, 1994 to allow time for the registration of business entities. It would have been enforced on July 1, 1994 but its enforcement was stopped because the Court, by the vote of 11 to 4 of its members, granted a temporary restraining order on June 30, 1994. First. Petitioners' contention is that Republic Act No. 7716 did not "originate exclusively" in the House of Representatives as required by Art. VI, 24 of the Constitution, because it is in fact the result of the consolidation of two distinct bills, H. No. 11197 and S. No. 1630. In this connection, petitioners point out that although Art. VI, SS 24 was adopted from the American Federal Constitution, 2 it is notable in two respects: the verb "shall originate" is qualified in the Philippine Constitution by the word "exclusively" and the phrase "as on other bills" in the American version is omitted. This means, according to them, that to be considered as having originated in the House, Republic Act No. 7716 must retain the essence of H. No. 11197. This argument will not bear analysis. To begin with, it is not the law but the revenue bill which is required by the Constitution to "originate exclusively" in the House of Representatives. It is important to emphasize this, because a bill originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. The possibility of a third version by the conference committee will be discussed later. At this point, what is important to note is that, as a result of the Senate action, a distinct bill may be produced. To insist that a revenue statute and not only the bill which initiated the legislative process culminating in the enactment of the law must substantially be the same as the House bill would be to deny the Senate's power not only to "concur with amendments" but also to "propose amendments." It would be to violate the coequality of legislative power of the two houses of Congress and in fact make the House superior to the Senate. The contention that the constitutional design is to limit the Senate's power in respect of revenue bills in order to compensate for the grant to the Senate of the treaty-ratifying power 3 and thereby equalize its powers and those of the House overlooks the fact that the powers being compared are different. We are dealing here with the legislative power which under the Constitution is vested not in any particular chamber but in the Congress of the Philippines, consisting of "a Senate and a House of Representatives." 4 The exercise of the treaty-ratifying power is not the exercise of legislative power. It is the exercise of a check on the executive power. There is, therefore, no justification for comparing the legislative powers of the House and of the Senate on the basis of the possession of such nonlegislative power by the Senate. The possession of a similar power by the U.S. Senate 5 has never been thought of as giving it more legislative powers than the House of Representatives. In the United States, the validity of a provision ( 37) imposing an ad valorem tax based on the weight of vessels, which the U.S. Senate had inserted in the Tariff Act of 1909, was upheld against the claim that the provision was a revenue bill which originated in the Senate in contravention of Art. I, 7 of the U.S. Constitution. 6 Nor is the power to amend limited to adding a provision or two in a revenue bill emanating from the House. The U.S. Senate has gone so far as changing the whole of bills following the enacting clause and substituting its own versions. In 1883, for example, it struck out everything after the enacting clause of a tariff bill and wrote in its place its own measure, and the House subsequently accepted the amendment. The U.S. Senate likewise added 847 amendments to what later became the Payne-Aldrich Tariff Act of 1909; it dictated the schedules of the Tariff Act of 1921; it rewrote an extensive tax revision bill in the same year and recast most of the tariff bill of

1922. 7 Given, then, the power of the Senate to propose amendments, the Senate can propose its own version even with respect to bills which are required by the Constitution to originate in the House. It is insisted, however, that S. No. 1630 was passed not in substitution of H. No. 11197 but of another Senate bill (S. No. 1129) earlier filed and that what the Senate did was merely to "take [H. No. 11197] into consideration" in enacting S. No. 1630. There is really no difference between the Senate preserving H. No. 11197 up to the enacting clause and then writing its own version following the enacting clause (which, it would seem, petitioners admit is an amendment by substitution), and, on the other hand, separately presenting a bill of its own on the same subject matter. In either case the result are two bills on the same subject. Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax bills, bills authorizing an increase of the public debt, private bills and bills of local application must come from the House of Representatives on the theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the local needs and problems. On the other hand, the senators, who are elected at large, are expected to approach the same problems from the national perspective. Both views are thereby made to bear on the enactment of such laws. Nor does the Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House, so long as action by the Senate as a body is withheld pending receipt of the House bill. The Court cannot, therefore, understand the alarm expressed over the fact that on March 1, 1993, eight months before the House passed H. No. 11197, S. No. 1129 had been filed in the Senate. After all it does not appear that the Senate ever considered it. It was only after the Senate had received H. No. 11197 on November 23, 1993 that the process of legislation in respect of it began with the referral to the Senate Committee on Ways and Means of H. No. 11197 and the submission by the Committee on February 7, 1994 of S. No. 1630. For that matter, if the question were simply the priority in the time of filing of bills, the fact is that it was in the House that a bill (H. No. 253) to amend the VAT law was first filed on July 22, 1992. Several other bills had been filed in the House before S. No. 1129 was filed in the Senate, and H. No. 11197 was only a substitute of those earlier bills. Second. Enough has been said to show that it was within the power of the Senate to propose S. No. 1630. We now pass to the next argument of petitioners that S. No. 1630 did not pass three readings on separate days as required by the Constitution 8 because the second and third readings were done on the same day, March 24, 1994. But this was because on February 24, 1994 9 and again on March 22, 1994, 10 the President had certified S. No. 1630 as urgent. The presidential certification dispensed with the requirement not only of printing but also that of reading the bill on separate days. The phrase "except when the President certifies to the necessity of its immediate enactment, etc." in Art. VI, 26(2) qualifies the two stated conditions before a bill can become a law: (i) the bill has passed three readings on separate days and (ii) it has been printed in its final form and distributed three days before it is finally approved. In other words, the "unless" clause must be read in relation to the "except" clause, because the two are really coordinate clauses of the same sentence. To construe the "except" clause as simply dispensing with the second requirement in the "unless" clause (i.e., printing and distribution three days before final approval) would not only violate the rules of grammar. It would also negate the very premise of the "except" clause: the necessity of securing the immediate enactment of a bill which is certified in order to meet a public calamity or emergency. For if it is only the printing that is dispensed with by presidential certification, the time saved would be so negligible as to be of any use in insuring immediate enactment. It may well be doubted whether doing away with the necessity of printing and distributing copies of the bill three days before the third reading would insure speedy enactment of a law

in the face of an emergency requiring the calling of a special election for President and VicePresident. Under the Constitution such a law is required to be made within seven days of the convening of Congress in emergency session. 11 That upon the certification of a bill by the President the requirement of three readings on separate days and of printing and distribution can be dispensed with is supported by the weight of legislative practice. For example, the bill defining the certiorari jurisdiction of this Court which, in consolidation with the Senate version, became Republic Act No. 5440, was passed on second and third readings in the House of Representatives on the same day (May 14, 1968) after the bill had been certified by the President as urgent. 12 There is, therefore, no merit in the contention that presidential certification dispenses only with the requirement for the printing of the bill and its distribution three days before its passage but not with the requirement of three readings on separate days, also. It is nonetheless urged that the certification of the bill in this case was invalid because there was no emergency, the condition stated in the certification of a "growing budget deficit" not being an unusual condition in this country. It is noteworthy that no member of the Senate saw fit to controvert the reality of the factual basis of the certification. To the contrary, by passing S. No. 1630 on second and third readings on March 24, 1994, the Senate accepted the President's certification. Should such certification be now reviewed by this Court, especially when no evidence has been shown that, because S. No. 1630 was taken up on second and third readings on the same day, the members of the Senate were deprived of the time needed for the study of a vital piece of legislation? The sufficiency of the factual basis of the suspension of the writ of habeas corpus or declaration of martial law under Art. VII, 18, or the existence of a national emergency justifying the delegation of extraordinary powers to the President under Art. VI, 23(2), is subject to judicial review because basic rights of individuals may be at hazard. But the factual basis of presidential certification of bills, which involves doing away with procedural requirements designed to insure that bills are duly considered by members of Congress, certainly should elicit a different standard of review. Petitioners also invite attention to the fact that the President certified S. No. 1630 and not H. No. 11197. That is because S. No. 1630 was what the Senate was considering. When the matter was before the House, the President likewise certified H. No. 9210 the pending in the House. Third. Finally it is contended that the bill which became Republic Act No. 7716 is the bill which the Conference Committee prepared by consolidating H. No. 11197 and S. No. 1630. It is claimed that the Conference Committee report included provisions not found in either the House bill or the Senate bill and that these provisions were "surreptitiously" inserted by the Conference Committee. Much is made of the fact that in the last two days of its session on April 21 and 25, 1994 the Committee met behind closed doors. We are not told, however, whether the provisions were not the result of the give and take that often mark the proceedings of conference committees. Nor is there anything unusual or extraordinary about the fact that the Conference Committee met in executive sessions. Often the only way to reach agreement on conflicting provisions is to meet behind closed doors, with only the conferees present. Otherwise, no compromise is likely to be made. The Court is not about to take the suggestion of a cabal or sinister motive attributed to the conferees on the basis solely of their "secret meetings" on

April 21 and 25, 1994, nor read anything into the incomplete remarks of the members, marked in the transcript of stenographic notes by ellipses. The incomplete sentences are probably due to the stenographer's own limitations or to the incoherence that sometimes characterize conversations. William Safire noted some such lapses in recorded talks even by recent past Presidents of the United States. In any event, in the United States conference committees had been customarily held in executive sessions with only the conferees and their staffs in attendance. 13 Only in November 1975 was a new rule adopted requiring open sessions. Even then a majority of either chamber's conferees may vote in public to close the meetings. 14 As to the possibility of an entirely new bill emerging out of a Conference Committee, it has been explained: Under congressional rules of procedure, conference committees are not expected to make any material change in the measure at issue, either by deleting provisions to which both houses have already agreed or by inserting new provisions. But this is a difficult provision to enforce. Note the problem when one house amends a proposal originating in either house by striking out everything following the enacting clause and substituting provisions which make it an entirely new bill. The versions are now altogether different, permitting a conference committee to draft essentially a new bill. . . . 15 The result is a third version, which is considered an "amendment in the nature of a substitute," the only requirement for which being that the third version be germane to the subject of the House and Senate bills. 16 Indeed, this Court recently held that it is within the power of a conference committee to include in its report an entirely new provision that is not found either in the House bill or in the Senate bill. 17 If the committee can propose an amendment consisting of one or two provisions, there is no reason why it cannot propose several provisions, collectively considered as an "amendment in the nature of a substitute," so long as such amendment is germane to the subject of the bills before the committee. After all, its report was not final but needed the approval of both houses of Congress to become valid as an act of the legislative department. The charge that in this case the Conference Committee acted as a third legislative chamber is thus without any basis. 18 Nonetheless, it is argued that under the respective Rules of the Senate and the House of Representatives a conference committee can only act on the differing provisions of a Senate bill and a House bill, and that contrary to these Rules the Conference Committee inserted provisions not found in the bills submitted to it. The following provisions are cited in support of this contention: Rules of the Senate Rule XII: 26. In the event that the Senate does not agree with the House of Representatives on the provision of any bill or joint resolution, the differences shall be settled by a conference committee of both Houses which shall meet within ten days after their composition.

The President shall designate the members of the conference committee in accordance with subparagraph (c), Section 3 of Rule III. Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in or amendments to the subject measure, and shall be signed by the conferees. The consideration of such report shall not be in order unless the report has been filed with the Secretary of the Senate and copies thereof have been distributed to the Members. (Emphasis added) Rules of the House of Representatives Rule XIV: 85. Conference Committee Reports. In the event that the House does not agree with the Senate on the amendments to any bill or joint resolution, the differences may be settled by conference committees of both Chambers. The consideration of conference committee reports shall always be in order, except when the journal is being read, while the roll is being called or the House is dividing on any question. Each of the pages of such reports shall be signed by the conferees. Each report shall contain a detailed, sufficiently explicit statement of the changes in or amendments to the subject measure. The consideration of such report shall not be in order unless copies thereof are distributed to the Members: Provided, That in the last fifteen days of each session period it shall be deemed sufficient that three copies of the report, signed as above provided, are deposited in the office of the Secretary General. (Emphasis added) To be sure, nothing in the Rules limits a conference committee to a consideration of conflicting provisions. But Rule XLIV, 112 of the Rules of the Senate is cited to the effect that "If there is no Rule applicable to a specific case the precedents of the Legislative Department of the Philippines shall be resorted to, and as a supplement of these, the Rules contained in Jefferson's Manual." The following is then quoted from the Jefferson's Manual: The managers of a conference must confine themselves to the differences committed to them. . . and may not include subjects not within disagreements, even though germane to a question in issue. Note that, according to Rule XLIX, 112, in case there is no specific rule applicable, resort must be to the legislative practice. The Jefferson's Manual is resorted to only as supplement. It is common place in Congress that conference committee reports include new matters which, though germane, have not been committed to the committee. This practice was admitted by Senator Raul S. Roco, petitioner in G.R. No. 115543, during the oral argument

in these cases. Whatever, then, may be provided in the Jefferson's Manual must be considered to have been modified by the legislative practice. If a change is desired in the practice it must be sought in Congress since this question is not covered by any constitutional provision but is only an internal rule of each house. Thus, Art. VI, 16(3) of the Constitution provides that "Each House may determine the rules of its proceedings. . . ." This observation applies to the other contention that the Rules of the two chambers were likewise disregarded in the preparation of the Conference Committee Report because the Report did not contain a "detailed and sufficiently explicit statement of changes in, or amendments to, the subject measure." The Report used brackets and capital letters to indicate the changes. This is a standard practice in bill-drafting. We cannot say that in using these marks and symbols the Committee violated the Rules of the Senate and the House. Moreover, this Court is not the proper forum for the enforcement of these internal Rules. To the contrary, as we have already ruled, "parliamentary rules are merely procedural and with their observance the courts have no concern." 19 Our concern is with the procedural requirements of the Constitution for the enactment of laws. As far as these requirements are concerned, we are satisfied that they have been faithfully observed in these cases. Nor is there any reason for requiring that the Committee's Report in these cases must have undergone three readings in each of the two houses. If that be the case, there would be no end to negotiation since each house may seek modifications of the compromise bill. The nature of the bill, therefore, requires that it be acted upon by each house on a "take it or leave it" basis, with the only alternative that if it is not approved by both houses, another conference committee must be appointed. But then again the result would still be a compromise measure that may not be wholly satisfying to both houses. Art. VI, 26(2) must, therefore, be construed as referring only to bills introduced for the first time in either house of Congress, not to the conference committee report. For if the purpose of requiring three readings is to give members of Congress time to study bills, it cannot be gainsaid that H. No. 11197 was passed in the House after three readings; that in the Senate it was considered on first reading and then referred to a committee of that body; that although the Senate committee did not report out the House bill, it submitted a version (S. No. 1630) which it had prepared by "taking into consideration" the House bill; that for its part the Conference Committee consolidated the two bills and prepared a compromise version; that the Conference Committee Report was thereafter approved by the House and the Senate, presumably after appropriate study by their members. We cannot say that, as a matter of fact, the members of Congress were not fully informed of the provisions of the bill. The allegation that the Conference Committee usurped the legislative power of Congress is, in our view, without warrant in fact and in law. Fourth. Whatever doubts there may be as to the formal validity of Republic Act No. 7716 must be resolved in its favor. Our cases 20 manifest firm adherence to the rule that an enrolled copy of a bill is conclusive not only of its provisions but also of its due enactment. Not even claims that a proposed constitutional amendment was invalid because the requisite votes for its approval had not been obtained 21 or that certain provisions of a statute had been "smuggled" in the printing of the bill 22 have moved or persuaded us to look behind the proceedings of a coequal branch of the government. There is no reason now to depart from this rule. No claim is here made that the "enrolled bill" rule is absolute. In fact in one case 23 we "went behind" an enrolled bill and consulted the Journal to determine whether certain provisions of a statute had been approved by the Senate in view of the fact that the President of the Senate himself, who had signed the enrolled bill, admitted a mistake and withdrew his signature, so that in effect there was no longer an enrolled bill to consider.

But where allegations that the constitutional procedures for the passage of bills have not been observed have no more basis than another allegation that the Conference Committee "surreptitiously" inserted provisions into a bill which it had prepared, we should decline the invitation to go behind the enrolled copy of the bill. To disregard the "enrolled bill" rule in such cases would be to disregard the respect due the other two departments of our government. Fifth. An additional attack on the formal validity of Republic Act No. 7716 is made by the Philippine Airlines, Inc., petitioner in G.R. No. 11582, namely, that it violates Art. VI, 26(1) which provides that "Every bill passed by Congress shall embrace only one subject which shall be expressed in the title thereof." It is contended that neither H. No. 11197 nor S. No. 1630 provided for removal of exemption of PAL transactions from the payment of the VAT and that this was made only in the Conference Committee bill which became Republic Act No. 7716 without reflecting this fact in its title. The title of Republic Act No. 7716 is: AN ACT RESTRUCTURING THE VALUE- ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES. Among the provisions of the NIRC amended is 103, which originally read: 103. Exempt transactions. The following shall be exempt from the value-added tax: .... (q) Transactions which are exempt under special laws or international agreements to which the Philippines is a signatory. Among the transactions exempted from the VAT were those of PAL because it was exempted under its franchise (P.D. No. 1590) from the payment of all "other taxes . . . now or in the near future," in consideration of the payment by it either of the corporate income tax or a franchise tax of 2%. As a result of its amendment by Republic Act No. 7716, 103 of the NIRC now provides: 103. Exempt transactions. The following shall be exempt from the value-added tax: .... (q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . . The effect of the amendment is to remove the exemption granted to PAL, as far as the VAT is concerned.

The question is whether this amendment of 103 of the NIRC is fairly embraced in the title of Republic Act No. 7716, although no mention is made therein of P.D. No. 1590 as among those which the statute amends. We think it is, since the title states that the purpose of the statute is to expand the VAT system, and one way of doing this is to widen its base by withdrawing some of the exemptions granted before. To insist that P.D. No. 1590 be mentioned in the title of the law, in addition to 103 of the NIRC, in which it is specifically referred to, would be to insist that the title of a bill should be a complete index of its content. The constitutional requirement that every bill passed by Congress shall embrace only one subject which shall be expressed in its title is intended to prevent surprise upon the members of Congress and to inform the people of pending legislation so that, if they wish to, they can be heard regarding it. If, in the case at bar, petitioner did not know before that its exemption had been withdrawn, it is not because of any defect in the title but perhaps for the same reason other statutes, although published, pass unnoticed until some event somehow calls attention to their existence. Indeed, the title of Republic Act No. 7716 is not any more general than the title of PAL's own franchise under P.D. No. 1590, and yet no mention is made of its tax exemption. The title of P.D. No. 1590 is: AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE AIRLINES, INC. TO ESTABLISH, OPERATE, AND MAINTAIN AIR-TRANSPORT SERVICES IN THE PHILIPPINES AND BETWEEN THE PHILIPPINES AND OTHER COUNTRIES. The trend in our cases is to construe the constitutional requirement in such a manner that courts do not unduly interfere with the enactment of necessary legislation and to consider it sufficient if the title expresses the general subject of the statute and all its provisions are germane to the general subject thus expressed. 24 It is further contended that amendment of petitioner's franchise may only be made by special law, in view of 24 of P.D. No. 1590 which provides: This franchise, as amended, or any section or provision hereof may only be modified, amended, or repealed expressly by a special law or decree that shall specifically modify, amend, or repeal this franchise or any section or provision thereof. This provision is evidently intended to prevent the amendment of the franchise by mere implication resulting from the enactment of a later inconsistent statute, in consideration of the fact that a franchise is a contract which can be altered only by consent of the parties. Thus in Manila Railroad Co. v. Rafferty, 25 it was held that an Act of the U.S. Congress, which provided for the payment of tax on certain goods and articles imported into the Philippines, did not amend the franchise of plaintiff, which exempted it from all taxes except those mentioned in its franchise. It was held that a special law cannot be amended by a general law. In contrast, in the case at bar, Republic Act No. 7716 expressly amends PAL's franchise (P.D. No. 1590) by specifically excepting from the grant of exemptions from the VAT PAL's exemption under P.D. No. 1590. This is within the power of Congress to do under Art. XII, 11 of the Constitution, which provides that the grant of a franchise for the operation of a public utility is subject to amendment, alteration or repeal by Congress when the common good so requires. II. SUBSTANTIVE ISSUES

A. Claims of Press Freedom, Freedom of Thought and Religious Freedom The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit organization of newspaper publishers established for the improvement of journalism in the Philippines. On the other hand, petitioner in G.R. No. 115781, the Philippine Bible Society (PBS), is a nonprofit organization engaged in the printing and distribution of bibles and other religious articles. Both petitioners claim violations of their rights under 4 and 5 of the Bill of Rights as a result of the enactment of the VAT Law. The PPI questions the law insofar as it has withdrawn the exemption previously granted to the press under 103 (f) of the NIRC. Although the exemption was subsequently restored by administrative regulation with respect to the circulation income of newspapers, the PPI presses its claim because of the possibility that the exemption may still be removed by mere revocation of the regulation of the Secretary of Finance. On the other hand, the PBS goes so far as to question the Secretary's power to grant exemption for two reasons: (1) The Secretary of Finance has no power to grant tax exemption because this is vested in Congress and requires for its exercise the vote of a majority of all its members 26 and (2) the Secretary's duty is to execute the law. 103 of the NIRC contains a list of transactions exempted from VAT. Among the transactions previously granted exemption were: (f) Printing, publication, importation or sale of books and any newspaper, magazine, review, or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is devoted principally to the publication of advertisements. Republic Act No. 7716 amended 103 by deleting (f) with the result that print media became subject to the VAT with respect to all aspects of their operations. Later, however, based on a memorandum of the Secretary of Justice, respondent Secretary of Finance issued Revenue Regulations No. 11-94, dated June 27, 1994, exempting the "circulation income of print media pursuant to 4 Article III of the 1987 Philippine Constitution guaranteeing against abridgment of freedom of the press, among others." The exemption of "circulation income" has left income from advertisements still subject to the VAT. It is unnecessary to pass upon the contention that the exemption granted is beyond the authority of the Secretary of Finance to give, in view of PPI's contention that even with the exemption of the circulation revenue of print media there is still an unconstitutional abridgment of press freedom because of the imposition of the VAT on the gross receipts of newspapers from advertisements and on their acquisition of paper, ink and services for publication. Even on the assumption that no exemption has effectively been granted to print media transactions, we find no violation of press freedom in these cases. To be sure, we are not dealing here with a statute that on its face operates in the area of press freedom. The PPI's claim is simply that, as applied to newspapers, the law abridges press freedom. Even with due recognition of its high estate and its importance in a democratic society, however, the press is not immune from general regulation by the State. It has been held: The publisher of a newspaper has no immunity from the application of general laws. He has no special privilege to invade the rights and liberties of others. He must answer for libel. He may be punished for contempt of

court. . . . Like others, he must pay equitable and nondiscriminatory taxes on his business. . . . 27 The PPI does not dispute this point, either. What it contends is that by withdrawing the exemption previously granted to print media transactions involving printing, publication, importation or sale of newspapers, Republic Act No. 7716 has singled out the press for discriminatory treatment and that within the class of mass media the law discriminates against print media by giving broadcast media favored treatment. We have carefully examined this argument, but we are unable to find a differential treatment of the press by the law, much less any censorial motivation for its enactment. If the press is now required to pay a value-added tax on its transactions, it is not because it is being singled out, much less targeted, for special treatment but only because of the removal of the exemption previously granted to it by law. The withdrawal of exemption is all that is involved in these cases. Other transactions, likewise previously granted exemption, have been delisted as part of the scheme to expand the base and the scope of the VAT system. The law would perhaps be open to the charge of discriminatory treatment if the only privilege withdrawn had been that granted to the press. But that is not the case. The situation in the case at bar is indeed a far cry from those cited by the PPI in support of its claim that Republic Act No. 7716 subjects the press to discriminatory taxation. In the cases cited, the discriminatory purpose was clear either from the background of the law or from its operation. For example, in Grosjean v. American Press Co., 28the law imposed a license tax equivalent to 2% of the gross receipts derived from advertisements only on newspapers which had a circulation of more than 20,000 copies per week. Because the tax was not based on the volume of advertisement alone but was measured by the extent of its circulation as well, the law applied only to the thirteen large newspapers in Louisiana, leaving untaxed four papers with circulation of only slightly less than 20,000 copies a week and 120 weekly newspapers which were in serious competition with the thirteen newspapers in question. It was well known that the thirteen newspapers had been critical of Senator Huey Long, and the Long-dominated legislature of Louisiana respondent by taxing what Long described as the "lying newspapers" by imposing on them "a tax on lying." The effect of the tax was to curtail both their revenue and their circulation. As the U.S. Supreme Court noted, the tax was "a deliberate and calculated device in the guise of a tax to limit the circulation of information to which the public is entitled in virtue of the constitutional guaranties." 29 The case is a classic illustration of the warning that the power to tax is the power to destroy. In the other case 30 invoked by the PPI, the press was also found to have been singled out because everything was exempt from the "use tax" on ink and paper, except the press. Minnesota imposed a tax on the sales of goods in that state. To protect the sales tax, it enacted a complementary tax on the privilege of "using, storing or consuming in that state tangible personal property" by eliminating the residents' incentive to get goods from outside states where the sales tax might be lower. The Minnesota Star Tribune was exempted from both taxes from 1967 to 1971. In 1971, however, the state legislature amended the tax scheme by imposing the "use tax" on the cost of paper and ink used for publication. The law was held to have singled out the press because (1) there was no reason for imposing the "use tax" since the press was exempt from the sales tax and (2) the "use tax" was laid on an "intermediate transaction rather than the ultimate retail sale." Minnesota had a heavy burden of justifying the differential treatment and it failed to do so. In addition, the U.S. Supreme Court found the law to be discriminatory because the legislature, by again amending the law so as to exempt the first $100,000 of paper and ink used, further narrowed the coverage of the tax so that "only a handful of publishers pay any tax at all and even fewer pay any significant amount of tax." 31 The discriminatory purpose was thus very clear.

More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it was held that a law which taxed general interest magazines but not newspapers and religious, professional, trade and sports journals was discriminatory because while the tax did not single out the press as a whole, it targeted a small group within the press. What is more, by differentiating on the basis of contents (i.e., between general interest and special interests such as religion or sports) the law became "entirely incompatible with the First Amendment's guarantee of freedom of the press." These cases come down to this: that unless justified, the differential treatment of the press creates risks of suppression of expression. In contrast, in the cases at bar, the statute applies to a wide range of goods and services. The argument that, by imposing the VAT only on print media whose gross sales exceeds P480,000 but not more than P750,000, the law discriminates 33 is without merit since it has not been shown that as a result the class subject to tax has been unreasonably narrowed. The fact is that this limitation does not apply to the press along but to all sales. Nor is impermissible motive shown by the fact that print media and broadcast media are treated differently. The press is taxed on its transactions involving printing and publication, which are different from the transactions of broadcast media. There is thus a reasonable basis for the classification. The cases canvassed, it must be stressed, eschew any suggestion that "owners of newspapers are immune from any forms of ordinary taxation." The license tax in the Grosjean case was declared invalid because it was "one single in kind, with a long history of hostile misuse against the freedom of the press." 34 On the other hand, Minneapolis Star acknowledged that "The First Amendment does not prohibit all regulation of the press [and that] the States and the Federal Government can subject newspapers to generally applicable economic regulations without creating constitutional problems." 35 What has been said above also disposes of the allegations of the PBS that the removal of the exemption of printing, publication or importation of books and religious articles, as well as their printing and publication, likewise violates freedom of thought and of conscience. For as the U.S. Supreme Court unanimously held in Jimmy Swaggart Ministries v. Board of Equalization, 36 the Free Exercise of Religion Clause does not prohibit imposing a generally applicable sales and use tax on the sale of religious materials by a religious organization. This brings us to the question whether the registration provision of the law, 37 although of general applicability, nonetheless is invalid when applied to the press because it lays a prior restraint on its essential freedom. The case of American Bible Society v. City of Manila 38 is cited by both the PBS and the PPI in support of their contention that the law imposes censorship. There, this Court held that an ordinance of the City of Manila, which imposed a license fee on those engaged in the business of general merchandise, could not be applied to the appellant's sale of bibles and other religious literature. This Court relied on Murdock v. Pennsylvania, 39 in which it was held that, as a license fee is fixed in amount and unrelated to the receipts of the taxpayer, the license fee, when applied to a religious sect, was actually being imposed as a condition for the exercise of the sect's right under the Constitution. For that reason, it was held, the license fee "restrains in advance those constitutional liberties of press and religion and inevitably tends to suppress their exercise." 40 But, in this case, the fee in 107, although a fixed amount (P1,000), is not imposed for the exercise of a privilege but only for the purpose of defraying part of the cost of registration. The registration requirement is a central feature of the VAT system. It is designed to provide a record of tax credits because any person who is subject to the payment of the VAT pays an input tax, even as he collects an output tax on sales made or services rendered. The registration fee is thus a mere administrative fee, one not imposed on the exercise of a privilege, much less a constitutional right.

For the foregoing reasons, we find the attack on Republic Act No. 7716 on the ground that it offends the free speech, press and freedom of religion guarantees of the Constitution to be without merit. For the same reasons, we find the claim of the Philippine Educational Publishers Association (PEPA) in G.R. No. 115931 that the increase in the price of books and other educational materials as a result of the VAT would violate the constitutional mandate to the government to give priority to education, science and technology (Art. II, 17) to be untenable.

B. Claims of Regressivity, Denial of Due Process, Equal Protection, and Impairment of Contracts There is basis for passing upon claims that on its face the statute violates the guarantees of freedom of speech, press and religion. The possible "chilling effect" which it may have on the essential freedom of the mind and conscience and the need to assure that the channels of communication are open and operating importunately demand the exercise of this Court's power of review. There is, however, no justification for passing upon the claims that the law also violates the rule that taxation must be progressive and that it denies petitioners' right to due process and that equal protection of the laws. The reason for this different treatment has been cogently stated by an eminent authority on constitutional law thus: "[W]hen freedom of the mind is imperiled by law, it is freedom that commands a momentum of respect; when property is imperiled it is the lawmakers' judgment that commands respect. This dual standard may not precisely reverse the presumption of constitutionality in civil liberties cases, but obviously it does set up a hierarchy of values within the due process clause." 41 Indeed, the absence of threat of immediate harm makes the need for judicial intervention less evident and underscores the essential nature of petitioners' attack on the law on the grounds of regressivity, denial of due process and equal protection and impairment of contracts as a mere academic discussion of the merits of the law. For the fact is that there have even been no notices of assessments issued to petitioners and no determinations at the administrative levels of their claims so as to illuminate the actual operation of the law and enable us to reach sound judgment regarding so fundamental questions as those raised in these suits. Thus, the broad argument against the VAT is that it is regressive and that it violates the requirement that "The rule of taxation shall be uniform and equitable [and] Congress shall evolve a progressive system of taxation." 42Petitioners in G.R. No. 115781 quote from a paper, entitled "VAT Policy Issues: Structure, Regressivity, Inflation and Exports" by Alan A. Tait of the International Monetary Fund, that "VAT payment by low-income households will be a higher proportion of their incomes (and expenditures) than payments by higher-income households. That is, the VAT will be regressive." Petitioners contend that as a result of the uniform 10% VAT, the tax on consumption goods of those who are in the higher-income bracket, which before were taxed at a rate higher than 10%, has been reduced, while basic commodities, which before were taxed at rates ranging from 3% to 5%, are now taxed at a higher rate. Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed by respondents that in fact it distributes the tax burden to as many goods and services as possible particularly to those which are within the reach of higher-income groups, even as the law exempts basic goods and services. It is thus equitable. The goods and properties

subject to the VAT are those used or consumed by higher-income groups. These include real properties held primarily for sale to customers or held for lease in the ordinary course of business, the right or privilege to use industrial, commercial or scientific equipment, hotels, restaurants and similar places, tourist buses, and the like. On the other hand, small business establishments, with annual gross sales of less than P500,000, are exempted. This, according to respondents, removes from the coverage of the law some 30,000 business establishments. On the other hand, an occasional paper 43 of the Center for Research and Communication cities a NEDA study that the VAT has minimal impact on inflation and income distribution and that while additional expenditure for the lowest income class is only P301 or 1.49% a year, that for a family earning P500,000 a year or more is P8,340 or 2.2%. Lacking empirical data on which to base any conclusion regarding these arguments, any discussion whether the VAT is regressive in the sense that it will hit the "poor" and middleincome group in society harder than it will the "rich," as the Cooperative Union of the Philippines (CUP) claims in G.R. No. 115873, is largely an academic exercise. On the other hand, the CUP's contention that Congress' withdrawal of exemption of producers cooperatives, marketing cooperatives, and service cooperatives, while maintaining that granted to electric cooperatives, not only goes against the constitutional policy to promote cooperatives as instruments of social justice (Art. XII, 15) but also denies such cooperatives the equal protection of the law is actually a policy argument. The legislature is not required to adhere to a policy of "all or none" in choosing the subject of taxation.44 Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA), petitioner in G.R. 115754, that the VAT will reduce the mark up of its members by as much as 85% to 90% any more concrete. It is a mere allegation. On the other hand, the claim of the Philippine Press Institute, petitioner in G.R. No. 115544, that the VAT will drive some of its members out of circulation because their profits from advertisements will not be enough to pay for their tax liability, while purporting to be based on the financial statements of the newspapers in question, still falls short of the establishment of facts by evidence so necessary for adjudicating the question whether the tax is oppressive and confiscatory. Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required by the Constitution to do is to "evolve a progressive system of taxation." This is a directive to Congress, just like the directive to it to give priority to the enactment of laws for the enhancement of human dignity and the reduction of social, economic and political inequalities (Art. XIII, 1), or for the promotion of the right to "quality education" (Art. XIV, 1). These provisions are put in the Constitution as moral incentives to legislation, not as judicially enforceable rights. At all events, our 1988 decision in Kapatiran should have laid to rest the questions now raised against the VAT. There similar arguments made against the original VAT Law (Executive Order No. 273) were held to be hypothetical, with no more basis than newspaper articles which this Court found to be "hearsay and [without] evidentiary value." As Republic Act No. 7716 merely expands the base of the VAT system and its coverage as provided in the original VAT Law, further debate on the desirability and wisdom of the law should have shifted to Congress. Only slightly less abstract but nonetheless hypothetical is the contention of CREBA that the imposition of the VAT on the sales and leases of real estate by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision that "No law impairing the obligation of contracts shall be passed." It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting
45

contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society. 46 In truth, the Contract Clause has never been thought as a limitation on the exercise of the State's power of taxation save only where a tax exemption has been granted for a valid consideration. 47 Such is not the case of PAL in G.R. No. 115852, and we do not understand it to make this claim. Rather, its position, as discussed above, is that the removal of its tax exemption cannot be made by a general, but only by a specific, law. The substantive issues raised in some of the cases are presented in abstract, hypothetical form because of the lack of a concrete record. We accept that this Court does not only adjudicate private cases; that public actions by "non-Hohfeldian" 48 or ideological plaintiffs are now cognizable provided they meet the standing requirement of the Constitution; that under Art. VIII, 1, 2 the Court has a "special function" of vindicating constitutional rights. Nonetheless the feeling cannot be escaped that we do not have before us in these cases a fully developed factual record that alone can impart to our adjudication the impact of actuality 49 to insure that decision-making is informed and well grounded. Needless to say, we do not have power to render advisory opinions or even jurisdiction over petitions for declaratory judgment. In effect we are being asked to do what the Conference Committee is precisely accused of having done in these cases to sit as a third legislative chamber to review legislation. We are told, however, that the power of judicial review is not so much power as it is duty imposed on this Court by the Constitution and that we would be remiss in the performance of that duty if we decline to look behind the barriers set by the principle of separation of powers. Art. VIII, 1, 2 is cited in support of this view: Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. To view the judicial power of review as a duty is nothing new. Chief Justice Marshall said so in 1803, to justify the assertion of this power in Marbury v. Madison: It is emphatically the province and duty of the judicial department to say what the law is. Those who apply the rule to particular cases must of necessity expound and interpret that rule. If two laws conflict with each other, the courts must decide on the operation of each. 50 Justice Laurel echoed this justification in 1936 in Angara v. Electoral Commission: And when the judiciary mediates to allocate constitutional boundaries, it does not assert any superiority over the other departments; it does not in reality nullify or invalidate an act of the legislature, but only asserts the solemn and sacred obligation assigned to it by the Constitution to determine conflicting claims of authority under the Constitution and to establish for the parties in an actual controversy the rights which that instrument secures and guarantees to them. 51 This conception of the judicial power has been affirmed in several cases 52 of this Court following Angara.

It does not add anything, therefore, to invoke this "duty" to justify this Court's intervention in what is essentially a case that at best is not ripe for adjudication. That duty must still be performed in the context of a concrete case or controversy, as Art. VIII, 5(2) clearly defines our jurisdiction in terms of "cases," and nothing but "cases." That the other departments of the government may have committed a grave abuse of discretion is not an independent ground for exercising our power. Disregard of the essential limits imposed by the case and controversy requirement can in the long run only result in undermining our authority as a court of law. For, as judges, what we are called upon to render is judgment according to law, not according to what may appear to be the opinion of the day. _______________________________ In the preceeding pages we have endeavored to discuss, within limits, the validity of Republic Act No. 7716 in its formal and substantive aspects as this has been raised in the various cases before us. To sum up, we hold: (1) That the procedural requirements of the Constitution have been complied with by Congress in the enactment of the statute; (2) That judicial inquiry whether the formal requirements for the enactment of statutes beyond those prescribed by the Constitution have been observed is precluded by the principle of separation of powers; (3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free exercise of religion, nor deny to any of the parties the right to an education; and (4) That, in view of the absence of a factual foundation of record, claims that the law is regressive, oppressive and confiscatory and that it violates vested rights protected under the Contract Clause are prematurely raised and do not justify the grant of prospective relief by writ of prohibition. WHEREFORE, the petitions in these cases are DISMISSED. Bidin, Quiason, and Kapunan, JJ., concur.

relative to the procedural issues raised by the various petitions and death with by some other Members of the Court in their separate opinions. By their very nature, it would seem, discussions of constitutional issues prove fertile ground for a not uncommon phenomenon: debate marked by passionate partisanship amounting sometimes to impatience with adverse views, an eagerness on the part of the proponents on each side to assume the role of, or be perceived as, staunch defenders of constitutional principles, manifesting itself in flights of rhetoric, even hyperbole. The peril in this, obviously, is a diminution of objectivity that quality which, on the part of those charged with the duty and authority of interpreting the fundamental law, is of the essence of their great function. For the Court, more perhaps than for any other person or group, it is necessary to maintain that desirable objectivity. It must make certain that on this as on any other occasion, the judicial function is meticulously performed, the facts ascertained as comprehensively and as accurately as possible, all the issues particularly identified, all the arguments clearly understood; else, it may itself be accused, by its own members or by others, of a lack of adherence to, or a careless observance of, its own procedures, the signatures of its individual members on its enrolled verdicts notwithstanding. In the matter now before the Court, and whatever reservations some people may entertain about their intellectual limitations or moral scruples, I cannot bring myself to accept the thesis which necessarily implies that the members of our august Congress, in enacting the expanded VAT law, exposed their ignorance, or indifference to the observance, of the rules of procedure set down by the Constitution or by their respective chambers, or what is worse, deliberately ignored those rules for some yet undiscovered purpose nefarious in nature, or at least some purpose other than the public weal; or that a few of their fellows, acting as a bicameral conference committee, by devious schemes and cunning maneuvers, and in conspiracy with officials of the Executive Department and others, succeeded in "pulling the wool over the eyes" of all their other colleagues and foisting on them a bill containing provisions that neither chamber of our bicameral legislature conceived or contemplated. This is the thesis that the petitioners would have this Court approve. It is a thesis I consider bereft of any factual or logical foundation. Other than the bare declarations of some of the petitioners, or arguments from the use and import of the language employed in the relevant documents and records, there is no evidence before the Court adequate to support a finding that the legislators concerned, whether of the upper or lower chamber, acted otherwise than in good faith, in the honest discharge of their functions, in the sincere belief that the established procedures were being regularly observed or, at least, that there occurred no serious or fatal deviation therefrom. There is no evidence on which reasonably to rest a conclusion that any executive or other official took part in or unduly influenced the proceedings before the bicameral conference committee, or that the members of the latter were motivated by a desire to surreptitiously introduce improper revisions in the bills which they were required to reconcile, or that after agreement had been reached on the mode and manner of reconciliation of the "disagreeing provisions," had resorted to stratragems or employed under-handed ploys to ensure their approval and adoption by either House. Neither is there any proof that in voting on the Bicameral Conference Committee (BCC) version of the reconciled bills, the members of the Senate and the House did so in ignorance of, or without understanding, the contents thereof or the bills therein reconciled. Also unacceptable is the theory that since the Constitution requires appropriation and revenue bills to originate exclusively in the House of Representatives, it is improper if not unconstitutional for the Senate to formulate, or even think about formulating, its own draft of this type of measure in anticipation of receipt of one transmitted by the lower Chamber. This is specially cogent as regards much-publicized suggestions for legislation (like the expanded VAT Law) emanating from one or more legislators, or from the Executive Department, or the private sector, etc. which understandably could be expected to forthwith generate much Congressional cogitation.

Separate Opinions

NARVASA, C.J.: I fully concur with the conclusions set forth in the scholarly opinion of my learned colleague, Mr. Justice Vicente V. Mendoza. I write this separate opinion to express my own views

Exclusive origination, I submit, should have no reference to time of conception. As a practical matter, origination should refer to the affirmative act which effectively puts the bicameral legislative procedure in motion, i.e., the transmission by one chamber to the other of a bill for its adoption. This is the purposeful act which sets the legislative machinery in operation to effectively lead to the enactment of a statute. Until this transmission takes place, the formulation and discussions, or the reading for three or more times of proposed measures in either chamber, would be meaningless in the context of the activity leading towards concrete legislation. Unless transmitted to the other chamber, a bill prepared by either house cannot possibly become law. In other words, the first affirmative, efficacious step, the operative act as it were, leading to actual enactment of a statute, is the transmission of a bill from one house to the other for action by the latter. This is the origination that is spoken of in the Constitution in its Article VI, Section 24, in reference to appropriation, revenue, or tariff bills, etc. It may be that in the Senate, revenue or tax measures are discussed, even drafted, and this before a similar activity takes place in the House. This is of no moment, so long as those measures or bill remain in the Senate and are not sent over the House. There is no origination of revenue or tax measures by the Senate in this case. However, once the House completes the drawing up of a similar tax measure in accordance with the prescribed procedure, ven if this is done subsequent to the Senates own measure indeed, even if this be inspired by information that measure of the Senate and after third reading transmits its bill to the Senate, there is origination by (or in) the House within the contemplation of the Constitution. So it is entirely possible, as intimated, that in expectation of the receipt of a revenue or tax bill from the House of Representatives, the Senate commences deliberations on its own concept of such a legislative measure. This, possibly to save time, so that when the House bill raches it, its thoughts and views on the matter are already formed and even reduced to writing in the form of a draft statute. This should not be thought ilegal, as interdicted by the Constitution. What the Constitution prohibits is for the Senate to begin the legislative process first, by sending its own revenue bill to the House of Representatives for its consideration and action. This is the initiation that is prohibited to the Senate. But petitioners claims that this last was what in fact happened, that the went through the legislative mill and was finally approved as R.A. No. 7716, was the Senate version, SB 1630. This is disputed by the respondents. They claim it was House Bill 11197 that, after being transmitted to the Senate, was referred after first reading to its Committee on Ways and Means; was reported out by said Committee; underwent second and third readings, was sent to the bicameral conference committee and then, after appropriate proceedings therein culminating in extensive amendments thereof, was finally approved by both Houses and became the Expanded VAT Law. On whose side does the truth lie? If it is not possible to make that determination from the pleadings and records before this Court, shall it require evidence to be presented? No, on both law and principle. The Court will reject a case where the legal issues raised, whatever they may be, depend for their resolution on still unsettled questions of fact. Petitioners may not, by raising what are Court to assume the role of a trier of facts. It is on the contrary their obligation, before raising those questions to this Court, to see to it that all issues of fact are settled in accordance with the procedures laid down by law for proof of facts. Failing this, petitioners would have only themselves to blame for a peremptory dismissal. Now, what is really proven about what happened to HB 11197 after it was transmitted to the Senate? It seems to be admitted on all sides that after going through first reading, HB 11197 was referred to the Committee on Ways and Means chaired by Senator Ernesto Herrera.

It is however surmised that after this initial step, HB 11197 was never afterwards deliberated on in the Senate, that it was there given nothing more than a "passing glance," and that it never went through a proper second and third reading. There is no competent proof to substantiate this claim. What is certain is that on February 7, 1994, the Senate Committee on Ways and Means submitted its Report (No. 349) stating that HB 11197 was considered, and recommending that SB 1630 be approved "in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 1 and H.B. No. 11197." This Report made known to the Senate, and clearly indicates, that H.B. No. 11197 was indeed deliberated on by the Committee; in truth, as Senator Herrera pointed out, the BCC later "agreed to adopt (a broader coverage of the VAT) which is closely adhering to the Senate version ** ** with some new provisions or amendments." The plain implication is that the Senate Committee had indeed discussed HB 11197 in comparison with the inconsistent parts of SB 1129 and afterwards proposed amendments to the former in the form of a new bill (No. 1630) more closely akin to the Senate bill (No. 1129). And it is as reasonable to suppose as not that later, during the second and third readings on March 24, 1994, the Senators, assembled as a body, had before them copies of HB 11197 and SB 1129, as well as of the Committee's new "SB 1630" that had been recommended for their approval, or at the very least were otherwise perfectly aware that they were considering the particular provisions of these bills. That there was such a deliberation in the Senate on HB 11197 in light of inconsistent portions of SB 1630, may further be necessarily inferred from the request, made by the Senate on the same day, March 24, 1994, for the convocation of a bicameral conference committee to reconcile "the disagreeing provisions of said bill (SB 1630) and House Bill No. 11197," a request that could not have been made had not the Senators more or less closely examined the provisions of HB 11197 and compared them with those of the counterpart Senate measures. Were the proceedings before the bicameral conference committee fatally flawed? The affirmative is suggested because the committee allegedly overlooked or ignored the fact that SB 1630 could not validly originate in the Senate, and that HB 11197 and SB 1630 never properly passed both chambers. The untenability of these contentions has already been demonstrated. Now, demonstration of the indefensibility of other arguments purporting to establish the impropriety of the BCC proceedings will be attempted. There is the argument, for instance, that the conference committee never used HB 11197 even as "frame of reference" because it does not appear that the suggestion therefor (made by House Penal Chairman Exequiel Javier at the bicameral conference committee's meeting on April 19, 1994, with the concurrence of Senator Maceda) was ever resolved, the minutes being regrettably vague as to what occurred after that suggestion was made. It is, however, as reasonable to assume that it was, as it was not, given the vagueness of the minutes already alluded to. In fact, a reading of the BCC Report persuasively demonstrates that HB 11197 was not only utilized as a "frame of reference" but actually discussed and deliberated on. Said BCC Report pertinently states:
2

CONFERENCE COMMITTEE REPORT The Conference Committee on the disagreeing provisions of House Bill No. 11197, entitled: AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 1013, 104, 105, 106, 107, 108 AND 110 OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236,

237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 113SD AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED and Senate Bill No. 1630 entitled: AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 1 106, 107, 108 AND 110 OF TITLE IV, 112, 115, 117 AND 121 OF TITLE V, ACND 236, 237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 1113, 114, 116, 119 AND 120 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES having met, after full and free conference, has agreed to recommend and do hereby recommend to their respective Houses that House Bill No. 11197, in consolidation with Senate Bill No. 1630, be approved in accordance with the attached copy of the bill as reconciled and approved by the conferees. Approved. The Report, it will be noted, explicitly adverts to House Bill No. 11197, it being in fact mentioned ahead of Senate Bill No. 1630; graphically shows the very close identity of the subjects of both bills (indicated in their respective titles); and clearly says that the committee met in "full and free conference" on the "disagreeing provisions" of both bills (obviously in an effort to reconcile them); and that reconciliation of said "disagreeing provisions" had been effected, the BCC having agreed that "House Bill No. 11197, in consolidation with Senate Bill No. 1630, be approved in accordance with the attached copy of the bill as reconciled and approved by the conferees." It may be concluded, in other words, that, conformably to the procedure provided in the Constitution with which all the Members of the bicameral conference committee cannot but be presumed to be familiar, and no proof to the contrary having been adduced on the point, it was the original bill (HB 11197) which said body had considered and deliberated on in detail, reconciled or harmonized with SB 1630, and used as basis for drawing up the amended version eventually reported out and submitted to both houses of Congress. It is further contended that the BCC was created and convoked prematurely, that SB 1630 should first have been sent to the House of Representatives for concurrence It is maintained, in other words, that the latter chamber should have refused the Senate request for a bicameral conference committee to reconcile the "disagreeing provisions" of both bills, and should have required that SB 1630 be first transmitted to it. This, seemingly, is nit-picking given the urgency of the proposed legislation as certified by the President (to both houses, in fact). Time was of the essence, according to the President's best judgment as regards which absolutely no one in either chamber of Congress took exception, general acceptance being on the contrary otherwise manifested and that judgment the Court will not now question. In light of that urgency, what was so vital or indispensable about such a transmittal that its absence would invalidate all else that had been done towards enactment of the law, completely escapes me, specially considering that the House had immediately acceded without demur to the request for convocation of the conference committee. What has just been said should dispose of the argument that the statement in the enrolled bill, that "This Act which is a consolidation of House Bill No. 11197 and Senate Bill No. 11630

was finally passed by the House of Representatives and the Senate on April 27, 1994 and May 2, 1994," necessarily signifies that there were two (2) bills separately introduced, retaining their independent existence until they reached the bicameral conference committee where they were consolidated, and therefore, the VAT law did not originate exclusively in the House having originated in part in the Senate as SB 1630, which bill was not embodied in but merely merged with HB 11197, retaining its separate identity until it was joined by the BCC with the house measure. The more logical, and fairer, course is to construe the expression, "consolidation of House Bill No. 11197 and Senate Bill No. 11630" in the context of accompanying and contemporaneous statements, i.e.: (a) the declaration in the BCC Report, supra, that the committee met to reconcile the disagreeing provisions of the two bills, "and after full and free conference" on the matter, agreed and so recommended that "House Bill No. 11197, in consolidation with Senate Bill No. 1630, be approved in accordance with the attached copy of the bill as reconciled and approved by the conferees;" and (b) the averment of Senator Herrera, in the Report of the Ways and Means Committee, supra, that the committee had actually "considered" (discussed) HB No. 11197 and taken it "into consideration" in recommending that its own version of the measure (SB 1630) be the one approved. That the Senate might have drawn up its own version of the expanded VAT bill, contemporaneously with or even before the House did, is of no moment. It bears repeating in this connection that no VAT bill ever originated in the Senate; neither its SB 1129 or SB 1630 or any of its drafts was ever officially transmitted to the House as an initiating bill which, as already pointed out, is what the Constitution forbids; it was HB 11197 that was first sent to the Senate, underwent first reading, was referred to Committee on Ways and Means and there discussed in relation to and in comparison with the counterpart Senate version or versions the mere formulation of which was, as also already discussed, not prohibited to it and afterwards considered by the Senate itself, also in connection with SB 1630, on second and third readings. HB 11197 was in the truest sense, the originating bill. An issue has also arisen respecting the so-called "enrolled bill doctrine" which, it is said, whatever sacrosanct status it might originally have enjoyed, is now in bad odor with modern scholars on account of its imputed rigidity and unrealism; it being also submitted that the ruling in Mabanag v. Lopez Vito (78 Phil. 1) and the cases reaffirming it, is no longer good law, it being based on a provision of the Code of Civil Procedure 3 long since stricken from the statute books. I would myself consider the "enrolled bill" theory as laying down a presumption of so strong a character as to be well nigh absolute or conclusive, fully in accord with the familiar and fundamental philosophy of separation of powers. The result, as far as I am concerned, is to make discussion of the enrolled bill principle purely academic; for as already pointed out, there is no proof worthy of the name of any facts to justify its reexamination and, possibly, disregard. The other question is, what is the nature of the power given to a bicameral conference committee of reconciling differences between, or "disagreeing provisions" in, a bill originating from the House in relation to amendments proposed by the Senate whether as regards some or all of its provisions? Is the mode of reconciliation, subject to fixed procedure and guidelines? What exactly can the committee do, or not do? Can it only clarify or revise provisions found in either Senate or House bill? Is it forbidden to propose additional or new provisions, even on matters necessarily or reasonably connected with or germane to items in the bills being reconciled? In answer, it is postulated that the reconciliation function is quite limited. In these cases, the conference committee should have confined itself to reconciliation of differences or inconsistencies only by (a) restoring provisions of HB11197 aliminated by SB 1630, or (b) sustaining wholly or partly the Senate amendments, or (c) as a compromise, agreeing that

neither provisions nor amendments be carried into the final form of HB 11197 for submission to both chambers of the legislature. The trouble is, it is theorized, the committee incorporated activities or transactions which were not within the contemplation of both bills; it made additions and deletions which did not enjoy the enlightenment of initial committee studies; it exercised what is known as an "ex post veto power" granted to it by no law, rule or regulation, a power that in truth is denied to it by the rules of both the Senate and the House. In substantiation, the Senate rule is cited, similar to that of the House, providing that "differences shall be settled by a conference committee" whose report shall contain "detailed and sufficiently explicit statement of the changes in or amendments to the subject measure, ** (to be) signed by the conferees;" as well as the "Jefferson's Manual," adopted by the Senate as supplement to its own rules, directing that the managers of the conference must confine themselves to differences submitted to them; they may not include subjects not within the disagreements even though germane to a question in issue." It is significant that the limiting proviso in the relevant rules has been construed and applied as directory, not mandatory. During the oral argument, counsel for petitioners admitted that the practice for decades has been for bicameral conference committees to include such provisions in the reconciled bill as they believed to be germane or necessary and acceptable to both chambers, even if not within any of the "disagreeing provisions," and the reconciled bills, containing such provisions had invariably been approved and adopted by both houses of Congress. It is a practice, they say, that should be stopped. But it is a practice that establishes in no uncertain manner the prevailing concept in both houses of Congress of the permissible and acceptable modes of reconciliation that their conference committees may adopt, one whose undesirability is not all that patent if not, indeed, incapable of unquestionable demonstration. The fact is that conference committees only take up bills which have already been freely and fully discussed in both chambers of the legislature, but as to which there is need of reconciliation in view of "disagreeing provisions" between them; and both chambers entrust the function of reconciling the bills to their delegates at a conference committee with full awareness, and tacit consent, that conformably with established practice unquestioningly observed over many years, new provisions may be included even if not within the "disagreeing provisions" but of which, together with other changes, they will be given detailed and sufficiently explicit information prior to voting on the conference committee version. In any event, a fairly recent decision written for the Court by Senior Associate Justice Isagani A. Cruz, promulgated on November 11, 1993 (G.R. No. 105371, The Philippine Judges Association, etc., et al. v. Hon. Pete Prado, etc., et al.), should leave no doubt of the continuing vitality of the enrolled bill doctrine and give an insight into the nature of the reconciling function of bicameral conference committees. In that case, a bilateral conference committee was constituted and met to reconcile Senate Bill No. 720 and House Bill No. 4200. It adopted a "reconciled" measure that was submitted to and approved by both chambers of Congress and ultimately signed into law by the President, as R.A. No. 7354. A provision in this statute (removing the franking privilege from the courts, among others) was assailed as being an invalid amendment because it was not included in the original version of either the senate or the house bill and hence had generated no disagreement between them which had to be reconciled. The Court held: While it is true that a conference committee is the mechanism for compromising differences between the Senate and the House, it is not limited in its jurisdiction to this question. Its broader function is described thus: A conference committee may deal generally with the subject matter or it may be limited to resolving the

precise differences between the two houses. Even where the conference committee is not by rule limited in its jurisdiction, legislative custom severely limits the freedom with which new subject matter can be inserted into the conference bill. But occasionally a conference committee produces unexpected results, results beyond its mandate. These excursions occur even where the rules impose strict limitations on conference committee jurisdiction. This is symptomatic of the authoritarian power of conference committee (Davies, Legislative Law and Process: In A Nutshell, 1987 Ed., p. 81). It is a matter of record that the Conference Committee Report on the bill in question was returned to and duly approved by both the Senate and the House of Representatives. Thereafter, the bill was enrolled with its certification by Senate President Neptali A. Gonzales and Speaker Ramon V. Mitra of the House of Representatives as having been duly passed by both Houses of Congress. It was then presented to and approved by President Corazon C. Aquino on April 3, 1992. Under the doctrine of separation of powers, the Court may not inquire beyond the certification of the approval of a bill from the presiding officers of Congress. Casco Philippine Chemical Co. v. Gimenez(7 SCRA 347) laid down the rule that the enrolled bill is conclusive upon the Judiciary (except in matters that have to be entered in the journals like the yeas and nays on the final reading of the bill) (Mabanag v. Lopez Vito, 78 Phil. 1). The journals are themselves also binding on the Supreme Court, as we held in the old (but still valid) case of U.S. v. Pons (34 Phil. 729), where we explained the reason thus: To inquire into the veracity of the journals of the Philippine legislature when they are, as we have said, clear and explicit, would be to violate both the letter and spirit of the organic laws by which the Philippine Government was brought into existence, to invade a coordinate and independent department of the Government, and to interfere with the legitimate powers and functions of the Legislature. Applying these principles, we shall decline to look into the petitioners' charges that an amendment was made upon the last reading of the bill that eventually R.A. No. 7354 and that copies thereof in its final form were not distributed among the members of each House. Both the enrolled bill and the legislative journals certify that the measure was duly enacted i.e., in accordance with Article VI, Sec. 26 (2) of the Constitution. We are bound by such official assurances from a coordinate department of the government, to which we owe, at the very least, a becoming courtesy. Withal, an analysis of the changes made by the conference committee in HB 11197 and SB 1630 by way of reconciling their "disagreeing provisions," assailed by petitioners as unauthorized or incongrouous reveals that many of the changes related to actual "disagreeing provisions," and that those that might perhaps be considered as entirely new are nevertheless necessarily or logically connected with or germane to particular matters in the bills being reconciled.

For instance, the change made by the bicameral conference committee (BCC) concerning amendments to Section 99 of the National Internal Revenue Code (NIRC) the addition of "lessors of goods or properties and importers of goods" is really a reconciliation of disagreeing provisions, for while HB 11197 mentions as among those subject to tax, "one who sells, barters, or exchanges goods or properties and any person who leases personal properties," SB 1630 does not. The change also merely clarifies the provision by providing that the contemplated taxpayers includes "importers." The revision as regards the amendment to Section 100, NIRC, is also simple reconciliation, being nothing more than the adoption by the BCC of the provision in HB 11197 governing the sale of gold to Bangko Sentral, in contrast to SB 1630 containing no such provision. Similarly, only simple reconciliation was involved as regards approval by the BCC of a provision declaring as not exempt, the sale of real properties primarily held for sale to customers or held for lease in the ordinary course of trade or business, which provision is found in HB 11197 but not in SB 1630; as regards the adoption by the BCC of a provision on life insurance business, contained in SB 1630 but not found in HB 11197; as regards adoption by the BCC of the provision in SB 1630 for deferment of tax on certain goods and services for no longer than 3 years, as to which there was no counterpart provision in SB 11197; and as regards the fixing of a period for the adoption of implementing rules, a period being prescribed in SB 1630 and none in HB 11197. In respect of other revisions, it would seem that questions logically arose in the course of the discussion of specific "disagreeing provisions" to which answers were given which, because believed acceptable to both houses of Congress, were placed in the BCC draft. For example, during consideration of radio and television time (Sec. 100, NIRC) dealt with in both House and Senate bills, the question apparently came up, the relevance of which is apparent on its face, relative to satellite transmission and cable television time. Hence, a provision in the BCC bill on the matter. Again, while deliberating on the definition of goods or properties in relation to the provision subjecting sales thereof to tax, a question apparently arose, logically relevant, about real properties intended to be sold by a person in economic difficulties, or because he wishes to buy a car, i.e., not as part of a business, the BCC evidently resolved to clarify the matter by excluding from the tax, "real properties held primarily for sale to customers or held for lease in the ordinary course of business." And in the course of consideration of the term,sale or exchange of services (Sec 102, NIRC), the inquiry most probably was posed as to whether the term should be understood as including other services: e.g., services of lessors of property whether real or personal, of warehousemen, of keepers of resthouses, pension houses, inns, resorts, or of common carriers, etc., and presumably the BCC resolved to clarify the matter by including the services just mentioned. Surely, changes of this nature are obviously to be expected in proceedings before bicameral conference committees and may even be considered grist for their mill, given the history of such BCCs and their general practice here and abroad In any case, all the changes and revisions, and deletions, made by the conference committee were all subsequently considered by and approved by both the Senate and the House, meeting and voting separately. It is an unacceptable theorization, to repeat, that when the BCC report and its proposed bill were submitted to the Senate and the House, the members thereof did not bother to read, or what is worse, having read did not understand, what was before them, or did not realize that there were new provisions in the reconciled version unrelated to any "disagreeing provisions," or that said new provisions or revisions were effectively concealed from them Moreover, it certainly was entirely within the power and prerogative of either legislative chamber to reject the BCC bill and require the organization of a new bicameral conference committee. That this option was not exercised by either house only proves that the BCC measure was found to be acceptable as in fact it was approved and adopted by both chambers. I vote to DISMISS the petitions for lack of merit.

PADILLA, J.: I The original VAT law and the expanded VAT law In Kapatiran v. Tan, 1 where the ponente was the writer of this Separate Opinion, a unanimous Supreme Court en banc upheld the validity of the original VAT law (Executive Order No. 273, approved on 25 July 1987). It will, in my view, be pointless at this time to re-open arguments advanced in said case as to why said VAT law was invalid, and it will be equally redundant to re-state the principles laid down by the Court in the same case affirming the validity of the VAT law as a tax measure. And yet, the same arguments are, in effect, marshalled against the merits and substance of the expanded VAT law (Rep. Act. No. 7716, approved on 5 May 1994). The same Supreme Court decision should therefore dispose, in the main, of such arguments, for the expanded VAT law is predicated basically on the same principles as the original VAT law, except that now the tax base of the VAT imposition has been expanded or broadened. It only needs to be stated what actually should be obvious that a tax measure, like the expanded VAT law (Republic Act. No. 7716), is enacted by Congress and approved by the President in the exercise of the State's power to tax, which is an attribute of sovereignty. And while the power to tax, if exercised without limit, is a power to destroy, and should, therefore, not be allowed in such form, it has to be equally recognized that the power to tax is an essential right of government. Without taxes, basic services to the people can come to a halt; economic progress will be stunted, and, in the long run, the people will suffer the pains of stagnation and retrogression. Consequently, upon careful deliberation, I have no difficulty in reaching the conclusion that the expanded VAT law comes within the legitimate power of the state to tax. And as I had occasion to previously state: Constitutional Law, to begin with, is concerned with power not political convenience, wisdom, exigency, or even necessity. Neither the Executive nor the legislative (Commission on Appointments) can create power where the Constitution confers none. 2 Likewise, in the first VAT case, I said: In any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to the general welfare or the interests of the majority of the people, they should seek, recourse and relief from the political branches of the government. The Court, following the time-honored doctrine of separation of powers, cannot substitute its judgment for that of the President (and Congress) as to the wisdom, justice and advisability of the adoption of the VAT. 3 This Court should not, as a rule, concern itself with questions of policy, much less, economic policy. That is better left to the two (2) political branches of government. That the expanded VAT law is unwise, unpopular and even anti-poor, among other things said against it, are arguments and considerations within the realm of policy-debate, which only Congress and the Executive have the authority to decisively confront, alleviate, remedy and resolve.

II The procedure followed in the approval of Rep. Act No. 7716 Petitioners however posit that the present case raises a far-reaching constitutional question which the Court is duty-bound to decide under its expanded jurisdiction in the 1987 Constitution. 4 Petitioners more specifically question and impugn the manner by which the expanded VAT law (Rep. Act. No. 7716) was approved by Congress. They contend that it was approved in violation of the Constitution from which fact it follows, as a consequence, that the law is null and void. Main reliance of the petitioners in their assault in Section 24, Art. VI of the Constitution which provides: Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bill of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. While it should be admitted at the outset that there was no rigorous and strict adherence to the literal command of the above provision, it may however be said, after careful reflection, that there was substantial compliance with the provision. There is no question that House Bill No. 11197 expanding the VAT law originated from the House of Representatives. It is undeniably a House measure. On the other hand, Senate Bill No. 1129, also expanding the VAT law, originated from the Senate. It is undeniably a Senate measure which, in point of time, actually antedated House Bill No. 11197. But it is of record that when House Bill No. 11197 was, after approval by the House, sent to the Senate, it was referred to, and considered by the Senate Committee on Ways and Means (after first reading) together with Senate Bill No. 1129, and the Committee came out with Senate Bill No. 1630 in substitution of Senate Bill No. 1129 but after expressly taking into consideration House Bill No. 11197. Since the Senate is, under the above-quoted constitutional provision, empowered to concur with a revenue measure exclusively originating from the House, or to propose amendments thereto, to the extent of proposing amendments by SUBSTITUTION to the House measure, the approval by the Senate of Senate Bill No. 1630, after it had considered House Bill No. 11197, may be taken, in my view, as an AMENDMENT BY SUBSTITUTION by the Senate not only of Senate Bill No. 1129 but of House Bill No. 11197 as well which, it must be remembered, originated exclusively from the House. But then, in recognition of the fact that House Bill No. 11197 which originated exclusively from the House and Senate Bill No. 1630 contained conflicting provisions, both bills (House Bill No. 11197 and Senate Bill No. 1630) were referred to the Bicameral Conference Committee for joint consideration with a view to reconciling their conflicting provisions. The Conference Committee came out eventually with a Conference Committee Bill which was submitted to both chambers of Congress (the Senate and the House). The Conference Committee reported out a bill consolidating provisions in House Bill No. 11197 and Senate Bill No. 1630. What transpired in both chambers after the Conference Committee Report was submitted to them is not clear from the records in this case. What is clear however is that both chambers voted separately on the bill reported out by the Conference Committee and both chambers approved the bill of the Conference Committee.

To me then, what should really be important is that both chambers of Congress approved the bill reported out by the Conference Committee. In my considered view, the act of both chambers of Congress in approving the Conference Committee bill, should put an end to any inquiry by this Court as to how the bill came about. What is more, such separate approvals CURED whatever constitutional infirmities may have arisen in the procedures leading to such approvals. For, if such infirmities were serious enough to impugn the very validity of the measure itself, there would have been an objection or objections from members of both chambers to the approval. The Court has been shown no such objection on record in both chambers. Petitioners contend that there were violations of Sec. 26 paragraph 2, Article VI of the Constitution which provides: Sec. 26. . . . (2) No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal. in that, when Senate Bill No. 1630 (the Senate counterpart of House Bill No. 11197) was approved by the Senate, after it had been reported out by the Senate Committee on Ways and Means, the bill went through second and third readings on the same day (not separate days) and printed copies thereof in its final form were not distributed to the members of the Senate at least three (3) days before its passage by the Senate. But we are told by the respondents that the reason for this "short cut" was that the President had certified to the necessity of the bill's immediate enactment to meet an emergency a certification that, by leave of the same constitutional provision, dispensed with the second and third readings on separate days and the printed form at least three (3) days before its passage. We have here then a situation where the President did certify to the necessity of Senate Bill No. 1630's immediate enactment to meet an emergency and the Senate responded accordingly. While I would be the last to say that this Court cannot review the exercise of such power by the President in appropriate cases ripe for judicial review, I am not prepared however to say that the President gravely abused his discretion in the exercise of such power as to require that this Court overturn his action. We have been shown no fact or circumstance which would impugn the judgment of the President, concurred in by the Senate, that there was an emergency that required the immediate enactment of Senate Bill No. 1630. On the other hand, a becoming respect for a co-equal and coordinate department of government points that weight and credibility be given to such Presidential judgment. The authority or power of the Conference Committee to make insertions in and deletions from the bills referred to it, namely, House Bill No. 11197 and Senate Bill No. 1630 is likewise assailed by petitioners. Again, what appears important here is that both chambers approved and ratified the bill as reported out by the Conference Committee (with the reported insertions and deletions). This is perhaps attributable to the known legislative practice of allowing a Conference Committee to make insertions in and deletions from bills referred to it for consideration, as long as they are germane to the subject matter of the bills under consideration. Besides, when the Conference Committee made the insertions and deletions complained of by petitioners, was it not actually performing the task assigned to it of reconciling conflicting provisions in House Bill No. 11197 and Senate Bill No. 1630?

This Court impliedly if not expressly recognized the fact of such legislative practice in Philippine Judges Association, etc. vs. Hon. Peter Prado, etc., 5 In said case, we stated thus: The petitioners also invoke Sec. 74 of the Rules of the House of Representatives, requiring that amendment to any bill when the House and the Senate shall have differences thereon may be settled by a conference committee of both chambers. They stress that Sec. 35 was never a subject of any disagreement between both Houses and so the second paragraph could not have been validly added as an amendment. These arguments are unacceptable. While it is true that a conference committee is the mechanism for compromising differences between the Senate and the House, it is not limited in its jurisdiction to this question. Its broader function is described thus: A conference committee may deal generally with the subject matter or it may be limited to resolving the precise differences between the two houses. Even where the conference committee is not by rule limited in its jurisdiction, legislative custom severely limits the freedom with which new subject matter can be inserted into the conference bill. But occasionally a conference committee produces unexpected results, results beyond its mandate. These excursions occurs even where the rules impose strict limitations on conference committee jurisdiction. This is symptomatic of the authoritarian power of conference committee (Davies, Legislative Law and Process: In A Nutshell, 1986 Ed., p. 81). It is a matter of record that the Conference Committee Report on the bill in question was returned to and duly approved by both the Senate and the House of Representatives. Thereafter, the bill was enrolled with its certification by Senate President Neptali A. Gonzales and Speaker Ramon V. Mitra of the House of Representatives as having been duly passed by both Houses of Congress. It was then presented to and approved by President Corazon C. Aquino on April 3, 1992. It would seem that if corrective measures are in order to clip the powers of the Conference Committee, the remedy should come from either or both chambers of Congress, not from this Court, under the time-honored doctrine of separation of powers. Finally, as certified by the Secretary of the Senate and the Secretary General of the House of Representatives This Act (Rep. Act No. 7716) is a consolidation of House Bill No. 11197 and Senate Bill No. 1630 (w)as finally passed by the House of Representatives and the Senate on April 27, 1994 and May 2, 1994 respectively.

Under the long-accepted doctrine of the "enrolled bill," the Court in deference to a co-equal and coordinate branch of government is held to a recognition of Rep. Act No. 7716 as a law validly enacted by Congress and, thereafter, approved by the President on 5 May 1994. Again, we quote from out recent decision in Philippine Judges Association, supra: Under the doctrine of separation of powers, the Court may not inquire beyond the certification of the approval of a bill from the presiding officers of Congress. Casco Philippine Chemical Co. v. Gimenez laid down the rule that the enrolled bill is conclusive upon the Judiciary (except in matters that have to be entered in the journals like the yeas and nays on the finally reading of the bill). The journals are themselves also binding on the Supreme Court, as we held in the old (but still valid) case of U.S. vs. Pons, 8 where we explained the reason thus: To inquire into the veracity of the journals of the Philippine legislature when they are, as we have said, clear and explicit, would be to violate both the letter and spirit of the organic laws by which the Philippine Government was brought into existence, to invade a coordinate and independent department of the Government, and to interfere with the legitimate powers and functions of the Legislature. Applying these principles, we shall decline to look into the petitioners' charges that an amendment was made upon the last reading of the bill that eventually became R.A. No. 7354 and that copies thereof in its final form were not distributed among the members of each House. Both the enrolled bill and the legislative journals certify that the measure was duly enacted i.e., in accordance with Article VI, Sec. 26(2) of the Constitution. We are bound by such official assurances from a coordinate department of the government, to which we owe, at the very least, a becoming courtesy. III Press Freedom and Religious Freedom and Rep. Act No. 7716 The validity of the passage of Rep. Act No. 7716 notwithstanding, certain provisions of the law have to be examined separately and carefully. Rep. Act. No. 7716 in imposing a value-added tax on circulation income of newspapers and similar publications and on income derived from publishing advertisements in newspapers 9, to my mind, violates Sec. 4, Art. III of the Constitution. Indeed, even the Executive Department has tried to cure this defect by the issuance of the BIR Regulation No. 1194 precluding implementation of the tax in this area. It should be clear, however, that the BIR regulation cannot amend the law (Rep. Act No. 7716). Only legislation (as distinguished from administration regulation) can amend an existing law. Freedom of the press was virtually unknown in the Philippines before 1900. In fact, a prime cause of the revolution against Spain at the turn of the 19th century was the repression of the freedom of speech and expression and of the press. No less than our national hero, Dr. Jose P. Rizal, in "Filipinas Despues de Cien Anos" (The Philippines a Century Hence) describing the reforms sine quibus non which the Filipinos were insisting upon, stated: "The

minister . . . who wants his reforms to be reforms, must begin by declaring the press in the Philippines free . . . ". 10 Press freedom in the Philippines has met repressions, most notable of which was the closure of almost all forms of existing mass media upon the imposition of martial law on 21 September 1972. Section 4, Art. III of the Constitution maybe traced to the United States Federal Constitution. The guarantee of freedom of expression was planted in the Philippines by President McKinley in the Magna Carta of Philippine Liberty, Instructions to the Second Philippine Commission on 7 April 1900. The present constitutional provision which reads: Sec. 4 No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people peaceably to assemble and petition the government for redress of grievances. is essentially the same as that guaranteed in the U.S. Federal Constitution, for which reason, American case law giving judicial expression as to its meaning is highly persuasive in the Philippines. The plain words of the provision reveal the clear intention that no prior restraint can be imposed on the exercise of free speech and expression if they are to remain effective and meaningful. The U.S. Supreme Court in the leading case of Grosjean v. American Press Co. Inc. 11 declared a statute imposing a gross receipts license tax of 2% on circulation and advertising income of newspaper publishers as constituting a prior restraint which is contrary to the guarantee of freedom of the press. In Bantam Books, Inc. v. Sullivan 12, the U.S. Supreme Court stated: "Any system of prior restraint of expression comes to this Court bearing a heavy presumption against its constitutionality." In this jurisdiction, prior restraint on the exercise of free expression can be justified only on the ground that there is a clear and present danger of a substantive evil which the State has the right to prevent 13. In the present case, the tax imposed on circulation and advertising income of newspaper publishers is in the nature of a prior restraint on circulation and free expression and, absent a clear showing that the requisite for prior restraint is present, the constitutional flaw in the law is at once apparent and should not be allowed to proliferate. Similarly, the imposition of the VAT on the sale and distribution of religious articles must be struck down for being contrary to Sec. 5, Art. III of the Constitution which provides: Sec. 5. No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political rights.

That such a tax on the sale and distribution of religious articles is unconstitutional, has been long settled in American Bible Society, supra. Insofar, therefore, as Rep. Act No. 7716 imposes a value-added tax on the exercise of the above- discussed two (2) basic constitutional rights, Rep. Act No. 7716 should be declared unconstitutional and of no legal force and effect. IV Petitions of CREBA and PAL and Rep. Act No. 7716 The Chamber of Real Estate and Builder's Association, Inc. (CREBA) filed its own petition (GR No. 11574) arguing that the provisions of Rep. Act No. 7716 imposing a 10% valueadded tax on the gross selling price or gross value in money of every sale, barter or exchange of goods or properties (Section 2) and a 10% value-added tax on gross receipts derived from the sale or exchange of services, including the use or lease of properties (Section 3), violate the equal protection, due process and non-impairment provisions of the Constitution as well as the rule that taxation should be uniform, equitable and progressive. The issue of whether or not the value-added tax is uniform, equitable and progressive has been settled inKapatiran. CREBA which specifically assails the 10% value-added tax on the gross selling price of real properties, fails to distinguish between a sale of real properties primarily held for sale to customers or held for lease in the ordinary course of trade or business and isolated sales by individual real property owners (Sec. 103[s]). That those engaged in the business of real estate development realize great profits is of common knowledge and need not be discussed at length here. The qualification in the law that the 10% VAT covers only sales of real property primarily held for sale to customers, i.e. for trade or business thus takes into consideration a taxpayer's capacity to pay. There is no showing that the consequent distinction in real estate sales is arbitrary and in violation of the equal protection clause of the Constitution. The inherent power to tax of the State, which is vested in the legislature, includes the power to determine whom or what to tax, as well as how much to tax. In the absence of a clear showing that the tax violates the due process and equal protection clauses of the Constitution, this Court, in keeping with the doctrine of separation of powers, has to defer to the discretion and judgment of Congress on this point. Philippine Airlines (PAL) in a separate petition (G.R. No. 115852) claims that its franchise under PD No. 1590 which makes it liable for a franchise tax of only 2% of gross revenues "in lieu of all the other fees and charges of any kind, nature or description, imposed, levied, established, assessed or collected by any municipal, city, provincial, or national authority or government agency, now or in the future," cannot be amended by Rep. Act No. 7716 as to make it (PAL) liable for a 10% value-added tax on revenues, because Sec. 24 of PD No. 1590 provides that PAL's franchise can only be amended, modified or repealed by a special law specifically for that purpose. The validity of PAL's above argument can be tested by ascertaining the true intention of Congress in enacting Rep. Act No. 7716. Sec. 4 thereof dealing with Exempt Transactions states: Sec. 103. Exempt Transactions. The following shall be exempt from the value-added tax:

xxx xxx xxx (q) Transactions which are exempt under special laws, except those granted under Presidential Decrees No. 66, 529, 972, 1491, 1590, . . . " (Emphasis supplied) The repealing clause of Rep. Act No. 7716 further reads: Sec. 20. Repealing clauses. The provisions of any special law relative to the rate of franchise taxes are hereby expressly repealed. xxx xxx xxx All other laws, orders, issuances, rules and regulations or parts thereof inconsistent with this Act are hereby repealed, amended or modified accordingly (Emphasis supplied) There can be no dispute, in my mind, that the clear intent of Congress was to modify PAL's franchise with respect to the taxes it has to pay. To this extent, Rep. Act No. 7716 can be considered as a special law amending PAL's franchise and its tax liability thereunder. That Rep. Act. No. 7716 imposes the value-added taxes on other subjects does not make it a general law which cannot amend PD No. 1590. To sum up: it is my considered view that Rep. Act No. 7716 (the expanded value-added tax) is a valid law, viewed from both substantive and procedural standards, except only insofar as it violates Secs. 4 and 5, Art. III of the Constitution (the guarantees of freedom of expression and the free exercise of religion). To that extent, it is, in its present form, unconstitutional. I, therefore, vote to DISMISS the petitions, subject to the above qualification.

It has never occurred to me, and neither do I believe it has been intended, that judicial tyranny is envisioned, let alone institutionalized, by our people in the 1987 Constitution. The test of tyranny is not solely on how it is wielded but on how, in the first place, it can be capable of being exercised. It is time that any such perception of judicial omnipotence is corrected. Against all that has been said, I see, in actuality in these cases at bench, neither a constitutional infringement of substance, judging from precedents already laid down by this Court in previous cases, nor a justiciability even now of the issues raised, more than an attempt to sadly highlight the perceived shortcomings in the procedural enactment of laws, a matter which is internal to Congress and an area that is best left to its own basic concern. The fact of the matter is that the legislative enactment, in its final form, has received the ultimate approval of both houses of Congress. The finest rhetoric, indeed fashionable in the early part of this closing century, would still be a poor substitute for tangibility. I join, nonetheless, some of my colleagues in respectfully inviting the kind attention of the honorable members of our Congress in the suggested circumspect observance of their own rules. A final remark. I should like to make it clear that this opinion does not necessarily foreclose the right, peculiar to any taxpayer adversely affected, to pursue at the proper time, in appropriate proceedings, and in proper fora, the specific remedies prescribed therefor by the National Internal Revenue Code, Republic Act 1125, and other laws, as well as rules of procedure, such as may be pertinent. Some petitions filed with this Court are, in essence, although styled differently, in the nature of declaratory relief over which this Court is bereft of original jurisdiction. All considered, I, therefore, join my colleagues who are voting for the dismissal of the petitions.

CRUZ, J.: It is a curious and almost incredible fact that at the hearing of these cases on July 7, 1994, the lawyers who argued for the petitioners two of them former presidents of the Senate and the third also a member of that body all asked this Court to look into the internal operations of their Chamber and correct the irregularities they claimed had been committed there as well as in the House of Representatives and in the bicameral conference committee. While a member of the legislative would normally resist such intervention and invoke the doctrine of separation of powers to protect Congress from what he would call judicial intrusion, these counsel practically implored the Court to examine the questioned proceedings and to this end go beyond the journals of each House, scrutinize the minutes of the committee, and investigate all other matters relating to the passage of the bill (or bills) that eventually became R.A. No. 7716. In effect, the petitioners would have us disregard the time-honored inhibitions laid down by the Court upon itself in the landmark case of U.S. v. Pons (34 Phil. 725), where it refused to consider extraneous evidence to disprove the recitals in the journals of the Philippine Legislature that it had adjourned sine die at midnight of February 28, 1914. Although it was generally known then that the special session had actually exceeded the deadline fixed by the Governor-General in his proclamation, the Court chose to be guided solely by the legislative journals, holding significantly as follows:

VITUG, J.: Lest we be lost by a quagmire of trifles, the real threshold and prejudicial issue, to my mind, is whether or not this Court is ready to assume and to take upon itself with an overriding authority the awesome responsibility of overseeing the entire bureaucracy. Far from it, ours is merely to construe and to apply the law regardless of its wisdom and salutariness, and to strike it down only when it clearly disregards constitutional proscriptions. It is what the fundamental law mandates, and it is what the Court must do. I cannot yet concede to the novel theory, so challengingly provocative as it might be, that under the 1987 Constitution the Court may now at good liberty intrude, in the guise of the people's imprimatur, into every affair of the government. What significance can still then remain, I ask, of the time honored and widely acclaimed principle of separation of powers, if at every turn the Court allows itself to pass upon, at will, the disposition of a co-equal, independent and coordinate branch in our system of government. I dread to think of the so varied uncertainties that such an undue interference can lead to. The respect for long standing doctrines in our jurisprudence, nourished through time, is one of maturity not timidity, of stability rather than quiescence.

. . . From their very nature and object, the records of the legislature are as important as those of the judiciary, and to inquire into the veracity of the journals of the Philippine Legislature, when they are, as we have said, clear and explicit, would be to violate both the letter and the spirit of the organic laws by which the Philippine Government was brought into existence, to invade a coordinate and independent department of the Government, and to interfere with the legitimate powers and functions of the Legislature. But counsel in his argument says that the public knows that the Assembly's clock was stopped on February 28, 1914, at midnight and left so until the determination of the discussion of all pending matters. Or, in other words, the hands of the clock were stayed in order to enable the Assembly to effect an adjournment apparently within the fixed time by the Governor's proclamation for the expiration of the special session, in direct violation of the Act of Congress of July 1, 1902. If the clock was, in fact, stopped, as here suggested, "the resultant evil might be slight as compared with that of altering the probative force and character of legislative records, and making the proof of legislative action depend upon uncertain oral evidence, liable to loss by death or absence, and so imperfect on account of the treachery of memory. . . . The journals say that the Legislature adjourned at 12 midnight on February 28, 1914. This settles the question, and the court did not err in declining to go beyond the journals. As one who has always respected the rationale of the separation of powers, I realize only too well the serious implications of the relaxation of the doctrine except only for the weightiest of reasons. The lowering of the barriers now dividing the three major branches of the government could lead to individious incursions by one department into the exclusive domains of the other departments to the detriment of the proper discharge of the functions assigned to each of them by the Constitution. Still, while acknowledging the value of tradition and the reasons for judicial non-interference announced in Pons, I am not disinclined to take a second look at the ruling from a more pragmatic viewpoint and to tear down, if we must, the iron curtain it has hung, perhaps improvidently, around the proceedings of the legislature. I am persuaded even now that where a specific procedure is fixed by the Constitution itself, it should not suffice for Congress to simply say that the rules have been observed and flatly consider the matter closed. It does not have to be as final as that. I would imagine that the judiciary, and particularly this Court, should be able to verify that statement and determine for itself, through the exercise of its own powers, if the Constitution has, indeed, been obeyed. In fact, the Court had already said that the question of whether certain procedural rules have been followed is justiciable rather than political because what is involved is the legality and not the wisdom of the act in question. So we ruled in Sanidad v. Commission on Elections (73 SCRA 333) on the amendment of the Constitution; in Daza v. Singson (180 SCRA 496) on the composition of the Commission on Appointments; and in the earlier case ofTaada v. Cuenco (100 SCRA 1101) on the organization of the Senate Electoral Tribunal, among several other cases. By the same token, the ascertainment of whether a bill underwent the obligatory three readings in both Houses of Congress should not be considered an invasion of the territory of the legislature as this would not involve an inquiry into its discretion in approving the measure but only the manner in which the measure was enacted.

These views may upset the conservatives among us who are most comfortable when they allow themselves to be petrified by precedents instead of venturing into uncharted waters. To be sure, there is much to be said of the wisdom of the past expressed by vanished judges talking to the future. Via trita est tuttisima. Except when there is a need to revise them because of an altered situation or an emergent idea, precedents should tell us that, indeed, the trodden path is the safest path. It could be that the altered situation has arrived to welcome the emergent idea. The jurisdiction of this Court has been expanded by the Constitution, to possibly include the review the petitioners would have us make of the congressional proceedings being questioned. Perhaps it is also time to declare that the activities of Congress can no longer be smoke-screened in the inviolate recitals of its journals to prevent examination of its sacrosanct records in the name of the separation of powers. But then again, perhaps all this is not yet necessary at this time and all these observations are but wishful musings for a more activist judiciary. For I find that this is not even necessary, at least for me, to leave the trodden path in the search for new adventures in the byways of the law. The answer we seek, as I see it, is not far afield. It seems to me that it can be found through a study of the enrolled bill alone and that we do not have to go beyond that measure to ascertain if R.A. No. 7716 has been validly enacted. It is settled in this jurisdiction that in case of conflict between the enrolled bill and the legislative journals, it is the former that should prevail except only as to matters that the Constitution requires to be entered in the journals. (Mabanag v. Lopez Vito, 78 Phil. 1). These are the yeas and nays on the final reading of a bill or on any question at the request of at least one-fifth of the member of the House (Constitution, Art. VI, Sec. 16[4]), the objections of the President to a vetoed bill or item (Ibid, Sec. 27 [1]), and the names of the members voting for or against the overriding of his veto (Id. Section 27 [1]), The original of a bill is not specifically required by the Constitution to be entered in the journals. Hence, on this particular manner, it is the recitals in the enrolled bill and not in the journals that must control. Article VI, Section 24, of the Constitution provides: Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. The enrolled bill submitted to and later approved by the President of the Philippines as R.A. No. 7716 was signed by the President of the Senate and the Speaker of the House of Representatives. It carried the following certification over the signatures of the Secretary of the Senate and the Acting Secretary of the House of Representatives: This Act which is a consolidation of House Bill No. 11197 and Senate Bill No. 11630 was finally passed by the House of Representative and the Senate on April 27, 1994, and May 2, 1994. Let us turn to Webster for the meaning of certain words, To "originate" is "to bring into being; to create something (original); to invent; to begin; start." The word "exclusively" means "excluding all others" and is derived from the word "exclusive," meaning "not shared or divided; sole; single." Applying these meanings, I would read Section 24 as saying that the bills mentioned therein must be brought into being, or

created, or invented, or begun or started, only or singly or by no other body than the house of Representatives. According to the certification, R.A. No. 7716 "is a consolidation of House Bill No. 11197 and Senate Bill No. 1630." Again giving the words used their natural and ordinary sense conformably to an accepted canon of construction, I would read the word "consolidation" as a "combination or merger" and derived from the word "consolidated," meaning "to combine into one; merge; unite." The two bills were separately introduced in their respective Chambers. Both retained their independent existence until they reached the bicameral conference committee where they were consolidated. It was this consolidated measure that was finally passed by Congress and submitted to the President of the Philippines for his approval. House Bill No. 11197 originated in the House of Representatives but this was not the bill that eventually became R.A. No. 7716. The measure that was signed into law by President Ramos was the consolidation of that bill and another bill, viz., Senate Bill No. 1630, which was introduced in the Senate. The resultant enrolled bill thus did not originate exclusively in the House of Representatives. The enrolled bill itself says that part of it (and it does not matter to what extent) originated in the Senate. It would have been different if the only participation of the Senate was in the amendment of the measure that was originally proposed in the House of Representatives. But this was not the case. The participation of the Senate was not in proposing or concurring with amendments that would have been incorporated in House Bill No. 11197. Its participation was in originating its own Senate Bill No. 1630, which was not embodied in but merged with House Bill No. 11197. Senate Bill No. 1630 was not even an amendment by substitution, assuming this was permissible. To "substitute" means "to take the place of; to put or use in place of another." Senate Bill No. 1630 did not, upon its approval replace (and thus eliminate) House Bill No. 11197. Both bills retained their separate identities until they were joined or united into what became the enrolled bill and ultimately R.A. No. 7716. The certification in the enrolled bill says it all. It is clear that R.A. No. 7716 did not originate exclusively in the House of Representatives. To go back to my earlier observations, this conclusion does not require the reversal of U.S. vs. Pons and an inquiry by this Court into the proceedings of the legislature beyond the recitals of its journals. All we need to do is consider the certification in the enrolled bill and, without entering the precincts of Congress, declare that by this own admission it has, indeed, not complied with the Constitution. While this Court respects the prerogatives of the other departments, it will not hesitate to rise to its higher duty to require from them, if they go astray, full and strict compliance with the fundamental law. Our fidelity to it must be total. There is no loftier principle in our democracy than the supremacy of the Constitution, to which all must submit. I vote to invalidate R.A. No. 7716 for violation of Article VI, Sec. 24, of the Constitution.

It would seem like an inconceivable irony that Republic Act No. 7716 which, so respondents claim, was conceived by the collective wisdom of a bicameral Congress and crafted with sedulous care by two branches of government should now be embroiled in challenges to its validity for having been enacted in disregard of mandatory prescriptions of the Constitution itself. Indeed, such impugnment by petitioners goes beyond merely the procedural flaws in the parturition of the law. Creating and regulating as it does definite rights to property, but with its own passage having been violative of explicit provisions of the organic law, even without going into the intrinsic merits of the provisions of Republic Act No. 7716 its substantive invalidity is pro facto necessarily entailed. How it was legislated into its present statutory existence is not in serious dispute and need not detain us except for a recital of some salient and relevant facts. The House of Representatives passed House Bill No. 11197 1 on third reading on November 17, 1993 and, the following day, It transmitted the same to the Senate for concurrence. On its part, the Senate approved Senate Bill No. 1630 on second and third readings on March 24, 1994. It is important to note in this regard that on March 22, 1994, said S.B. No. 1630 had been certified by President Fidel V. Ramos for immediate enactment to meet a public emergency, that is, a growing budgetary deficit. There was no such certification for H.B. No. 11197 although it was the initiating revenue bill. It is, therefore, not only a curious fact but, more importantly, an invalid procedure since that Presidential certification was erroneously made for and confined to S.B. No. 1630 which was indisputably a tax bill and, under the Constitution, could not validly originate in the Senate. Whatever is claimed in favor of S.B. No. 1630 under the blessings of that certification, such as its alleged exemption from the three separate readings requirement, is accordingly negated and rendered inutile by the inefficacious nature of said certification as it could lawfully have been issued only for a revenue measure originating exclusively from the lower House. To hold otherwise would be to validate a Presidential certification of a bill initiated in the Senate despite the Constitutional prohibition against its originating therefrom. Equally of serious significance is the fact that S.B. No. 1630 was reported out in Committee Report No. 349 submitted to the Senate on February 7, 1994 and approved by that body "in substitution of S.B. No. 1129," while merely "taking into consideration P.S. No. 734 and H.B. No. 11197." 2 S.B. No. 1630, therefore, was never filed in substitution of either P.S. No. 734 or, more emphatically, of H.B. No. 11197 as these two legislative issuances were merely taken account of, at the most, as referential bases or materials. This is not a play on misdirection for, in the first instance, the respondents assure us that H.B. No. 11197 was actually the sole source of and started the whole legislative process which culminated in Republic Act No. 7716. The participation of the Senate in enacting S.B. No. 1630 was, it is claimed, justified as it was merely in pursuance of its power to concur in or propose amendments to H.B. No. 11197. Citing the 83-year old case of Flint vs. Stone Tracy Co., 3 it is blithely announced that such power to amend includes an amendment by substitution, that is, even the extent of substituting the entire H.B. No. 11197 by an altogether completely new measure of Senate provenance. Ergo, so the justification goes, the Senate acted perfectly in accordance with its amending power under Section 24, Article VI of the Constitution since it merely proposed amendments through a bill allegedly prepared in advance. This is a mode of argumentation which, by reason of factual inaccuracy and logical implausibility, both astounds and confounds. For, it is of official record that S.B. No. 1630 was filed, certified and enacted in substitution of S.B. No. 1129 which in itself was likewise in derogation of the Constitutional prohibition against such initiation of a tax bill in the Senate. In any event, S.B. No. 1630 was neither intended as a bill to be adopted by the Senate nor to be referred to the bicameral conference committee as a substitute for H.B. No. 11197. These indelible facts appearing in official documents cannot be erased by any

REGALADO, J.:

amount of strained convolutions or incredible pretensions that S.B. No. 1630 was supposedly enacted in anticipation of H.B. No. 11197. On that score alone, the invocation by the Solicitor General of the hoary concept of amendment by substitution falls flat on its face. Worse, his concomitant citation of Flint to recover from that prone position only succeeded in turning the same postulation over, this time supinely flat on its back. As elsewhere noted by some colleagues, which I will just refer to briefly to avoid duplication, respondents initially sought sanctuary in that doctrine supposedly laid down in Flint, thus: "It has, in fact, been held that the substitution of an entirely new measure for the one originally proposed can be supported as a valid amendment." 4 (Emphasis supplied.) During the interpellation by the writer at the oral argument held in these cases, the attention of the Solicitor General was called to the fact that the amendment in Flint consisted only of a single item, that its, the substitution of a corporate tax for an inheritance tax proposed in a general revenue bill; and that the text of the decision therein nowhere contained the supposed doctrines he quoted and ascribed to the court, as those were merely summations of arguments of counsel therein. It is indeed a source of disappointment for us, but an admission of desperation on his part, that, instead of making a clarification or a defense of his contention, the Solicitor General merely reproduced all over again 5 the same quotations as they appeared in his original consolidated comment, without venturing any explanation or justification. The aforestated dissemblance, thus unmasked, has further undesirable implications on the contentions advanced by respondents in their defense. For, even indulging respondents ex gratia argumenti in their pretension that S.B. No. 1630 substituted or replaced H.B. No. 11197, aside from muddling the issue of the true origination of the disputed law, this would further enmesh respondents in a hopeless contradiction. In a publication authorized by the Senate and from which the Solicitor General has liberally quoted, it is reported as an accepted rule therein that "(a)n amendment by substitution when approved takes the place of the principal bill. C.R. March 19, 1963, p. 943." 6 Stated elsewise, the principal bill is supplanted and goes out of actuality. Applied to the present situation, and following respondents' submission that H.B. No. 11197 had been substituted or replaced in its entirety, then in law it had no further existence for purposes of the subsequent stages of legislation except, possibly, for referential data. Now, the enrolled bill thereafter submitted to the President of the Philippines, signed by the President of the Senate and the Speaker of the House of Representatives, carried this solemn certification over the signatures of the respective secretaries of both chambers: "This Act which is a consolidation of House Bill No. 11197 and Senate Bill No. 1630 was finally passed by the House of Representatives and the Senate on April 27, 1994, and May 2, 1994." (Emphasis mine.) In reliance thereon, the Chief Executive signed the same into law as Republic Act No. 7716. The confusion to which the writer has already confessed is now compounded by that official text of the aforequoted certification which speaks, and this cannot be a mere lapsus calami, of two independent and existingbills (one of them being H.B. No. 11197) which were consolidated to produce the enrolled bill. In parliamentary usage, to consolidate two bills, is to unite them into one 7 and which, in the case at bar, necessarily assumes that H.B. No. 11197 never became legally inexistent. But did not the Solicitor General, under the theory of amendment by substitution of the entire H.B. No. 11197 by S.B. No. 1630, thereby premise the same upon the replacement, hence the total elimination from the legislative process, of H.B. 11197? It results, therefore, that to prove compliance with the requirement for the exclusive origination of H.B. No. 11197, two alternative but inconsistent theories had to be espoused and defended by respondents' counsel. To justify the introduction and passage

of S.B. No. 1630 in the Senate, it was supposedly enacted only as an amendment by substitution, hence on that theory H.B. No. 11197 had to be considered as displaced and terminated from its role or existence. Yet, likewise for the same purpose but this time on the theory of origination by consolidation, H.B. No. 11197 had to be resuscitated so it could be united or merged with S.B. No. 1630. This latter alternative theory, unfortunately, also exacerbates the constitutional defect for then it is an admission of a dual origination of the two tax bills, each respectively initiated in and coming from the lower and upper chambers of Congress. Parenthetically, it was also this writer who pointedly brought this baffling situation to the attention of the Solicitor General during the aforesaid oral argument, to the extent of reading aloud the certification in full. We had hoped thereby to be clarified on these vital issue in respondents' projected memorandum, but we have not been favored with an explanation unraveling this delimma. Verily, by passing sub silentio on these intriguing submissions, respondents have wreaked havoc on both logic and law just to gloss over their non-compliance with the Constitutional mandate for exclusive origination of a revenue bill. The procedure required therefor, we emphatically add, can be satisfied only by complete and strict compliance since this is laid down by the Constitution itself and not by a mere statute. This writer consequently agrees with the clearly tenable proposition of petitioners that when the Senate passed and approved S.B. No. 1630, had it certified by the Chief Executive, and thereafter caused its consideration by the bicameral conference committee in total substitution of H.B. No. 11197, it clearly and deliberately violated the requirements of the Constitution not only in the origination of the bill but in the very enactment of Republic Act No. 7716. Contrarily, the shifting sands of inconsistency in the arguments adduced for respondents betray such lack of intellectual rectitude as to give the impression of being mere rhetorics in defense of the indefensible. We are told, however, that by our discoursing on the foregoing issues we are introducing into non-justiciable areas long declared verboten by such time-honored doctrines as those on political questions, the enrolled bill theory and the respect due to two co-equal and coordinate branches of Government, all derived from the separation of powers inherent in republicanism. We appreciate the lectures, but we are not exactly unaware of the teachings inU.S. vs. Pons, 8 Mabanag, vs. Lopez Vito, 9 Casco Philippine Chemical Co., Inc. vs. Gimenez, etc., et al., 10 Morals vs. Subido, etc., 11 and Philippine Judges Association, etc., et al. vs. Prado, etc., et al., 12 on the one hand, andTaada, et al. vs. Cuenco, et al., 13 Sanidad, et al., vs. Commission on Elections, et al., 14 and Daza vs. Singson, et al., 15 on the other, to know which would be applicable to the present controversy and which should be rejected. But, first, a positional exordium. The writer of this opinion would be among the first to acknowledge and enjoin not only courtesy to, but respect for, the official acts of the Executive and Legislative departments, but only so long as the same are in accordance with or are defensible under the fundamental charter and the statutory law. He would readily be numbered in the ranks of those who would preach a reasoned sermon on the separation of powers, but with the qualification that the same are not contained in tripartite compartments separated by empermeable membranes. He also ascribes to the general validity of American constitutional doctrines as a matter of historical and legal necessity, but not to the extent of being oblivious to political changes or unmindful of the fallacy of undue generalization arising from myopic disregard of the factual setting of each particular case. These ruminations have likewise been articulated and dissected by my colleagues, hence it is felt that the only issue which must be set aright in this dissenting opinion is the so-called enrolled bill doctrine to which we are urged to cling with reptilian tenacity. It will be preliminarily noted that the official certification appearing right on the face of Republic Act No. 7716 would even render unnecessary any further judicial inquiry into the proceedings

which transpired in the two legislative chambers and, on a parody of tricameralism, in the bicameral conference committee. Moreover, we have the excellent dissertations of some of my colleagues on these matters, but respondents insist en contra that the congressional proceedings cannot properly be inquired into by this Court. Such objection confirms a suppressive pattern aimed at sacrificing the rule of law to the fiat of expediency. Respondents thus emplaced on their battlements the pronouncement of this Court in the aforecited case ofPhilippine Judges Association vs. Prado. 16 Their reliance thereon falls into the same error committed by their seeking refuge in the Flint case, ante. which, as has earlier been demonstrated (aside from the quotational misrepresentation), could not be on par with the factual situation in the present case. Flint, to repeat, involved a mere amendment on a single legislative item, that is, substituting the proposal therein of an inheritance tax by one on corporate tax. Now, in their submission based on Philippine Judges Association, respondents studiously avoid mention of the fact that the questioned insertion referred likewise to a single item, that is, the repeal of the franking privilege thretofore granted to the judiciary. That both cases cannot be equated with those at bar, considering the multitude of items challenged and the plethora of constitutional violations involved, is too obvious to belabor. Legal advocacy and judicial adjudication must have a becoming sense of qualitative proportion, instead of lapsing into the discredited and maligned practice of yielding blind adherence to precedents. The writer unqualifiedly affirms his respect for valid official acts of the two branches of government and eschews any unnecessary intrusion into their operational management and internal affairs. These, without doubt, are matters traditionally protected by the republican principle of separation of powers. Where, however, there is an overriding necessity for judicial intervention in light of the pervasive magnitude of the problems presented and the gravity of the constitutional violations alleged, but this Court cannot perform its constitutional duty expressed in Section 1, Article VIII of the Constitution unless it makes the inescapable inquiry, then the confluence of such factors should compel an exception to the rule as an ultimate recourse. The cases now before us present both the inevitable challenge and the inescapable exigency for judicial review. For the Court to now shirk its bounden duty would not only project it as a citadel of the timorous and the slothful, but could even undermine its raison d'etre as the highest and ultimate tribunal. Hence, this dissenting opinion has touched on events behind and which transpired prior to the presentation of the enrolled bill for approval into law. The details of that law which resulted from the legislative action followed by both houses of Congress, the substantive validity of whose provisions and the procedural validity of which legislative process are here challenged as unconstitutional, have been graphically presented by petitioners and admirably explained in the respective opinions of my brethren. The writer concurs in the conclusions drawn therefrom and rejects the contention that we have unjustifiably breached the dike of the enrolled bill doctrine. Even in the land of its source, the so-called conclusive presumption of validity originally attributed to that doctrine has long been revisited and qualified, if not altogether rejected. On the competency of judicial inquiry, it has been held that "(u)nder the 'enrolled bill rule' by which an enrolled bill is sole expository of its contents and conclusive evidence of its existence and valid enactment, it is nevertheless competent for courts to inquire as to what prerequisites are fixed by the Constitution of which journals of respective houses of Legislature are required to furnish the evidence." 17 In fact, in Gwynn vs. Hardee, etc., et al.,
18

the legislative journals that a bill though engrossed and enrolled, and signed by the legislative officers, contains provisions that have not passed both houses, such provisions will be held spurious and not a part of the law. As was said by Mr. Justice Cockrell in the case of Wade vs. Atlantic Lumber Co., 51 Fla. 628, text 633, 41 So. 72, 73: This Court is firmly committed to the holding that when the journals speak they control, and against such proof the enrolled bill is not conclusive. More enlightening and apropos to the present controversy is the decision promulgated on May 13, 1980 by the Supreme Court of Kentucky in D & W Auto Supply, et al. vs. Department of Revenue, et al., 19 pertinent exceprts wherefrom are extensively reproduced hereunder: . . . In arriving at our decision we must, perforce, reconsider the validity of a long line of decisions of this court which created and nurtured the socalled "enrolled bill" doctrine. xxx xxx xxx [1] Section 46 of the Kentucky Constitution sets out certain procedures that the legislature must follow before a bill can be considered for final passage. . . . . xxx xxx xxx . . . Under the enrolled bill doctrine as it now exists in Kentucky, a court may not look behind such a bill, enrolled and certified by the appropriate officers, to determine if there are any defects. xxx xxx xxx . . . In Lafferty, passage of the law in question violated this provision, yet the bill was properly enrolled and approved by the governor. In declining to look behind the law to determine the propriety of its enactment, the court enunciated three reasons for adopting the enrolled bill rule. First, the court was reluctant to scrutinize the processes of the legislature, an equal branch of government. Second, reasons of convenience prevailed, which discouraged requiring the legislature to preserve its records and anticipated considerable complex litigation if the court ruled otherwise. Third, the court acknowledged the poor record-keeping abilities of the General Assembly and expressed a preference for accepting the final bill as enrolled, rather than opening up the records of the legislature. . . . . xxx xxx xxx Nowhere has the rule been adopted without reason, or as a result of judicial whim. There are four historical bases for the doctrine. (1) An enrolled bill was a "record" and, as such, was not subject to attack at common law. (2) Since the legislature is one of the three branches of government, the courts, being coequal, must indulge in every presumption that legislative acts are valid. (3) When the rule was

the Supreme Court of Florida declared:

(1) While the presumption is that the enrolled bill, as signed by the legislative officers and filed with the secretary of state, is the bill as it passed, yet this presumption is not conclusive, and when it is shown from

originally formulated, record-keeping of the legislatures was so inadequate that a balancing of equities required that the final act, the enrolled bill, be given efficacy. (4) There were theories of convenience as expressed by the Kentucky court in Lafferty. The rule is not unanimous in the several states, however, and it has not been without its critics. From an examination of cases and treaties, we can summarize the criticisms as follows: (1) Artificial presumptions, especially conclusive ones, are not favored. (2) Such a rule frequently (as in the present case) produces results which do not accord with facts or constitutional provisions. (3) The rule is conducive to fraud, forgery, corruption and other wrongdoings. (4) Modern automatic and electronic record-keeping devices now used by legislatures remove one of the original reasons for the rule. (5) The rule disregards the primary obligation of the courts to seek the truth and to provide a remedy for a wrong committed by any branch of government. In light of these considerations, we are convinced that the time has come to re-examine the enrolled bill doctrine. [2] This court is not unmindful of the admonition of the doctrine of stare decisis. The maxim is "Stare decisis et non quieta movere," which simply suggests that we stand by precedents and not disturb settled points of law. Yet, this rule is not inflexible, nor is it of such a nature as to require perpetuation of error or logic. As we stated in Daniel's Adm'r v. Hoofnel, 287 Ky 834, 155 S.W. 2d 469, 471-72 (1941) (citations omitted): The force of the rule depends upon the nature of the question to be decided and the extent of the disturbance of rights and practices which a change in the interpretation of the law or the course of judicial opinions may create. Cogent considerations are whether there is clear error and urgent reasons "for neither justice nor wisdom requires a court to go from one doubtful rule to another," and whether or not the evils of the principle that has been followed will be more injurious than can possibly result from a change. Certainly, when a theory supporting a rule of law is not grounded on facts, or upon sound logic, or is unjust, or has been discredited by actual experience, it should be discarded, and with it the rule it supports. [3] It is clear to us that the major premise of the Lafferty decision, the poor record-keeping of the legislature, has disappeared. Modern equipment and technology are the rule in record-keeping by our General Assembly. Tape recorders, electric typewriters, duplicating machines, recording equipment, printing presses, computers, electronic voting machines, and the like remove all doubts and fears as to the ability of the General Assembly to keep accurate and readily accessible records. It is also apparent that the "convenience" rule is not appropriate in today's modern and developing judicial philosophy. The fact that the number and complexity of lawsuits may increase is not persuasive if one is mindful that the overriding purpose of our judicial system is to discover the truth and see that justice is done. The existence of difficulties and complexities should not deter this pursuit and we reject any doctrine or presumption that so provides.

Lastly, we address the premises that the equality of the various branches of government requires that we shut our eyes to constitutional failings and other errors of our coparceners in government. We simply do not agree. Section 26 of the Kentucky Constitution provides that any law contrary to the constitution is "void." The proper exercise of judicial authority requires us to recognize any law which is unconstitutional and to declare it void. Without belaboring the point, we believe that under section 228 of the Kentucky Constitution it is our obligation to "support . . . the Constitution of the commonwealth." We are sworn to see that violations of the constitution by any person, corporation, state agency or branch of government are brought to light and corrected. To countenance an artificial rule of law that silences our voices when confronted with violations of our constitution is not acceptable to this court. We believe that a more reasonable rule is the one which Professor Sutherland describes as the "extrinsic evidence" rule . . . Under this approach there is a prima facie presumption that an enrolled bill is valid, but such presumption may be overcome by clear, satisfactory and convincing evidence establishing that constitutional requirements have not been met. We therefore overrule Lafferty v. Huffman and all other cases following the so-called enrolled bill doctrine, to the extent that there is no longer a conclusive presumption that an enrolled bill is valid. . . . (Emphasis mine.) Undeniably, the value-added tax system may have its own merits to commend its continued adoption, and the proposed widening of its base could achieve laudable governmental objectives if properly formulated and conscientiously implemented. We would like to believe, however, that ours is not only an enlightened democracy nurtured by a policy of transparency but one where the edicts of the fundamental law are sacrosanct for all, barring none. While the realization of the lofty ends of this administration should indeed be the devout wish of all, likewise barring none, it can never be justified by methods which, even if unintended, are suggestive of Machiavellism. Accordingly, I vote to grant the instant petitions and to invalidate Republic Act No. 7716 for having been enacted in violation of Section 24, Article VI of the Constitution.

DAVIDE, JR., J.: The legislative history of R.A. No. 7716, as highlighted in the Consolidated Memorandum for the public respondents submitted by the Office of the Solicitor General, demonstrates beyond doubt that it was passed in violation or deliberate disregard of mandatory provisions of the Constitution and of the rules of both chambers of Congress relating to the enactment of bills. I therefore vote to strike down R.A. No. 7716 as unconstitutional and as having been enacted with grave abuse of discretion. The Constitution provides for a bicameral Congress. Therefore, no bill can be enacted into law unless it is approved by both chambers the Senate and the House of Representatives

(hereinafter House). Otherwise stated, each chamber may propose and approve a bill, but until it is submitted to the other chamber and passed by the latter, it cannot be submitted to the President for its approval into law. Paragraph 2, Section 26, Article VI of the Constitution provides: No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the journal. The "three readings" refers to the three readings in both chambers. There are, however, bills which must originate exclusively in the House. Section 24, Article VI of the Constitution enumerates them: Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. Webster's Third New International Dictionary
1

Under the Rules of the Senate, the first reading is the reading of the title of the bill and its referral to the corresponding committee; the second reading consists of the reading of the bill in the form recommended by the corresponding committee; and the third reading is the reading of the bill in the form it will be after approval on second reading. 4 During the second reading, the following takes place: (1) Second reading of the bill; (2) Sponsorship by the Committee Chairman or any member designated by the corresponding committee; (3) If a debate ensues, turns for and against the bill shall be taken alternately; (4) The sponsor of the bill closes the debate; (5) After the close of the debate, the period of amendments follows; (6) Then, after the period of amendments is closed, the voting on the bill on second reading. 5 After approval on second readings, printed copies thereof in its final form shall be distributed to the Members of the Senate at least three days prior to the third reading, except in cases of certified bills. At the third reading, the final vote shall be taken and the yeas and nays shall be entered in the Journal. 6 Under the Rules of the House, the first reading of a bill consists of a reading of the number, title, and author followed by the referral to the appropriate committees; 7 the second reading consists of the reading in full of the bill with the amendments proposed by the committee, it any; 8 and the third reading is the reading of the bill in the form as approved on second reading and takes place only after printed copies thereof in its final form have been distributed to the Members at least three days before, unless the bill is certified. 9 At the second reading, the following takes place: (1) Reading of the bill; (2) Sponsorship; (3) Debates; (4) Period of Amendments; and (5) Voting on Second Reading.
10

defines originate as follows:

vt 1: to cause the beginning of: give rise to: INITIATE . . . 2. to start (a person or thing) on a course or journey . . . vi: to take or have origin: be derived: ARISE, BEGIN, START . . . Black's Law Dictionary
2

defines the word exclusively in this wise:

Apart from all others; only; solely; substantially all or for the greater part. To the exclusion of all others; without admission of others to participation; in a manner to exclude. In City Mayor vs. The Chief of Philippine Constabulary, 3 this Court said: The term "exclusive" in its usual and generally accepted sense, means possessed to the exclusion of others; appertaining to the subject alone, not including, admitting or pertaining to another or others, undivided, sole. (15 Words and Phrases, p. 510, citing Mitchel v. Tulsa Water, Light, Heat and Power Co., 95 P. 961, 21 Okl. 243; and p. 513, citing Commonwealth v. Superintendent of House of Correction, 64 Pa. Super. 613, 615). Indisputably then, only the House can cause the beginning or initiate the passage of any appropriation, revenue, or tarriff bill, any bill increasing the public debt, any bill of local application, or any private bill. The Senate can only "propose or concur with amendments."

At the third reading, the votes shall be taken immediately and the yeas and nays entered in the Journal. 11 Clearly, whether in the Senate or in the House, every bill must pass the three readings on separate days, except when the bill is certified. Amendments to the bill on third reading are constitutionally prohibited. 12

After its passage by one chamber, the bill should then be transmitted to the other chamber for its concurrence. Section 83, Rule XIV of the Rules of the House expressly provides: Sec. 83. Transmittal to Senate. The Secretary General, without need of express order, shall transmit to the Senate for its concurrence all the bills and joint or concurrent resolutions approved by the House or the amendments of the House to the bills or resolutions of the Senate, as the case may be. If the measures approved without amendments are bills or resolutions of the Senate, or if amendments of the Senate to bills of the House are accepted, he shall forthwith notify the Senate of the action taken. Simplified, this rule means that: 1. As to a bill originating in the House: (a) Upon its approval by the House, the bill shall be transmitted to the Senate; (b) The Senate may approve it with or without amendments; (c) The Senate returns the bill to the House; (d) The House may accept the Senate amendments; if it does not, the Secretary General shall notify the Senate of that action. As hereinafter be shown, a request for conference shall then be in order. 2. As to bills originating in the Senate; (a) Upon its approval by the Senate, the bill shall be transmitted to the House; (b) The House may approve it with or without amendments; (c) The House then returns it to the Senate, informing it of the action taken; (d) The Senate may accept the House amendements; if it does not, it shall notify the House and make a request for conference. The transmitted bill shall then pass three readings in the other chamber on separate days. Section 84, Rule XIV of the Rules of the House states: Sec. 84. Bills from the Senate. The bills, resolutions and communications of the Senate shall be referred to the corresponding committee in the same manner as bills presented by Members of the House.

and Section 51, Rule XXIII of the Rules of the Senate provides: Sec. 51. Prior to their final approval, bills and joint resolutions shall be read at least three times. It is only when the period of disagreement is reached, i.e., amended proposed by one chamber to a bill originating from the other are not accepted by the latter, that a request for conference is made or is in order. The request for conference is specifically covered by Section 26, Rule XII of the Rules of the Senate which reads: Sec. 26. In the event that the Senate does not agree with the House of Representatives on the provision of any bill or joint resolution, the differences shall be settled by a conference committee of both Houses which shall meet within ten days after its composition. and Section 85, Rule XIV of the Rules of the House which reads: Sec. 85. Conference Committee Reports. In the event that the House does not agree with the Senate on the amendments to any bill or joint resolution, the differences may be settled by conference committees of both Chambers. The foregoing provisions of the Constitution and the Rules of both chambers of Congress are mandatory. In his Treatise On the Constitutional Limitations, Cooley states:
13

more particularly on enactment of bill,

Where, for an instance, the legislative power is to be exercised by two houses, and by settled and well-understood parliamentary law these two houses are to hold separate sessions for their deliberations, and the determination of the one upon a proposes law is to be submitted to the separate determination of the other, the constitution, in providing for two houses, has evidently spoken in reference to this settled custom, incorporating it as a rule of constitutional interpretation; so that it would require no prohibitory clause to forbid the two houses from combining in one, and jointly enacting laws by the vote of a majority of all. All those rules which are of the essentials of law-making must be observed and followed; and it is only the customary rules of order and routine, such as in every deliberative body are always understood to be under its control, and subject to constant change at its will, that the constitution can be understood to have left as matters of discretion, to be established, modified, or abolished by the bodies for whose government in nonessential matters they exist. In respect of appropriation, revenue, or tariff bills, bills increasing the public debt, bills of local application, or private bills, the return thereof to the House after the Senate shall have "proposed or concurred with amendments" for the former either to accept or reject the amendments would not only be in conformity with the foregoing rules but is also implicit from Section 24 of Article VI. With the foregoing as our guiding light, I shall now show the violations of the Constitution and of the Rules of the Senate and of the House in the passage of R.A. No. 7716.

VIOLATIONS OF SECTION 24, ARTICLE VI OF THE CONSTITUTION: First violation. Since R.A. No. 7716 is a revenue measure, it must originate exclusively in the House not in the Senate. As correctly asserted by petitioner Tolentino, on the face of the enrolled copy of R.A. No. 7716, it is a "CONSOLIDATION OF HOUSE BILL NO. 11197 AND SENATE BILL NO. 1630." In short, it is an illicit marriage of a bill which originated in the House and a bill which originated in the Senate. Therefore, R.A. No. 7716 did not originate exclusively in the House. The only bill which could serve as a valid basis for R.A. No. 7716 is House Bill (HB) No. 11197. This bill, which is the substitute bill recommended by the House Committee on Ways and Means in substitution of House Bills Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9397, 10012, and 10100, and covered by its Committee Report No. 367,14 was approved on third reading by the House on 17 November 1993. 15 Interestingly, HB No. 9210, 16 which was filed by Representative Exequiel B. Javier on 19 May 1993, was certified by the President in his letter to Speaker Jose de Venecia, Jr. of 1 June 1993. 17 Yet, HB No. 11197, which substituted HB No. 9210 and the others above-stated, was not. Its certification seemed to have been entirely forgotten. On 18 November 1993, the Secretary-General of the House, pursuant to Section 83, Rule XIV of the Rules of the House, transmitted to the President of the Senate HB No. 11197 and requested the concurrence of the Senate therewith. 18 However, HB No. 11197 had passed only its first reading in that Senate by its referral to its Committee on Ways and Means. That Committee never deliberated on HB No. 11197 as it should have. It acted only on Senate Bill (SB) No. 1129 19 introduced by Senator Ernesto F. Herrera on 1 March 1993. It then prepared and proposed SB No. 1630, and in its Committee Report No. 349 20 which was submitted to the Senate on 7 February 1994, 21 it recommended that SB No. 1630 be approved "in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197." 22 It must be carefully noted that SB No. 1630 was proposed and submitted for approval by the Senate in SUBSTITUTION of SB No. 1129, and not HB No. 11197. Obviously, the principal measure which the Committee deliberated on and acted upon was SB No. 1129 and not HB No. 11197. The latter, instead of being the only measure to be taken up, deliberated upon, and reported back to the Senate for its consideration on second reading and, eventually, on third reading, was, at the most, merely given by the Committee a passing glance. This specific unequivocal action of the Senate Committee on Ways and Means, i.e., proposing and recommending approval of SB No. 1630 as a substitute for or in substitution of SB No. 1129 demolishes at once the thesis of the Solicitor General that: Assuming that SB 1630 is distinct from HB 11197, amendment by substitution is within the purview of Section 24, Article VI of the Constitution. because, according to him, (a) "Section 68, Rule XXIX of the Rules of the Senate authorizes an amendment by substitution and the only condition required is that "the text thereof is submitted in writing"; and (b) "[I]n Flint vs. Stone Tracy Co. (220 U.S. 107) the United Stated Supreme Court, interpreting the provision in the United States Constitution similar to Section 24, Article VI of the Philippine Constitution, stated that the power of the Senate to amend a revenue bill includes substitution of an entirely new measure for the one originally proposed by the House of Representatives." 23

This thesis is utterly without merit. In the first place, it reads into the Committee Report something which it had not contemplated, that is, to propose SB No. 1630 in substitution of HB No. 11197; or speculates that the Committee may have committed an error in stating that it is SB No. 1129, and not HB No. 11197, which is to be substituted by SB No. 1630. Either, of course, is unwarranted because the words of the Report, solemnly signed by the Chairman, Vice-Chairman (who dissented), seven members, and three ex-officio members, 24 leave no room for doubt that although SB No. 1129, P.S. Res No. 734, and HB No. 11197 were referred to and considered by the Committee, it had prepared the attached SB No. 1630 which it recommends for approval "in substitution of S.B. No. 11197, taking into consideration P.S. No. 734 and H.B. No. 11197 with Senators Herrera, Angara, Romulo, Sotto, Ople and Shahani as authors." To do as suggested would be to substitute the judgment of the Committee with another that is completely inconsistent with it, or, simply, to capriciously ignore the facts. In the second place, the Office of the Solicitor General intentionally made it appear, to mislead rather than to persuade us, that in Flint vs. Stone Tracy Co. 25 The U.S. Supreme Court ruled, as quoted by it in the Consolidated Memorandum for Respondents, as follows: 26 The Senate has the power to amend a revenue bill. This power to amend is not confined to the elimination of provisions contained in the original act, but embraces as well the addition of such provisions thereto as may render the original act satisfactory to the body which is called upon to support it. It has, in fact, been held that the substitution of an entirely new measure for the one originally proposed can be supported as a valid amendment. xxx xxx xxx It is contended in the first place that this section of the act is unconstitutional, because it is a revenue measure, and originated in the Senate in violation of Section 7 of article 1 of the Constitution, providing that "all bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or concur with the amendments, as on other bills." The first part is not a statement of the Court, but a summary of the arguments of counsel in one of the companion cases (No. 425, entitled, "Gay vs. Baltic Mining Co."). The second part is the second paragraph of the opinion of the Court delivered by Mr. Justice Day. The misrepresentation that the first part is a statement of the Court is highly contemptuous. To show such deliberate misrepresentation, it is well to quote what actually are found in 55 L.Ed. 408, 410, to wit: Messrs. Charles A. Snow and Joseph H. Knight filed a brief for appellees in No. 425: xxx xxx xxx The Senate has the power to amend a revenue bill. This power to amend is not confined to the elimination of provisions contained in the original act, but embraces as well the addition of such provisions thereto as may render the original act satisfactory to the body which is called upon to support it. It has, in fact, been held that the substitution of an entirely

new measure for the one originally proposed can be supported as a valid amendment. Brake v. Collison, 122 Fed. 722. Mr. James L. Quackenbush filed a statement for appellees in No. 442. Solicitor General Lehmann (by special leave) argued the cause for the United States on reargument. Mr. Justice Day delivered the opinion of the court: These cases involve the constitutional validity of 38 of the act of Congress approved August 5, 1909, known as "the corporation tax" law. 36 Stat. at L. 11, 112117, chap. 6, U.S. Comp. Stat. Supp. 1909, pp. 659, 844-849. It is contended in the first place that this section of the act is unconstitutional, because it is a revenue measure, and originated in the Senate in violation of 7 of article 1 of the Constitution, providing the "all bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or concur with the amendments, as on other bills." The history of the act is contained in the government's brief, and is accepted as correct, no objection being made to its accuracy. This statement shows that the tariff bill of which the section under consideration is a part, originated in the House of Representatives, and was there a general bill for the collection of revenue. As originally introduced, it contained a plan of inheritance taxation. In the Senate the proposed tax was removed from the bill, and the corporation tax, in a measure, substituted therefor. The bill having properly originated in the House, we perceive no reason in the constitutional provision relied upon why it may not be amended in the Senate in the manner which it was in this case. The amendment was germane to the subject-matter of the bill, and not beyond the power of the Senate to propose. (Emphasis supplied) xxx xxx xxx As shown above, the underlined portions were deliberately omitted in the quotation made by the Office of the Solicitor General. In the third place, a Senate amendment by substitution with an entirely new bill of a bill, which under Section 24, Article VI of the Constitution can only originate exclusively in the House, is not authorized by said Section 24. Flint vs. Stone Tracy Co. cannot be invoked in favor of such a view. As pointed out by Mr. Justice Florenz D. Regalado during the oral

arguments of these cases and during the initial deliberations thereon by the Court, Flint involves a Senate amendment to a revenue bill which, under the United States Constitution, should originate from the House of Representatives. The amendment consisted of the substitution of a corporation tax in lieu of the plan of inheritance taxation contained in a general bill for the collection of revenue as it came from the House of Representatives where the bill originated. The constitutional provision in question is Section 7, Article I of the United States Constitution which reads: Sec. 7. Bills and Resolutions. All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments, as on other Bills. This provision, contrary to the misleading claim of the Solicitor General, is not similar to Section 24, Article VI of our Constitution, which for easy comparison is hereunder quoted again: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. Note that in the former the word exclusively does not appear. And, in the latter, the phrase "as on other Bill," which is found in the former, does not appear. These are very significant in determining the authority of the upper chamber over the bills enumerated in Section 24. Since the origination is not exclusively vested in the House of Representatives of the United States, the Senate's authority to propose or concur with amendments is necessarily broader. That broader authority is further confirmed by the phrase "as on other Bills," i.e., its power to propose or concur with amendments thereon is the same as in ordinary bills. The absence of this phrase in our Constitution was clearly intended to restrict or limit the Philippine Senate's power to propose or concur with amendments. In the light of the exclusivity of origination and the absence of the phrase "as on other Bills," the Philippine Senate cannot amend by substitution with an entirely new bill of its own any bill covered by Section 24 of Article VI which the House of Representatives transmitted to it because such substitution would indirectly violate Section 24. These obvious substantive differences between Section 7, Article I of the U.S. Constitution and Section 24, Article VI of our Constitution are enough reasons why this Court should neither allow itself to be misled by Flint vs. Stonenor be awed by Rainey vs. United States 27 and the opinion of Messrs. Ogg and Ray 28 which the majority cites to support the view that the power of the U.S. Senate to amend a revenue measure is unlimited. Rainey concerns the Tariff Act of 1909 of the United States of America and specifically involved was its Section 37 which was an amendment introduced by the U.S. Senate. It was claimed by the petitioners that the said section is a revenue measure which should originate in the House of Representatives. The U.S. Supreme Court, however, adopted and approved the finding of the court a quo that: the section in question is not void as a bill for raising revenue originating in the Senate, and not in the House of Representatives. It appears that the section was proposed by the Senate as an amendment to a bill for raising revenue which originated in the House. That is sufficient. Messrs. Ogg and Ray, who are professors emeritus of political science, based their statement not even on a case decided by the U.S. Supreme Court but on their perception of what Section 7, Article I of the U.S. Constitution permits. In the tenth edition (1951) of their work, they state:

Any bill may make its first appearance in either house, except only that bills for raising revenue are required by the constitution to "originate" in the House of Representatives. Indeed, through its right to amend revenue bills, even to the extent of substituting new ones, the Senate may, in effect, originate them also. 29 Their "in effect" conclusion is, of course, logically correct because the word exclusively does not appear in said Section 7, Article I of the U.S. Constitution. Neither can I find myself in agreement with the view of the majority that the Constitution does not prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House so long as action by the Senate as a body is withheld pending receipt of the House bill, thereby stating, in effect, that S.B. No. 1129 was such an anticipatory substitute bill, which, nevertheless, does not seem to have been considered by the Senate except only after its receipt of H.B. No. 11179 on 23 November 1993 when the process of legislation in respect of it began with a referral to the Senate Committee on Ways and Means. Firstly, to say that the Constitution does not prohibit it is to render meaningless Section 24 of Article VI or to sanction its blatant disregard through the simple expedient of filing in the Senate of a so-called anticipatory substitute bill. Secondly, it suggests that S.B. No. 1129 was filed as an anticipatory measure to substitute for H.B. No. 11179. This is a speculation which even the author of S.B. No. 1129 may not have indulged in. S.B. No. 1129 was filed in the Senate by Senator Herrera on 1 March 1993. H.B. No. 11197 was approved by the House on third reading only on 17 November 1993. Frankly, I cannot believe that Senator Herrera was able to prophesy that the House would pass any VAT bill, much less to know its provisions. That "it does not seem that the Senate even considered" the latter not until after its receipt of H.B. No. 11179 is another speculation. As stated earlier, S.B. No. 1129 was filed in the Senate on 1 March 1993, while H.B. No. 11197 was transmitted to the Senate only on 18 November 1993. There is no evidence on record to show that both were referred to the Senate Committee on Ways and Means at the same time. Finally, in respect of H.B. No. 11197, its legislative process did not begin with its referral to the Senate's Ways and Means Committee. It began upon its filing, as a Committee Bill of the House of Committee on Ways and Means, in the House. Second violation. Since SB No. 1129 is a revenue measure, it could not even be validly introduced or initiated in the Senate. It follows too, that the Senate cannot validly act thereon. Third violation. Since SB No. 1129 could not have been validly introduced in the Senate and could not have been validly acted on by the Senate, then it cannot be substituted by another revenue measure, SB No. 1630, which the Senate Committee on Ways and Means introduced in substitution of SB No. 1129. The filing or introduction in the Senate of SB No. 1630 also violated Section 24, Article VI of the Constitution. VIOLATIONS OF SECTION 26(2), ARTICLE VI OF THE CONSTITUTION: First violation. The Senate, despite its lack of constitutional authority to consider SB No. 1630 or SB No. 1129 which the former substituted, opened deliberations on second reading of SB No. 1630 on 8 February 1994. On 24 March 1994, the Senate approved it on second reading and on third reading. 30 That approval on the same day violated Section 26(2), Article VI of the Constitution. The justification therefor was that on 24 February 1994 the President certified to "the necessity of the enactment of SB No. 1630 . . . to meet a public emergency." 31

I submit, however, that the Presidential certification is void ab initio not necessarily for the reason adduced by petitioner Kilosbayan, Inc., but because it was addressed to the Senate for a bill which is prohibited from originating therein. The only bill which could be properly certified on permissible constitutional grounds even if it had already been transmitted to the Senate is HB No. 11197. As earlier observed, this was not so certified, although HB No. 9210 (one of those consolidated into HB No. 11197) was certified on 1 June 1993. 32 Also, the certification of SB No. 1630 cannot, by any stretch of the imagination, be extended to HB No. 11197 because SB No. 1630 did not substitute HB No. 11197 but SB No. 1129. Considering that the certification of SB No. 1630 is void, its approval on second and third readings in one day violated Section 26(2), Article VI of the Constitution. Second violation. It further appears that on 24 June 1994, after the approval of SB No. 1630, the Secretary of the Senate, upon directive of the Senate President, formally notified the House Speaker of the Senate's approval thereof and its request for a bicameral conference "in view of the disagreeing provisions of said bill and House Bill No. 11197." 33 It must be stressed again that HB No. 11197 was never submitted for or acted on second and third readings in the Senate, and SB No. 1630 was never sent to the House for its concurrence. Elsewise stated, both were only half-way through the legislative mill. Their submission to a conference committee was not only anomalously premature, but violative of the constitutional rule on three readings. The suggestion that SB No. 1630 was not required to be submitted to the House for otherwise the procedure would be endless, is unacceptable for, firstly, it violates Section 26, Rule XII of the Rules of the Senate and Section 85, Rule XIV of the Rules of the House, and, secondly, it is never endless. If the chamber of origin refuses to accept the amendments of the other chamber, the request for conference shall be made. VIOLATIONS OF THE RULES OF BOTH CHAMBERS; GRAVE ABUSE OF DISCRETION. The erroneous referral to the conference committee needs further discussion. Since S.B. No. 1630 was not a substitute bill for H.B. No. 11197 but for S.B. No. 1129, it (S.B. No. 1630) remained a bill which originated in the Senate. Even assuming arguendo that it could be validly initiated in the Senate, it should have been first transmitted to the House where it would undergo three readings. On the other hand, since HB No. 11197 was never acted upon by the Senate on second and third readings, no differences or inconsistencies could as yet arise so as to warrant a request for a conference. It should be noted that under Section 83, Rule XIV of the Rules of the House, it is only when the Senate shall have approved with amendments HB no. 11197 and the House declines to accept the amendments after having been notified thereof that the request for a conference may be made by the House, not by the Senate. Conversely, the Senate's request for a conference would only be proper if, following the transmittal of SB No. 1630 to the House, it was approved by the latter with amendments but the Senate rejected the amendments. Indisputably then, when the request for a bicameral conference was made by the Senate, SB No. 1630 was not yet transmitted to the House for consideration on three readings and HB No. 11197 was still in the Senate awaiting consideration on second and third readings. Their referral to the bicameral conference committee was palpably premature and, in so doing, both the Senate and the House acted without authority or with grave abuse of discretion. Nothing, and absolutely nothing, could have been validly acted upon by the bicameral conference committee.

GRAVE ABUSE OF DISCRETION COMMITTED BY THE BICAMERAL CONFERENCE COMMITTEE. Serious irregularities amounting to lack of jurisdiction or grave abuse of discretion were committed by the bicameral conference committee. First, it assumed, and took for granted that SB No. 1630 could validly originate in the Senate. This assumption is erroneous. Second, it assumed that HB No. 11197 and SB No. 1630 had properly passed both chambers of Congress and were properly and regularly submitted to it. As earlier discussed, the assumption is unfounded in fact. Third, per the bicameral conference committee's proceedings of 19 April 1994, Representative Exequiel Javier, Chairman of the panel from the House, initially suggested that HB No. 11197 should be the "frame of reference," because it is a revenue measure, to which Senator Ernesto Maceda concurred. However, after an incompletely recorded reaction of Senator Ernesto Herrera, Chairman of the Senate panel, Representative Javier seemed to agree that "all amendments will be coming from the Senate." The issue of what should be the "frame of reference" does not appear to have been resolved. These facts are recorded in this wise, as quoted in the Consolidated Memorandum for Respondents: 34 CHAIRMAN JAVIER. First of all, what would be the basis, no, or framework para huwag naman mawala yung personality namin dito sa bicameral, no, because the bill originates from the House because this is a revenue bill, so we would just want to ask, we make the House Bill as the frame of reference, and then everything will just be inserted? HON. MACEDA. Yes. That's true for every revenue measure. There's no other way. The House Bill has got to be the base. Of course, for the record, we know that this is an administration; this is certified by the President and I was about to put into the records as I am saying now that your problem about the impact on prices on the people was already decided when the President and the administration sent this to us and certified it. They have already gotten over that political implication of this bill and the economic impact on prices. CHAIRMAN HERRERA. Yung concern mo about the bill as the reference in this discussion is something that we can just . . . CHAIRMAN JAVIER. We will just . . . all the amendments will be coming from the Senate.

(BICAMERAL CONFERENCE ON MAJOR DIFFERENCES BETWEEN HB NO. 11197 AND SB NO. 1630 [Cte. on Ways & Means] APRIL 19, 1994, II-6 and II-7; Emphasis supplied) These exchanges would suggest that Representative Javier had wanted HB No. 11197 to be the principal measure on which reconciliation of the differences should be based. However, since the Senate did not act on this Bill on second and third readings because its Committee on Ways and Means did not deliberate on it but instead proposed SB No. 1630 in substitution of SB No. 1129, the suggestion has no factual basis. Then, when finally he agreed that "all amendments will be coming from the Senate," he in fact withdrew the former suggestion and agreed that SB No. 1630, which is the Senate version of the Value Added Tax (VAT) measure, should be the "frame of reference." But then SB No. 1630 was never transmitted to the House for the latter's concurrence. Hence, it cannot serve as the "frame of reference" or as the basis for deliberation. The posture taken by Representative Javier also indicates that SB No. 1630 should be taken as the amendment to HB No. 11197. This, too, is unfounded because SB No. 1630 was not proposed in substitution of HB No. 11197. Since SB No. 1630 did not pass three readings in the House and HB No. 11197 did not pass second and third readings in the Senate, it logically follows that no disagreeing provisions had as yet arisen. The bicameral conference committee erroneously assumed the contrary. Even granting arguendo that both HB No. 11197 and SB No. 1630 had been validly approved by both chambers of Congress and validly referred to the bicameral conference committee, the latter had very limited authority thereon. It was created "in view of the disagreeing provisions of" the two bills. 35 Its duty was limited to the reconciliation of disagreeing provisions or the resolution of differences or inconsistencies. The committee recognized that limited authority in the opening paragraph of its Report 36 when it said: The Conference Committee on the disagreeing provisions of House Bill No. 11197 . . . and Senate Bill No. 1630 . . . . Under such limited authority, it could only either (a) restore, wholly or partly, the specific provisions of HB No. 11197 amended by SB No. 1630, (b) sustain, wholly or partly, the Senate's amendments, or (c) by way of a compromise, to agree that neither provisions in HB No. 11197 amended by the Senate nor the latter's amendments thereto be carried into the final form of the former. But as pointed out by petitioners Senator Raul Roco and Kilosbayan, Inc., the bicameral conference committee not only struck out non-disagreeing provisions of HB No. 11197 and SB No. 1630, i.e., provisions where both bills are in full agreement; it added more activities or transactions to be covered by VAT, which were not within the contemplation of both bills. Since both HB No. 11197 and SB No. 1630 were still half-cooked in the legislative vat, and were not ready for referral to a conference, the bicameral conference committee clearly acted without jurisdiction or with grave abuse of discretion when it consolidated both into one bill which became R.A. No. 7716. APPROVAL BY BOTH CHAMBERS OF CONFERENCE COMMITTEE REPORT AND PROPOSED BILL DID NOT CURE CONSTITUTIONAL INFIRMITIES. I cannot agree with the suggestion that since both the Senate and the House had approved the bicameral conference committee report and the bill proposed by it in substitution of HB No. 11197 and SB No. 1630, whatever infirmities may have been committed by it were

cured by ratification. This doctrine of ratification may apply to minor procedural flaws or tolerable breachs of the parameters of the bicameral conference committee's limited powers but never to violations of the Constitution. Congress is not above the Constitution. In the instant case, since SB No. 1630 was introduced in violation of Section 24, Article VI of the Constitution, was passed in the Senate in violation of the "three readings" rule, and was not transmitted to the House for the completion of the constitutional process of legislation, and HB No. 11197 was not likewise passed by the Senate on second and third readings, neither the Senate nor the House could validly approve the bicameral conference committee report and the proposed bill. In view of the foregoing, the conclusion is inevitable that for non-compliance with mandatory provisions of the Constitution and of the Rules of the Senate and of the House on the enactment of laws, R.A. No. 7716 is unconstitutional and, therefore, null and void. A discussion then of the instrinsic validity of some of its provisions would be unnecessary. The majority opinion, however, invokes the enrolled bill doctrine and wants this Court to desist from looking behind the copy of the assailed measure as certified by the Senate President and the Speaker of the House. I respectfully submit that the invocation is misplaced. First, as to the issue of origination, the certification in this case explicitly states that R.A. No. 7716 is a "consolidation of House Bill No. 11197 and Senate Bill No. 1630." This is conclusive evidence that the measure did not originate exclusively in the House. Second, the enrolled bill doctrine is of American origin, and unquestioned fealty to it may no longer be justified in view of the expanded jurisdiction 37 of this Court under Section 1, Article VIII of our Constitution which now expressly grants authority to this Court to: determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. Third, even under the regime of the 1935 Constitution which did not contain the above provision, this Court, through Mr. Chief Justice Makalintal, in Astorga vs. Villegas, 38 declared that it cannot be truly said thatMabanag vs. Lopez Vito 39 has laid to rest the question of whether the enrolled bill doctrine or the journal entry rule should be adhered to in this jurisdiction, and stated: As far as Congress itself is concerned, there is nothing sacrosanct in the certification made by the presiding officers. It is merely a mode of authentication. The lawmaking process in Congress ends when the bill is approved by both Houses, and the certification does not add to the validity of the bill or cure any defect already present upon its passage. In other words, it is the approval of Congress and not the signatures of the presiding officers that is essential. Thus the (1935) Constitution says that "[e]very bill passed by the Congress shall, before it becomes law, be presented to the President." In Brown vs. Morris, supra, the Supreme Court of Missouri, interpreting a similar provision in the State Constitution, said that the same "makes it clear that the indispensable step in the passage" and it follows that if a bill, otherwise fully enacted as a law, is not attested by the presiding officer, other proof that it has "passed both houses will satisfy the constitutional requirement." Fourth, even in the United States, the enrolled bill doctrine has been substantially undercut. This is shown in the disquisitions of Mr. Justice Reynato S. Puno in his dissenting opinion, citing Sutherland, Statutory Construction.

Last, the pleadings of the parties have established beyond doubt that HB No. 11197 was not acted on second and third readings in the Senate and SB No. 1630, which was approved by the Senate on second and third readings in substitution of SB No. 1129, was never transmitted to the House for its passage. Otherwise stated, they were only passed in their respective chamber of origin but not in the other. In no way can each become a law under paragraph 2, Section 26, Article VI of the Constitution. For the Court to close its eyes to this fact because of the enrolled bill doctrine is to shrink its duty to hold "inviolate what is decreed by the Constitution." 40 I vote then to GRANT these petitions and to declare R.A. No. 7716 as unconstitutional.

ROMERO, J.: Few issues brought before this Court for resolution have roiled the citizenry as much as the instant case brought by nine petitioners which challenges the constitutionality of Republic Act No. 7716 (to be referred to herein as the "Expanded Value Added Tax" or EVAT law to distinguish it from Executive Order No. 273 which is the VAT law proper) that was enacted on May 5, 1994. A visceral issue, it has galvanized the populace into mass action and strident protest even as the EVAT proponents have taken to podia and media in a post facto information campaign. The Court is confronted here with an atypical case. Not only is it a vatful of seething controversy but some unlikely petitioners invoke unorthodox remedies. Three Senatorpetitioners would nullify a statute that bore the indispensable stamp of approval of their own Chamber with two of them publicly repudiating what they had earlier endorsed. With two former colleagues, one of them an erstwhile Senate President, making common cause with them, they would stay the implementation by the Executive Department of a law which they themselves have initiated. They address a prayer to a co-equal Department to probe their official acts for any procedural irregularities they have themselves committed lest the effects of these aberrations inflict such damage or irreparable loss as would bring down the wrath of the people on their heads. To the extent that they perceive that a vital cog in the internal machinery of the Legislature has malfunctioned from having operated in blatant violation of the enabling Rules they have themselves laid down, they would now plead that this other Branch of Government step in, invoking the exercise of what is at once a delicate and awesome power. Undoubtedly, the case at bench is as much a test for the Legislature as it is for the Judiciary. A backward glance on the Value Added Tax (VAT) is in order at this point. The first codification of the country's internal revenue laws was effected with the enactment of Commonwealth Act No. 466, commonly known as the 'National Internal Revenue Code' which was approved on June 15, 1939 and took effect on July 1, 1939, although the provisions on the income tax were made retroactive to January 1, 1939. Since 1939 when the turnover tax was replaced by the manufacturer's sales tax, the Tax Code had provided for a single-stage value-added tax on original sales by manufacturers, producers and importers computed on the "cost deduction method" and later, on the basis of the "tax credit method." The turnover tax was re-introduced in 1985 by Presidential Decree No. 1991 (as amended by Presidential Decree No. 2006). 1

In 1986, a tax reform package was approved by the Aquino Cabinet. It contained twentynine measures, one of which proposed the adoption of the VAT, as well as the simplification of the sales tax structure and the abolition of the turnover tax. Up until 1987, the system of taxing goods consisted of (a) an excise tax on certain selected articles (b) fixed and percentage taxes on original and subsequent sales, on importations and on milled articles and (c) mining taxes on mineral products. Services were subjected to percentage taxes based mainly on gross receipts. 2 On July 25, 1987, President Corazon C. Aquino signed into law Executive Order No. 273 which adopted the VAT. From the former single-stage value-added tax, it introduced the multi-stage VAT system where "the value-added tax is imposed on the sale of and distribution process culminating in sale, to the final consumer. Generally described, the taxpayer (the seller) determines his tax liability by computing the tax on the gross selling price or gross receipt ("output tax") and subtracting or crediting the earlier VAT on the purchase or importation of goods or on the sale of service ("input tax") against the tax due on his own sale." 3 On January 1, 1988, implementing rules and regulations for the VAT were promulgated. President Aquino then issued Proclamation No. 219 on February 12, 1988 urging the public and private sectors to join the nationwide consumers' education campaign for VAT. Soon after the implementation of Executive Order No. 273, its constitutionality was assailed before this Court in the case of Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc., et al. v. Tan. 4 The four petitioners sought to nullify the VAT law "for being unconstitutional in that its enactment is not allegedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution." 5 In dismissing the consolidated petitions, this Court stated: The Court, following the time-honored doctrine of separation of powers cannot substitute its judgment for that of the President as to the wisdom, justice and advisability of the VAT. The Court can only look into and determine whether or not Executive Order No. 273 was enacted and made effective as law, in the manner required by and consistent with, the Constitution, and to make sure that it was not issued in grave abuse of discretion amounting to lack or excess of jurisdiction; and, in this regard, the Court finds no reason to impede its application or continued implementation. 6 Although declared constitutional, the VAT law was sought to be amended from 1992 on by a series of bills filed in both Houses of Congress. In chronological sequence, these were:

HB No. 8086 - March 9, 1993 HB No. 9030 - May 11, 1993 HB No. 9210 9 - May 19, 1993 HB No. 9297 - May 25, 1993 HB No. 10012 - July 28, 1993 HB No. 10100 - August 3, 1993 HB No. 11197 in substitution of HB Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9297, 10012 and 10100 10 - November 5, 1993 We now trace the course taken by H.B. No. 11197 and S.B. No. 1129. HB/SB No. HB No. 11197 was approved in the Lower House onsecond reading - November 11, 1993 HB No. 11197 was approved in the Lower House on third reading and voted upon with 114 Yeas and 12 Nays - November 17, 1993 HB No. 11197 was transmitted to the Senate - November 18, 1993 Senate Committee on Ways and Means submitted Com. Report No. 349 recommeding for approval SB No. 1630 in substitution of SB No. 1129, taking into consideration PS Res. No. 734 and HB No. 11197 11 - February 7, 1994 Certification by President Fidel V. Ramos of Senate Bill No. 1630 for immediate enactment to meet a public emergency - March 22, 1994 SB No. 1630 was approved by the Senate on second and third readings and subsequently voted upon with 13 yeas, none against and one abstention - March 24, 1994 Transmittal by the Senate to the Lower House of a request for a conference in view of disagreeing provisions of SB No. 1630 and HB NO. 11197 - March 24, 1994

HB/SB No. Date Filed in Congress HB No. 253 - July 22, 1992 HB No. 771 - August 10, 1992 HB No. 2450 - September 9, 1992 Senate Res. No. 734 7 - September 10, 1992 HB No. 7033 - February 3, 1993 SB No. 1129 8 - March 1, 1993

The Bicameral Conference Committee conducted various meetings to reconcile the proposals on the VAT - April 13, 19, 20, 21, 25 The House agreed on the Conference Committee Report - April 27, 1994 The Senate agreed on the Conference Committee Report - May 2, 1994 The President signed Republic Act No. 7716 - The Expanded VAT Law 12 - May 5, 1994 Republic Act No. 7716 was published in two newspapers of general circulation - May 12, 1994 Republic Act No. 7716 became effective - May 28, 1994

4. Section 10 Does the law violate the following other provisions of the Constitution?

18

1. Article VI, Section 28, paragraph 1 19 2. Article VI, Section 28, paragraph 3 20 As a result of the unedifying experience of the past where the Court had the propensity to steer clear of questions it perceived to be "political" in nature, the present Constitution, in contrast, has explicitly expanded judicial power to include the duty of the courts, especially the Supreme Court, "to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government." 21 I submit that under this explicit mandate, the Court is empowered to rule upon acts of other Government entities for the purpose of determining whether there may have been, in fact, irregularities committed tantamount to violation of the Constitution, which case would clearly constitute a grave abuse of discretion on their part. In the words of the sponsor of the above-quoted Article of the Constitution on the Judiciary, the former Chief Justice Roberto R. Concepcion, "the judiciary is the final arbiter on the question of whether or not a branch of government or any of its officials has acted without jurisdiction or in excess of jurisdiction, or so capriciously as to constitute an abuse of discretion amounting to excess of jurisdiction or lack of jurisdiction. This is not only a judicial power but a duty to pass judgment on matters of this nature. This is the back ground of paragraph 2 of Section 1, which means that the courts cannot hereafter exhibit its wonted reticence by claiming that such matters constitute a political question." 22 In the instant petitions, this Court is called upon, not so much to exercise its traditional power of judicial review as to determine whether or not there has indeed been a grave abuse of discretion on the part of the Legislature amounting to lack or excess of jurisdiction. Where there are grounds to resolve a case without touching on its constitutionality, the Court will do so with utmost alacrity in due deference to the doctrine of separation of powers anchored on the respect that must be accorded to the other branches of government which are coordinate, coequal and, as far as practicable, independent of one another. Once it is palpable that the constitutional issue is unavoidable, then it is time to assume jurisdiction, provided that the following requisites for a judicial inquiry are met: that there must be an actual and appropriate case; a personal and substantial interest of the party raising the constitutional question; the constitutional question must be raised at the earliest possible opportunity and the decision of the constitutional question must be necessary to the determination of the case itself, the same being the lis mota of the case. 23 Having assured ourselves that the above-cited requisites are present in the instant petitions, we proceed to take them up. ARTICLE VI, SECTION 24

Republic Act No. 7716 merely expanded the base of the VAT law even as the tax retained its multi-stage character. At the oral hearing held on July 7, 1994, this Court delimited petitioners' arguments to the following issues culled from their respective petitions. PROCEDURAL ISSUES Does Republic Act No. 7716 violate Article VI, Section 24, of the Constitution? Does it violate Article VI, Section 26, paragraph 2, of the Constitution? 14 What is the extent of the power of the Bicameral Conference Committee? SUBSTANTIVE ISSUES Does the law violate the following provisions in Article III (Bill of Rights) of the Constitution: 1. Section 1 2. Section 4 3. Section 5
15 13

16

17

Some petitioners assail the constitutionality of Republic Act No. 7716 as being in violation of Article VI, Section 24 of the Constitution which provides: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills, shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. In G.R. Nos. 115455 and 115781, petitioners argue: (a) The bill which became Republic Act No. 7716 did not originate exclusively in the House of Representatives. The Senate, after receiving H.B. No. 11197, submitted its own bill, S.B. No. 1630, and proceeded to vote and approve the same after second and third readings. (b) The Senate exceeded its authority to "propose or concur with amendments" when it submitted its own bill, S.B. No. 1630, recommending its approval "in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197." (c) H.B. No. 11197 was not deliberated upon by the Senate. Neither was it voted upon by the Senate on second and third readings, as what was voted upon was S.B. No. 1630. Article VI, Section 24 is taken word for word from Article VI, Section 18 of the 1935 Constitution which was, in turn, patterned after Article I, Section 7 (1) of the Constitution of the United States, which states: All bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or concur with amendments as on other bills. The historical precedent for requiring revenue bills to originate in Congress is explained in the U.S. case ofMorgan v. Murray. 24 The constitutional requirement that all bills for raising revenue shall originate in the House of Representatives stemmed from a remedial outgrowth of the historic conflict between Parliament (i.e., Commons) and the Crown, whose ability to dominate the monarchially appointive and hereditary Lords was patent. See 1 Story, Constitution, S 875 et seq., 5th Ed.; 1 Cooley, Constitutional Limitations, pp. 267, 268, 8th Ed., 1 Sutherland, Statutory Construction, S 806, 3d Ed. There was a measure of like justification for the insertion of the provision of article I, S 7, cl. 1, of the Federal Constitution. At that time (1787) and thereafter until the adoption (in 1913) of the Seventeenth Amendment providing for the direct election of senators, the members of the United States Senate were elected for each state by the joint vote of both houses of the Legislature of the respective states, and hence, were removed from the people . . . The legislative authority under the 1935 Constitution being unicameral, in the form of the National Assembly, it served no purpose to include the subject provision in the draft submitted by the 1934 Constitutional Convention to the Filipino people for ratification. In 1940, however, the Constitution was amended to establish a bicameral Congress of the Philippines composed of a House of Representatives and a Senate.

In the wake of the creation of a new legislative machinery, new provisions were enacted regarding the law-making power of Congress. The National Assembly explained how the final formulation of the subject provision came about: The concurrence of both houses would be necessary to the enactment of a law. However, all appropriation, revenue or tariff bills, bills authorizing an increase of the public debt, bills of local application, and private bills, should originate exclusively in the House of Representatives, although the Senate could propose or concur with amendments. In one of the first drafts of the amendments, it was proposed to give both houses equal powers in lawmaking. There was, however, much opposition on the part of several members of the Assembly. In another draft; the following provision, more restrictive than the present provision in the amendment, was proposed and for sometime was seriously considered: All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills shall originate exclusively in the Assembly, but the Senate may propose or concur with amendments. In case of disapproval by the Senate of any such bills, the Assembly may repass the same by a two-thirds vote of all its members, and thereupon, the bill so repassed shall be deemed enacted and may be submitted to the President for corresponding action. In the event that the Senate should fail to finally act on any such bills, the Assembly may, after thirty days from the opening of the next regular sessions of the same legislative term, reapprove the same with a vote of two-thirds of all the members of the Assembly. And upon such reapproval, the bill shall be deemed enacted and may be submitted to the president for corresponding action. However, the special committee voted finally to report the present amending provision as it is now worded; and in that form it was approved by the National Assembly with the approval of Resolution No. 38 and later of Resolution No. 73. 25 (Emphasis supplied) Thus, the present Constitution is identically worded as its 1935 precursor: "All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills, shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments." (Emphasis supplied) That all revenue bills, such as Republic Act No. 7716, should "originate exclusively in the House of Representatives" logically flows from the more representative and broadly-based character of this Chamber. It is said that the House of Representatives being the more popular branch of the legislature, being closer to the people, and having more frequent contacts with them than the Senate, should have the privilege of taking the initiative in the proposals of revenue and tax project, the disposal of the people's money, and the contracting of public indebtedness.

These powers of initiative in the raising and spending of public funds enable the House of Representatives not only to implement but even to determine the fiscal policies of the government. They place on its shoulders much of the responsibility of solving the financial problems of the government, which are so closely related to the economic life of the country, and of deciding on the proper distribution of revenues for such uses as may best advance public interests. 26 The popular nature of the Lower House has been more pronounced with the inclusion of Presidentially-appointed sectoral representatives, as provided in Article VI, Section 5 (2), of the Constitution, thus: "The party-list representatives shall constitute twenty per centum of the total number of representatives including those under the party list. For three consecutive terms after the ratification of this Constitution, one-half of the seats allocated to party-list representatives shall be filled, as provided by law, by selection or election from the labor, peasant, urban poor, indigenous cultural communities, women, youth, and such other sectors as may be provided by law, except the religious sector." (Emphasis supplied) This novel provision which was implemented in the Batasang Pambansa during the martial law regime 27 was eventually incorporated in the present Constitution in order to give those from the marginalized and often deprived sector, an opportunity to have their voices heard in the halls of the Legislature, thus giving substance and meaning to the concept of "people empowerment." That the Congressmen indeed have access to, and consult their constituencies has been demonstrated often enough by the fact that even after a House bill has been transmitted to the Senate for concurrence, some Congressmen have been known to express their desire to change their earlier official position or reverse themselves after having heard their constituents' adverse reactions to their representations. In trying to determine whether the mandate of the Constitution with regard to the initiation of revenue bills has been preserved inviolate, we have recourse to the tried and tested method of definition of terms. The term "originate" is defined by Webster's New International Dictionary (3rd Edition, 1986) as follows: "v.i., to come into being; begin; to start." On the other hand, the word "exclusively" is defined by the same Webster's Dictionary as "in an exclusive manner; to the exclusion of all others; only; as, it is his, exclusively." Black's Law Dictionary has this definition: "apart from all others; only; solely; substantially all or for the greater part. To the exclusion of all other; without admission of others to participation; in a manner to exclude. Standard Oil Co. of Texas v. State, Tex. Civ. App., 142 S.W. 2d 519, 521, 522, 523." This Court had occasion to define the term "exclusive" as follows: . . . In its usual and generally accepted sense, the term means possessed to the exclusion of others; appertaining to the subject alone; not including, admitting or pertaining to another or others; undivided, sole. 28 When this writer, during the oral argument of July 7, 1994, asked the petitioner in G.R. No. 115455 whether he considers the word "exclusively" to be synonymous with "solely," he replied in the affirmative. 29 A careful examination of the legislative history traced earlier in this decision shows that the original VAT law, Executive Order No. 273, was sought to be amended by ten House bills

which finally culminated in House Bill No. 11197, as well as two Senate bills. It is to be noted that the first House Bill No. 253 was filed on July 22, 1992, and two other House bills followed in quick succession on August 10 and September 9, 1992 before a Senate Resolution, namely, Senate Res. No. 734, was filed on September 10, 1992 and much later, a Senate Bill proper,viz., Senate Bill No. 1129 on March 1, 1993. Undoubtedly, therefore, these bills originated or had their start in the House and before any Senate bill amending the VAT law was filed. In point of time and venue, the conclusion is ineluctable that Republic Act No. 7716, which is indisputably a revenue measure, originated in the House of Representatives in the form of House Bill No. 253, the first EVAT bill. Additionally, the content and substance of the ten amendatory House Bills filed over the roughly one-year period from July 1992 to August 1993 reenforce the position that these revenue bills, pertaining as they do, to Executive Order No. 273, the prevailing VAT law, originated in the Lower House. House Bill Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9297, 10012 and 10100 were intended to restructure the VAT system by exempting or imposing the tax on certain items or otherwise introducing reforms in the mechanics of implementation. 30 Of these, House Bill No. 9210 was favored with a Presidential certification on the need for its immediate enactment to meet a public emergency. Easily the most comprehensive, it noted that the revenue performance of the VAT, being far from satisfactory since the collections have always fallen short of projections, "the system is rendered inefficient, inequitable and less comprehensive." Hence, the Bill proposed several amendments designed to widen the tax base of the VAT and enhance its administration. 31 That House Bill No. 11197 being a revenue bill, originated from the Lower House was acknowledged, in fact was virtually taken for granted, by the Chairmen of the Committee on Ways and Means of both the House of Representatives and the Senate. Consequently, at the April 19, 1994 meeting of the Bicameral Conference Committee, the Members agreed to make the House Bill as the "frame of reference" or "base" of the discussions of the Bicameral Conference Committee with the "amendments" or "insertions to emanate from the Senate." 32 As to whether the bills originated exclusively in the Lower House is altogether a different matter. Obviously, bills amendatory of VAT did not originate solely in the House to the exclusion of all others for there were P.S. Res. No. 734 filed in the Senate on September 10, 1992 followed by Senate Bill No. 1129 which was filed on March 1, 1993. About a year later, this was substituted by Senate Bill No. 1630 that eventually became the EVAT law, namely, Republic Act No. 7716. Adverting to the passage of the amendatory VAT bills in the Lower House, it is to be noted that House Bill No. 11197 which substituted all the prior bills introduced in said House complied with the required readings, that is, the first reading consisting of the reading of the title and referral to the appropriate Committee, approval on second reading on November 11, 1993 and on third reading on November 17, 1993 before being finally transmitted to the Senate. In the Senate, its identity was preserved and its provisions were taken into consideration when the Senate Committee on Ways and Means submitted Com. Report No. 349 which recommended for approval "S.B. No. 1630 in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197." At this stage, the subject bill may be considered to have passed first reading in the Senate with the submission of said Committee Report No. 349 by the Senate Committee on Ways and Means to which it had been referred earlier. What remained, therefore, was no longer House Bill No. 11197 but Senate Bill No. 1630. Thence, the Senate, instead of transmitting the bill to the Lower House for its concurrence and amendments, if any, took a "shortcut," bypassed the Lower House and instead, approved Senate Bill No. 1630 on both second and third readings on the same day, March 24, 1994.

The first irregularity, that is, the failure to return Senate Bill No. 1630 to the Lower House for its approval is fatal inasmuch as the other chamber of legislature was not afforded the opportunity to deliberate and make known its views. It is no idle dictum that no less than the Constitution ordains: "The legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of Representatives . . ." 33 (Emphasis supplied) It is to be pointed out too, that inasmuch as Senate Bill No. 1630 which had "taken into consideration" House Bill No. 11197 was not returned to the Lower House for deliberation, the latter Chamber had no opportunity at all to express its views thereon or to introduce any amendment. The customary practice is, after the Senate has considered the Lower House Bill, it returns the same to the House of origin with its amendments. In the event that there may be any differences between the two, the same shall then be referred to a Conference Committee composed of members from both Chambers which shall then proceed to reconcile said differences. In the instant case, the Senate transmitted to the Lower House on March 24, 1994, a letter informing the latter that it had "passed S. No. 1630 entitled . . . (and) in view of the disagreeing provisions of said bill and House Bill No. 11197, entitled . . . the Senate requests a conference . . ." This, in spite of the fact that Com. Report No. 349 of the Senate Committee on Ways and Means had already recommended for approval on February 7, 1994 "S.B. No. 1630 . . . taking into consideration H.B. No. 11197." Clearly, the Conference Committee could only have acted upon Senate Bill No. 1630, for House Bill No. 11197 had already been fused into the former. At the oral hearing of July 7, 1994, petitioner in G.R. No. 115455 admitted, in response to this writer's query, that he had attempted to rectify some of the perceived irregularities by presenting a motion in the Senate to recall the bill from the Conference Committee so that it could revert to the period of amendment, but he was outvoted, in fact "slaughtered." 34 In accordance with the Rules of the House of Representatives and the Senate, Republic Act No. 7716 was duly authenticated after it was signed by the President of the Senate and the Speaker of the House of Representatives followed by the certifications of the Secretary of the Senate and the Acting Secretary General of the House of Representatives. 35 With the signature of President Fidel V. Ramos under the words "Approved: 5 May 1994," it was finally promulgated. Its legislative journey ended, Republic Act No. 7716 attained the status of an enrolled bill which is defined as one "which has been duly introduced, finally passed by both houses, signed by the proper officers of each, approved by the governor (or president) and filed by the secretary of state." 36 Stated differently: It is a declaration by the two houses, through their presiding officers, to the president, that a bill, thus attested, has received in due form, the sanction of the legislative branch of the government, and that it is delivered to him in obedience to the constitutional requirement that all bills which pass Congress shall be presented to him. And when a bill, thus attested, receives his approval, and is deposited in the public archives, its authentication as a bill that has passed Congress should be deemed complete and unimpeachable. As the President has no authority to approve a bill not passed by Congress, an enrolled Act in the custody of the Secretary of State, and having the official attestations of the Speaker of the House of Representatives, of the President of the Senate, and of

the President of the United States, carries, on its face, a solemn assurance by the legislative and executive departments of the government, charged, respectively, with the duty of enacting and executing the laws, that it was passed by Congress. The respect due to coequal and independent departments requires the judicial department to act upon that assurance, and to accept, as having passed Congress, all bills authenticated in the manner stated; leaving the courts to determine, when the question properly arises, whether the Act, so authenticated, is in conformity with the Constitution. 37 The enrolled bill assumes importance when there is some variance between what actually transpired in the halls of Congress, as reflected in its journals, and as shown in the text of the law as finally enacted. But suppose the journals of either or both Houses fail to disclose that the law was passed in accordance with what was certified to by their respective presiding officers and the President. Or that certain constitutional requirements regarding its passage were not observed, as in the instant case. Which shall prevail: the journal or the enrolled bill? A word on the journal. The journal is the official record of the acts of a legislative body. It should be a true record of the proceedings arranged in chronological order. It should be a record of what is done rather than what is said. The journal should be a clear, concise, unembellished statement of all proposals made and all actions taken complying with all requirements of constitutions, statutes, charters or rules concerning what is to be recorded and how it is to be recorded. 38 Article VI, Section 16 (4) of the Constitution ordains: Each house shall keep a Journal of its proceedings, and from time to time publish the same, excepting such parts as may, in its judgment, affect national security; and the yeas and nays on any question shall, at the request of one-fifth of the Members present, be entered in the Journal. Each House shall also keep a Record of its proceedings." (Emphasis supplied) The rationale behind the above provision and of the "journal entry rule" is as follows: It is apparent that the object of this provision is to make the legislature show what it has done, leaving nothing whatever to implication. And, when the legislature says what it has done, with regard to the passage of any bill, it negatives the idea that it has done anything else in regard thereto. Silence proves nothing where one is commanded to speak . . . . Our constitution commands certain things to be done in regard to the passage of a bill, and says that no bill shall become a law unless these things are done. It seems a travesty upon our supreme law to say that it guaranties to the people the right to have their laws made in this manner only, and that there is no way of enforcing this right, or for the court to say that this is law when the constitution says it is not law. There is one safe course which is in harmony with the constitution, and that is to adhere to the rule that the legislature must show, as commanded by the constitution, that it has done everything required by the constitution to

be done in the serious and important matter of making laws. This is the rule of evidence provided by the constitution. It is not presumptuous in the courts, nor disrespectful to the legislature, to judge the acts of the legislature by its own evidence. 39 Confronted with a discrepancy between the journal proceedings and the law as duly enacted, courts have indulged in different theories. The "enrolled bill" and "journal entry" rules, being rooted deep in the Parliamentary practices of England where there is no written constitution, and then transplanted to the United States, it may be instructive to examine which rule prevails in the latter country through which, by a process of legislative osmosis, we adopted them in turn. There seems to be three distinct and different rules as applicable to the enrolled bill recognized by the various courts of this country. The first of these rules appears to be that the enrolled bill is the ultimate proof and exclusive and conclusive evidence that the bill passed the legislature in accordance with the provisions of the Constitution. Such has been the holding in California, Georgia, Kentucky, Texas, Washington, New Mexico, Mississippi, Indiana, South Dakota, and may be some others. The second of the rules seems to be that the enrolled bill is a verity and resort cannot be had to the journals of the Legislature to show that the constitutional mandates were not complied with by the Legislature, except as to those provisions of the Constitution, compliance with which is expressly required to be shown on the journal. This rule has been adopted in South Carolina, Montana, Oklahoma, Utah, Ohio, New Jersey, United States Supreme Court, and others. The third of the rules seems to be that the enrolled bill raises only a prima facie presumption that the mandatory provisions of the Constitution have been complied with and that resort may be had to the journals to refute that presumption, and if the constitutional provision is one, compliance with which is expressly required by the Constitution to be shown on the journals, then the mere silence of the journals to show a compliance therewith will refute the presumption. This rule has been adopted in Illinois, Florida, Kansas, Louisiana, Tennessee, Arkansas, Idaho, Minnesota, Nebraska, Arizona, Oregon, New Jersey, Colorado, and others. 40 In the 1980 case of D & W Auto Supply v. Department of Revenue, the Supreme Court of Kentucky which had subscribed in the past to the first of the three theories, made the pronouncement that it had shifted its stand and would henceforth adopt the third. It justified its changed stance, thus: We believe that a more reasonable rule is the one which Professor Sutherland describes as the "extrinsic evidence" rule . . . . Under this approach there is a prima facie presumption that an enrolled bill is valid, but such presumption may be overcome by clear satisfactory and convincing evidence establishing that constitutional requirements have not been met. 41 What rule, if any, has been adopted in this jurisdiction?

Advocates of the "journal entry rule" cite the 1916 decision in U.S. v. Pons 42 where this Court placed reliance on the legislative journals to determine whether Act No. 2381 was passed on February 28, 1914 which is what appears in the Journal, or on March 1, 1914 which was closer to the truth. The confusion was caused by the adjournment sine die at midnight of February 28, 1914 of the Philippine Commission. A close examination of the decision reveals that the Court did not apply the "journal entry rule" vis-a-vis the "enrolled bill rule" but the former as against what are "behind the legislative journals." Passing over the question of whether the printed Act (No. 2381), published by authority of law, is conclusive evidence as to the date when it was passed, we will inquire whether the courts may go behind the legislative journals for the purpose of determining the date of adjournment when such journals are clear and explicit. 43 It is to be noted from the above that the Court "passed over" the probative value to be accorded to the enrolled bill. Opting for the journals, the Court proceeded to explain: From their very nature and object, the records of the Legislature are as important as those of the judiciary, and to inquire into the veracity of the journals of the Philippine Legislature, when they are, as we have said clear and explicit, would be to violate both the letter and the spirit of the organic laws by which the Philippine Government was brought into existence, to invade a coordinate and independent department of the Government, and to interfere with the legitimate powers and functions of the Legislature. 44 Following the courts in the United States since the Constitution of the Philippine Government is modeled after that of the Federal Government, the Court did not hesitate to follow the courts in said country, i.e., to consider the journals decisive of the point at issue. Thus: "The journals say that the Legislature adjourned at 12 midnight on February 28, 1914. This settles the question and the court did not err in declining to go behind these journals." 45 The Court made a categorical stand for the "enrolled bill rule" for the first time in the 1947 case of Mabanag v. Lopez Vito 46 where it held that an enrolled bill imports absolute verity and is binding on the courts. This Court held itself bound by an authenticated resolution, despite the fact that the vote of three-fourths of the Members of the Congress (as required by the Constitution to approve proposals for constitutional amendments) was not actually obtained on account of the suspension of some members of the House of Representatives and the Senate. In this connection, the Court invoked the "enrolled bill rule" in this wise: "If a political question conclusively binds the judges out of respect to the political departments, a duly certified law or resolution also binds the judges under the 'enrolled bill rule' born of that respect." 47 Mindful that the U.S. Supreme Court is on the side of those who favor the rule and for no other reason than that it conforms to the expressed policy of our law making body (i.e., Sec. 313 of the old Code of Civil Procedure, as amended by Act No. 2210), the Court said that "duly certified copies shall be conclusive proof of the provisions of such Acts and of the due enactment thereof." Without pulling the legal underpinnings from U.S. v. Pons, it justified its position by saying that if the Court at the time looked into the journals, "in all probability, those were the documents offered in evidence" and that "even if both the journals and

authenticated copy of the Act had been presented, the disposal of the issue by the Court on the basis of the journals does not imply rejection of the enrolled theory; for as already stated, the due enactment of a law may be proved in either of the two ways specified in Section 313 of Act No. 190 as amended." 48 Three Justices voiced their dissent from the majority decision. Again, the Court made its position plain in the 1963 case of Casco Philippine Chemical Co., Inc. v. Gimenez 49when a unanimous Court ruled that: "The enrolled bill is conclusive upon the courts as regards the tenor of the measure passed by Congress and approved by the President. If there has been any mistake in the printing of a bill before it was certified by the officers of Congress and approved by the Executive, the remedy is by amendment or curative legislation not by judicial decree." According to Webster's New 20th Century Dictionary, 2nd ed., 1983, the word "tenor" means, among others, "the general drift of something spoken or written; intent, purport, substance." Thus, the Court upheld the respondent Auditor General's interpretation that Republic Act No. 2609 really exempted from the margin fee on foreign exchange transactions "urea formaldehyde" as found in the law and not "urea and formaldehyde" which petitioner insisted were the words contained in the bill and were so intended by Congress. In 1969, the Court similarly placed the weight of its authority behind the conclusiveness of the enrolled bill. In denying the motion for reconsideration, the Court ruled in Morales v. Subido that "the enrolled Act in the office of the legislative secretary of the President of the Philippines shows that Section 10 is exactly as it is in the statute as officially published in slip form by the Bureau of Printing . . . Expressed elsewise, this is a matter worthy of the attention not of an Oliver Wendell Holmes but of a Sherlock Holmes." 50 The alleged omission of a phrase in the final Act was made, not at any stage of the legislative proceedings, but only in the course of the engrossment of the bill, more specifically in the proofreading thereof. But the Court did include a caveat that qualified the absoluteness of the "enrolled bill" rule stating: By what we have essayed above we are not of course to be understood as holding that in all cases the journals must yield to the enrolled bill. To be sure there are certain matters which the Constitution (Art. VI, secs. 10 [4], 20 [1], and 21 [1]) expressly requires must be entered on the journal of each house. To what extent the validity of a legislative act may be affected by a failure to have such matters entered on the journal, is a question which we do not now decide (Cf. e.g., Wilkes Country Comm'rs. v. Coler, 180 U.S. 506 [1900]). All we hold is that with respect to matters not expressly required to be entered on the journal, the enrolled bill prevails in the event of any discrepancy. 51 More recently, in the 1993 case of Philippine Judges Association v. Prado, this Court, in ruling on the unconstitutionality of Section 35 of Republic Act No. 7354 withdrawing the franking privilege from the entire hierarchy of courts, did not so much adhere to the enrolled bill rule alone as to both "enrolled bill and legislative journals." Through Mr. Justice Isagani A. Cruz, we stated: "Both the enrolled bill and the legislative journals certify that the measure was duly enacted, i.e., in accordance with Article VI, Sec. 26(2) of the Constitution. We are bound by such official assurances from a coordinate department of the government, to which we owe, at the very least, a becoming courtesy."
52

Aware of the shifting sands on which the validity and continuing relevance of the "enrolled bill" theory rests, I have taken pains to trace the history of its applicability in this jurisdiction, as influenced in varying degrees by different Federal rulings. As applied to the instant petition, the issue posed is whether or not the procedural irregularities that attended the passage of House Bill No. 11197 and Senate Bill No. 1630, outside of the reading and printing requirements which were exempted by the Presidential certification, may no longer be impugned, having been "saved" by the conclusiveness on us of the enrolled bill. I see no cogent reason why we cannot continue to place reliance on the enrolled bill, but only with respect to matters pertaining to the procedure followed in the enactment of bills in Congress and their subsequent engrossment, printing errors, omission of words and phrases and similar relatively minor matters relating more to form and factual issues which do not materially alter the essence and substance of the law itself. Certainly, "courts cannot claim greater ability to judge procedural legitimacy, since constitutional rules on legislative procedure are easily mastered. Procedural disputes are over facts whether or not the bill had enough votes, or three readings, or whatever not over the meaning of the constitution. Legislators, as eyewitnesses, are in a better position than a court to rule on the facts. The argument is also made that legislatures would be offended if courts examined legislative procedure. 53 Such a rationale, however, cannot conceivably apply to substantive changes in a bill introduced towards the end of its tortuous trip through Congress, catching both legislators and the public unawares and altering the same beyond recognition even by its sponsors. This issue I wish to address forthwith. EXTENT OF THE POWER OF THE BICAMERAL CONFERENCE COMMITTEE One of the issues raised in these petitions, especially in G.R. Nos. 115781, 115543 and 115754, respectively, is whether or not Congress violated Section 26, par. 2, Article VI (of the 1987 Constitution) when it approved the Bicameral Conference Committee Report which embodied, in violation of Rule XII of the Rules of the Senate, a radically altered tax measure containing provisions not reported out or discussed in either House as well as provisions on which there was no disagreement between the House and the Senate and, worse, provisions contrary to what the House and the Senate had approved after three separate readings. 54 and By adding or deleting provisions, when there was no conflicting provisions between the House and Senate versions, the BICAM acted in excess of its jurisdiction or with such grave abuse of discretion as to amount to loss of jurisdiction. . . . In adding to the bill and thus subjecting to VAT, real properties, media and cooperatives despite the contrary decision of both Houses, the BICAM exceeded its jurisdiction or acted with such abuse of discretion as to amount to loss of jurisdiction. . . . 55 I wish to consider this issue in light of Article VIII, Sec. 1 of the Constitution which provides that "(j)udicial power includes the duty of the courts of justice . . . to determine whether or

not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government." We are also guided by the principle that a court may interfere with the internal procedures of its coordinate branch only to uphold the Constitution. 56 A conference committee has been defined: . . . unlike the joint committee is two committees, one appointed by each house. It is normally appointed for a specific bill and its function is to gain accord between the two houses either by the recession of one house from its bill or its amendments or by the further amendment of the existing legislation or by the substitution of an entirely new bill. Obviously the conference committee is always a special committee and normally includes the member who introduced the bill and the chairman of the committee which considered it together with such other representatives of the house as seem expedient. (Horack, Cases and Materials on Legislation [1940] 220. See also Zinn, Conference Procedure in Congress, 38 ABAJ 864 [1952]; Steiner, The Congressional Conference Committee [U of III. Press, 1951]). 57 From the foregoing definition, it is clear that a bicameral conference committee is a creature, not of the Constitution, but of the legislative body under its power to determine rules of its proceedings under Article VI, Sec. 16 (3) of the Constitution. Thus, it draws its life and vitality from the rules governing its creation. The why, when, how and wherefore of its operations, in other words, the parameters within which it is to function, are to be found in Section 26, Rule XII of the Rules of the Senate and Section 85 of the Rules of the House of Representatives, respectively, which provide: Rule XII, Rules of the Senate Sec. 26. In the event that the Senate does not agree with the House of Representatives on the provision of any bill or joint resolution, the differences shall be settled by a conference committee of both Houses which shall meet within ten days after their composition. The President shall designate the members of the conference committee in accordance with subparagraph (c), Section 8 of Rule III. Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in or amendments to the subject measure, and shall be signed by the conferees. The consideration of such report shall not be in order unless the report has been filed with the Secretary of the Senate and copies thereof have been distributed to the Members. Rules of the House of Representatives Sec. 85. Conference Committee Reports. In the event that the House does not agree with the Senate on the amendments to any bill or joint resolution, the differences may be settled by conference committee of both Chambers.

The consideration of conference committee reports shall always be in order, except when the journal is being read, while the roll is being called or the House is dividing on any question. Each of the pages of such reports shall contain a detailed, sufficiently explicit statement of the changes in or amendments to the subject measure. The consideration of such report shall not be in order unless copies thereof are distributed to the Members: Provided, That in the last fifteen days of each session period it shall be deemed sufficient that three copies of the report, signed as above provided, are deposited in the office of the Secretary General. Under these Rules, a bicameral conference committee comes into being only when there are disagreements and differences between the Senate and the House with regard to certain provisions of a particular legislative act which have to be reconciled. Jefferson's Manual, which, according to Section 112, Rule XLIX of the Senate Rules, supplements it, states that a conference committee is usually called "on the occasion of amendments between the Houses" and "in all cases of difference of opinion between the two House on matters pending between them." 58 It further states: The managers of a conference must confine themselves to the differences committed to them, and may not include subjects not within the disagreements, even though germane to a question in issue. But they may perfect amendments committed to them if they do not in so doing go beyond the differences. . . . Managers may not change the text to which both Houses have agreed. 59 (Emphasis supplied.) Mason's Manual of Legislative Procedures which is also considered as controlling authority for any situation not covered by a specific legislative rule, 60 states that either House may "request a conference with the other on any matter of difference or dispute between them" and that in such a request, "the subject of the conference should always be stated." 61 In the Philippines, as in the United States, the Conference Committee exercises such a wide range of authority that they virtually constitute a third House in the Legislature. As admitted by the Solicitor General, "It was the practice in past Congresses for Conference Committees to insert in bills approved by the two Houses new provisions that were not originally contemplated by them." 62 In Legislative Procedure, Robert Luce gives a graphic description of the milieu and the circumstances which have conspired to transform an initially innocuous mechanism designed to facilitate action into an all-powerful Frankenstein that brooks no challenge to its authority even from its own members. Their power lies chiefly in the fact that reports of conference committees must be accepted without amendment or else rejected in toto. The impulse is to get done with the matters and so the motion to accept has undue advantage, for some members are sure to prefer swallowing unpalatable provisions rather than prolong controversy. This is the more likely if the report comes in the rush of business toward the end of a session, when to seek further conference might result in the loss of the measure altogether. At any time in the session there is some risk of such a result following the rejection of a conference report, for it may not be

possible to secure a second conference, or delay may give opposition to the main proposal chance to develop more strength. xxx xxx xxx Entangled in a network of rule and custom, the Representative who resents and would resist this theft of his rights, finds himself helpless. Rarely can he vote, rarely can he voice his mind, in the matter of any fraction of the bill. Usually he cannot even record himself as protesting against some one feature while accepting the measure as whole. Worst of all, he cannot by argument or suggested change, try to improve what the other branch has done. This means more than the subversion of individual rights. It means to a degree the abandonment of whatever advantage the bicameral system may have. By so much it in effect transfers the lawmaking power to a small group of members who work out in private a decision that almost always prevails. What is worse, these men are not chosen in a way to ensure the wisest choice. It has become the practice to name as conferees the ranking members of the committee, so that the accident of seniority determines. Exceptions are made, but in general it is not a question of who are most competent to serve. Chance governs, sometimes giving way to favor, rarely to merit. xxx xxx xxx Speaking broadly, the system of legislating by conference committee is unscientific and therefore defective. Usually it forfeits the benefit of scrutiny and judgment by all the wisdom available. Uncontrolled, it is inferior to that process by which every amendment is secured independent discussion and vote. . . . 63 (Emphasis supplied) Not surprisingly has it been said: "Conference Committee action is the most undemocratic procedure in the legislative process; it is an appropriate target for legislative critics." 64 In the case at bench, petitioners insist that the Conference Committee to which Senate Bill No. 1630 and House Bill No. 11197 were referred for the purpose of harmonizing their differences, overreached themselves in not confining their "reconciliation" function to those areas of disagreement in the two bills but actually making "surreptitious insertions" and deletions which amounted to a grave abuse of discretion. At this point, it becomes imperative to focus on the errant provisions which found their way into Republic Act No. 7716. Below is a breakdown to facilitate understanding the grounds for petitioners' objections: INSERTIONS MADE BY BICAMERAL CONFERENCE COMMITTEE (BICAM) TO SENATE BILL (SB) NO. 1630 AND HOUSE BILL (HB) NO. 11197 1. Sec. 99 of the National Internal Revenue Code (NIRC) (1) Under the HB, this section includes any person who, in the course of trade or business, sells, barters or exchanges goods OR PROPERTIES and any person who LEASES PERSONAL PROPERTIES.

(2) The SB completely changed the said section and defined a number of words and phrases. Also, Section 99-A was added which included one who sells, exchanges, barters PROPERTIES and one who imports PROPERTIES. (3) The BICAM version makes LESSORS of goods OR PROPERTIES and importers of goods LIABLE to VAT (subject of petition in G.R. No. 115754). 2. Section 100 (VAT on Sale of Goods) The term "goods" or "properties" includes the following, which were not found in either the HB or the SB: In addition to radio and television time; SATTELITE TRANSMISSION AND CABLE TELEVISION TIME. The term "Other similar properties" was deleted, which was present in the HB and the SB. Real properties held primarily for sale to customers or held for lease in the ordinary course or business were included, which was neither in the HB nor the SB (subject of petition in G.R. No. 115754). 3. Section 102 On what are included in the term "sale or exchange of services," as to make them subject to VAT, the BICAM included/inserted the following (not found in either House or Senate Bills): 1. Services of lessors of property, whether personal or real (subject of petition in G.R. No. 115754); 2. Warehousing services; 3. Keepers of resthouses, pension houses, inns, resorts; 4. Common carriers by land, air and sea; 5. Services of franchise grantees of telephone and telegraph; 6. Radio and television broadcasting; 7. All other franchise grantees except those under Section 117 of this Code (subject of petition in G.R. No. 115852); 8. Services of surety, fidelity, indemnity, and bonding companies; 9. Also inserted by the BICAM (on page 8 thereof) is the lease or use of or the right to use of satellite transmission and cable television time. 4. Section 103 (Exempt Transactions)

The BICAM deleted subsection (f) in its entirety, despite its inclusion in both the House and Senate Bills. Therefore, under Republic Act No. 7716, the "printing, publication, importation or sale of books and any newspaper, magazine, review, or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of advertisements" is subject to VAT (subject of petition in G.R. No. 115931 and G.R. No. 115544). The HB and SB did not touch Subsection (g) but it was amended by the BICAM by changing the word TEN to FIVE. Thus, importation of vessels with tonnage of more than five thousand tons is VAT exempt. Subsection L, which was identical in the HB and the SB that stated that medical, dental, hospital and veterinary services were exempted from the VAT was amended by the BICAM by adding the qualifying phrase: EXCEPT THOSE RENDERED BY PROFESSIONALS, thus subjecting doctors, dentists and veterinarians to the VAT. Subsection U which exempts from VAT "transactions which are exempt under special laws," was amended by the BICAM by adding the phrase: EXCEPT THOSE GRANTED UNDER PD Nos. 66, 529, 972, 1491, AND 1590, AND NON-ELECTRIC COOPERATIVES UNDER RA 6938 (subject of petition in G.R. No. 115873), not found in either the HB or the SB, resulting in the inclusion of all cooperatives to the VAT, except non-electric cooperatives. The sale of real properties was included in the exempt transactions under the House Bill, but the BICAM qualified this with the provision: (S) SALE OF REAL PROPERTIES NOT PRIMARILY HELD FOR SALE TO CUSTOMERS OR HELD FOR LEASE IN THE ORDINARY COURSE OF TRADE OR BUSINESS OR REAL PROPERTY UTILIZED FOR LOW-COST AND SOCIALIZED HOUSING AS DEFINED BY RA NO. 7279 OTHERWISE KNOWN AS THE URBAN DEVELOPMENT AND HOUSING ACT OF 1992 AND OTHER RELATED LAWS. (subject of petition in G.R. No. 115754) The BICAM also exempted the sale of properties, the receipts of which are not less than P480,000.00 or more than P720,000.00. Under the SB, no amount was given, but in the HB it was stated that receipts from the sale of properties not less than P350,000.00 nor more than P600,000.00 were exempt. It did not include, as VAT exempt, the sale or transfer of securities, as defined in the Revised Securities Act (BP 178) which was contained in both Senate and House Bills. 5. Section 104 Not included in the HB or the SB is the phrase "INCLUDING PACKAGING MATERIALS" which was inserted by the BICAM in Section 104 (A) (1) (B), thus excluding from creditable input tax packaging materials and the phrase "ON WHICH A VALUE-ADDED TAX HAS BEEN ACTUALLY PAID" in Section 104 (A) (2). 6. Section 107 Both House and Senate Bills provide for the payment of P500.00 VAT registration fee but this was increased by BICAM to P1,000.00.

7. Section 112 Regarding a person whose sales or receipts are exempt under Section 103 (w), the BICAM inserted the phrase: "THREE PERCENT UPON THE EFFECTIVITY OF THIS ACT AND FOUR PERCENT (4%) TWO YEARS THEREAFTER," although the SB and the HB provide only "three percent of his gross quarterly sales." 8. Section 115 The BICAM adopted the HB version which subjects common carriers by land, air or water for the transport of passengers to 3% of their gross quarterly sales, which is not found in the SB. 9. Section 117 The BICAM amended this section by subjecting franchises on electric, gas and water utilities to a tax of two percent (2%) on gross receipts derived . . ., although neither the HB nor the SB has a similar provision. 10. Section 17 (d) (a) The BICAM defers for only 2 years the VAT on services of actors and actresses, although the SB defers it for 3 years. (b) The BICAM uses the word "EXCLUDE" in the section on deferment of VAT collection on certain goods and services. The HB does not contain any counterpart provision and SB only allows deferment for no longer than 3 years. 11. Section 18 on the Tax Administration Development Fund is an entirely new provision not contained in the House/Senate Bills. This fund is supposed to ensure effective implementation of Republic Act No. 7716. 12. Section 19 No period within which to promulgate the implementing rules and regulations is found in the HB or the SB but BICAM provided "within 90 days" which found its way in Republic Act No. 7716. Even a cursory perusal of the above outline will convince one that, indeed, the Bicameral Conference Committee (henceforth to be referred to as BICAM) exceeded the power and authority granted in the Rules of its creation. Both Senate and House Rules limit the task of the Conference Committee in almost identical language to the settlement of differences in the provisions or amendments to any bill or joint resolution. If it means anything at all, it is that there are provisions in subject bill, to start with, which differ and, therefore, need reconciliation. Nowhere in the Rules is it authorized to initiate or propose completely new matter. Although under certain rules on legislative procedure, like those in Jefferson's Manual, a conference committee may introduce germane matters in a particular bill, such matters should be circumscribed by the committee's sole authority and function to reconcile differences. Parenthetically, in the Senate and in the House, a matter is "germane" to a particular bill if there is a common tie between said matter and the provisions which tend to promote the

object and purpose of the bill it seeks to amend. If it introduces a new subject matter not within the purview of the bill, then it is not "germane" to the bill. 65 The test is whether or not the change represented an amendment or extension of the basic purpose of the original, or the introduction of an entirely new and different subject matter. 66 In the BICAM, however, the germane subject matter must be within the ambit of the disagreement between the two Houses. If the "germane" subject is not covered by the disagreement but it is reflected in the final version of the bill as reported by the Conference Committee or, if what appears to be a "germane" matter in the sense that it is "relevant or closely allied" 67 with the purpose of the bill, was not the subject of a disagreement between the Senate and the House, it should be deemed an extraneous matter or even a "rider" which should never be considered legally passed for not having undergone the three-day reading requirement. Insertion of new matter on the part of the BICAM is, therefore, an ultra vires act which makes the same void. The determination of what is "germane" and what is not may appear to be a difficult task but the Congress, having been confronted with the problem before, resolved it in accordance with the rules. In that case, the Congress approved a Conference Committee's insertion of new provisions that were not contemplated in any of the provisions in question between the Houses simply because of the provision in Jefferson's Manual that conferees may report matters "which are germane modifications of subjects in disagreement between the Houses and the committee. 68 In other words, the matter was germane to the points of disagreement between the House and the Senate. As regards inserted amendments in the BICAM, therefore, the task of determining what is germane to a bill is simplified, thus: If the amendments are not circumscribed by the subjects of disagreement between the two Houses, then they are not germane to the purpose of the bill. In the instant case before us, the insertions and deletions made do not merely spell an effort at settling conflicting provisions but have materially altered the bill, thus giving rise to the instant petitions on the part of those who were caught unawares by the legislative legerdemain that took place. Going by the definition of the word "amendment" in Black's Law Dictionary, 5th Ed., 1979, which means "to change or modify for the better; to alter by modification, deletion, or addition," said insertions and deletions constitute amendments. Consequently, these violated Article VI, Section 26 (2) which provides inter alia: "Upon the last reading of a bill, no amendment thereto shall be allowed . . ." This proscription is intended to subject all bills and their amendments to intensive deliberation by the legislators and the ample ventilation of issues to afford the public an opportunity to express their opinions or objections issues to afford the public an opportunity to express their opinions or objections thereon. The same rationale underlies the three-reading requirement to the end that no surprises may be sprung on an unsuspecting citizenry. Provisions of the "now you see it, now you don't" variety, meaning those which were either in the House and/or Senate versions but simply disappeared or were "bracketed out" of existence in the BICAM Report, were eventually incorporated in Republic Act No. 7716. Worse, some goods, properties or services which were not covered by the two versions and, therefore, were never intended to be so covered, suddenly found their way into the same Report. No advance notice of such insertions prepared the rest of the legislators, much less the public who could be adversely affected, so that they could be given the opportunity to express their views thereon. Well has the final BICAM report been described, therefore, as an instance of "taxation without representation." That the conferees or delegates in the BICAM representing the two Chambers could not possibly be charged with bad faith or sinister motives or, at the very least, unseemly

behavior, is of no moment. The stark fact is that items not previously subjected to the VAT now fell under its coverage without interested sectors or parties having been afforded the opportunity to be heard thereon. This is not to say that the Conference Committee Report should have undergone the three readings required in Article VI, Section 26 (2), for this clearly refers only to bills which, after having been initially filed in either House, negotiated the labyrinthine passage therein until its approval. The composition of the BICAM including as it usually does, the Chairman of the appropriate Committee, the sponsor of the bill and other interested members ensures an informed discussion, at least with respect to the disagreeing provisions. The same does not obtain as regards completely new matter which suddenly spring on the legislative horizon. It has been pointed out that such extraneous matters notwithstanding, all Congressman and Senators were given the opportunity to approve or turn down the Committee Report in toto, thus "curing" whatever defect or irregularity it bore. Earlier in this opinion, I explained that the source of the acknowledged power of this ad hoc committee stems from the precise fact that, the meetings, being scheduled "take it or leave it" basis. It has not been uncommon for legislators who, for one reason or another have been frustrated in their attempt to pass a pet bill in their own chamber, to work for its passage in the BICAM where it may enjoy a more hospitable reception and faster approval. In the instant case, had there been full, open and unfettered discussion on the bills during the Committee sessions, there would not have been as much vociferous objections on this score. Unfortunately, however, the Committee held two of the five sessions behind closed doors, sans stenographers, record-takers and interested observers. To that extent, the proceedings were shrouded in mystery and the public's right to information on matters of public concern as enshrined in Article III, Section 7 69 and the government's policy of transparency in transactions involving public interest in Article II, Section 28 of the Constitution 70 are undermined. Moreover, that which is void ab initio such as the objectionable provisions in the Conference Committee Report, cannot be "cured" or ratified. For all intents and purposes, these never existed. Quae ab initio non valent, ex post facto convalescere non possunt. Things that are invalid from the beginning are not made valid by a subsequent act. Should this argument be unacceptable, the "enrolled bill" doctrine, in turn, is invoked to support the proposition that the certification by the presiding officers of Congress, together with the signature of the President, bars further judicial inquiry into the validity of the law. I reiterate my submission that the "enrolled bill ruling" may be applicable but only with respect to questions pertaining to the procedural enactment, engrossment, printing, the insertion or deletion of a word or phrase here and there, but would draw a dividing line with respect to substantial substantive changes, such as those introduced by the BICAM herein. We have before us then the spectacle of a body created by the two Houses of Congress for the very limited purpose of settling disagreements in provisions between bills emanating therefrom, exercising the plenary legislative powers of the parent chambers but holding itself exempt from the mandatory constitutional requirements that are the hallmarks of legislation under the aegis of a democratic political system. From the initial filing, through the three readings which entail detailed debates and discussions in Committee and plenary sessions, and on to the transmittal to the other House in a repetition of the entire process to ensure exhaustive deliberations all these have been skipped over. In the proverbial twinkling of an eye, provisions that probably may not have seen the light of day had they but run their full course through the legislative mill, sprang into existence and emerged fullblown laws. Yet our Constitution vests the legislative power in "the Congress of the Philippines which shall consist of a Senate and a House of

Representatives . . ." 71 and not in any special, standing or super committee of its own creation, no matter that these have been described, accurately enough, as "the eye, the ear, the hand, and very often the brain of the house." Firstly, that usage or custom has sanctioned this abbreviated, if questionable, procedure does not warrant its being legitimized and perpetuated any longer. Consuetudo, contra rationem introducta, potius usurpatio quam consuetudo appellari debet. A custom against reason is rather an usurpation. In the hierarchy of sources of legislative procedure, constitutional rules, statutory provisions and adopted rules (as for example, the Senate and House Rules), rank highest, certainly much ahead of customs and usages. Secondly, is this Court to assume the role of passive spectator or indulgent third party, timorous about exercising its power or more importantly, performing its duty, of making a judicial determination on the issue of whether there has been grave abuse of discretion by the other branches or instrumentalities of government, where the same is properly invoked? The time is past when the Court was not loathe to raise the bogeyman of the political question to avert a head-on collision with either the Executive or Legislative Departments. Even the separation of powers doctrine was burnished to a bright sheen as often as it was invoked to keep the judiciary within bounds. No longer does this condition obtain. Article VIII, Section 2 of the Constitution partly quoted in this paragraph has broadened the scope of judicial inquiry. This Court can now safely fulfill its mandate of delimiting the powers of co-equal departments like the Congress, its officers or its committees which may have no compunctions about exercising legislative powers in full. Thirdly, dare we close our eyes to the presumptuous assumption by a runaway committee of its progenitor's legislative powers in derogation of the rights of the people, in the process, subverting the democratic principles we all are sworn to uphold, when a proper case is made out for our intervention? The answers to the above queries are self-evident. I call to mind this exhortation: "We are sworn to see that violations of the constitution by any person, corporation, state agency or branch of government are brought to light and corrected. To countenance an artificial rule of law that silences our voices when confronted with violations of our Constitution is not acceptable to this Court." 72 I am not unaware that a rather recent decision of ours brushed aside an argument that a provision in subject law regarding the withdrawal of the franking privilege from the petitioners and this Court itself, not having been included in the original version of Senate Bill No. 720 or of House Bill No. 4200 but only in the Conference Committee Report, was violative of Article VI, Section 26 (2) of the Constitution. Likewise, that said Section 35, never having been a subject of disagreement between both Houses, could not have been validly added as an amendment before the Conference Committee. The majority opinion in said case explained: While it is true that a conference committee is the mechanism for compromising differences between the Senate and the House, it is not limited in its jurisdiction to this question. Its broader function is described thus: A conference committee may deal generally with the subject matter or it may be limited to resolving the precise differences between the two houses. Even where the conference committee is not by rule limited in its jurisdiction, legislative custom severely limits the freedom with which new subject matter can be inserted into the conference bill. But occasionally a conference committee produces unexpected results, results

beyond its mandate. These excursions occur even where the rules impose strict limitations on conference committee jurisdiction. This is symptomatic of the authoritarian power of conference committee (Davies, Legislative Law and Process: In a Nutshell, 1986 Ed., p. 81). 73 (Emphasis supplied) At the risk of being repetitious, I wish to point out that the general rule, as quoted above, is: "Even where the conference committee is not by rule limited in its jurisdiction, legislative custom severely limits the freedom with which new subject matter can be inserted into the conference bill." What follows, that is, "occasionally a conference committee produces unexpected results, results beyond its mandate. . ." is the exception. Then it concludes with a declaration that: "This is symptomatic of the authoritarian power of conference committee." Are we about to reinstall another institution that smacks of authoritarianism which, after our past experience, has become anathema to the Filipino people? The ruling above can hardly be cited in support of the proposition that a provision in a BICAM report which was not the subject of differences between the House and Senate versions of a bill cannot be nullified. It submit that such is not authorized in our Basic Law. Moreover, this decision concerns merely one provision whereas the BICAM Report that culminated in the EVAT law has a wider scope as it, in fact, expanded the base of the original VAT law by imposing the tax on several items which were not so covered prior to the EVAT. One other flaw in most BICAM Reports, not excluding this one under scrutiny, is that, hastily drawn up, it often fails to conform to the Senate and House Rules requiring no less than a "detailed" and "sufficiently explicit statement of the changes in or amendments to the subject measure." The Report of the committee, as may be gleaned from the preceding pages, was no more than the final version of the bill as "passed" by the BICAM. The amendments or subjects of dissension, as well as the reconciliation made by the committee, are not even pointed out, much less explained therein. It may be argued that legislative rules of procedure may properly be suspended, modified, revoked or waived at will by the legislators themselves. 74 This principle, however, does not come into play in interpreting what the record of the proceedings shows was, or was not, done. It is rather designed to test the validity of legislative action where the record shows a final action in violation or disregard of legislative rules. 75 Utilizing the Senate and the House Rules as both guidelines and yardstick, the BICAM here obviously did not adhere to the rule on what the Report should contain. Given all these irregularities that have apparently been engrafted into the BICAM system, and which have been tolerated, if not accorded outright acceptance by everyone involved in or conversant with, the institution, it may be asked: Why not leave well enough alone? That these practices have remained unchallenged in the past does not justify our closing our eyes and turning a deaf ear to them. Writ large is the spectacle of a mechanism ensconced in the very heart of the people's legislative halls, that now stands indicted with the charge of arrogating legislative powers unto itself through the use of dubious "shortcuts." Here, for the people to judge, is the "mother of all shortcuts." In the petitions at bench, we are confronted with the enactment of a tax law which was designed to broaden the tax base. It is rote learning for any law student that as an attribute of sovereignty, the power to tax is "the strongest of all the powers of government." 76 Admittedly, "for all its plenitude, the power to tax is not unconfined. There are restrictions." 77 Were there none, then the oft-quoted 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy" 78 would be a truism. Happily,

we can concur with, and the people can find comfort in, the reassuring words of Mr. Justice Holmes: "The power to tax is not the power to destroy while this Court sits."79 Manakanaka, mayroong dumudulog dito sa Kataastaasang Hukuman na may kamanghamanghang hinaing. Angkop na halimbawa ay ang mga petisyong iniharap ngayon sa amin. Ang ilan sa kanila ay mga Senador na nais mapawalang bisa ang isang batas ukol sa buwis na ipinasa mismo nila. Diumano ito ay hindi tumalima sa mga itinatadhana ng Saligang Batas. Bukod sa rito, tutol sila sa mga bagong talata na isiningit ng "Bicameral Conference Committee" na nagdagdag ng mga bagong bagay bagay at serbisyo na papatawan ng buwis. Ayon sa kanila, ginampanan ng komiteng iyan ang gawain na nauukol sa buong Kongreso. Kung kaya't ang nararapat na mangyari ay ihatol ng Kataastaasang Hukuman na malabis na pagsasamantala sa sariling pagpapasiya ang ginawa ng Kongreso. Bagama't bantulot kaming makialam sa isang kapantay na sangay ng Pamahalaan, hindi naman nararapat na kami ay tumangging gampanan ang tungkulin na iniatas sa amin ng Saligang Batas. Lalu't-lalo nang ang batas na kinauukulan ay maaaring makapinsala sa nakararami sa sambayanan. Sa ganang akin, itong batas na inihaharap sa amin ngayon, ay totoong labag sa Saligang Batas, samakatuwid ay walang bisa. Nguni't ito ay nauukol lamang sa mga katiwalian na may kinalaman sa paraan ng pagpapasabatas nito. Hindi namin patakaran ang makialam o humadlang sa itinakdang gawain ng Saligang Batas sa Pangulo at sa Kongreso. Ang dalawang sangay na iyan ng Pamahalaan ang higit na maalam ukol sa kung ang anumang panukalang batas ay nararapat, kanais-nais o magagampanan; kung kaya't hindi kami nararapat na maghatol o magpapasiya sa mga bagay na iyan. Ang makapapataw ng angkop na lunas sa larangan na iyan ay ang mismong mga kinatawan ng sambayanan sa Kongreso. Faced with this challenge of protecting the rights of the people by striking down a law that I submit is unconstitutional and in the process, checking the wonted excesses of the Bicameral Conference Committee system, I see in this case a suitable vehicle to discharge the Court's Constitutional mandate and duty of declaring that there has indeed been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Legislature. Republic Act No. 7716, being unconstitutional and void, I find no necessity to rule on the substantive issues as dealt with in the majority opinion as they have been rendered moot and academic. These issues pertain to the intrinsic merits of the law. It is axiomatic that the wisdom, desirability and advisability of enacting certain laws lie, not within the province of the Judiciary but that of the political departments, the Executive and the Legislative. The relief sought by petitioners from what they perceive to be the harsh and onerous effect of the EVAT on the people is within their reach. For Congress, of which Senator-petitioners are a part, can furnish the solution by either repealing or amending the subject law. For the foregoing reasons, I VOTE to GRANT the petition.

First, a fast snapshot of the facts. On November 17, 1993, the House of Representatives passed on third reading House Bill (H.B.) No. 11197 entitled "An Act Restructuring the Value Added Tax (VAT) System to Widen its Tax Base and Enhance its Administration, Amending for These Purposes Sections 99, 100, 102 to 108 and 110 Title V and 236, 237 and 238 of Title IX, and Repealing Sections 113 and 114 of Title V, all of the National Internal Revenue Code as Amended." The vote was 114 Yeas and 12 Nays. The next day, November 18, 1993, H.B. No. 11197 was transmitted to the Senate for its concurrence by the Hon. Camilo L. Sabio, Secretary General of the House of Representatives. On February 7, 1994, the Senate Committee on Ways and Means submitted Senate Bill (S.B.) No. 1630, recommending its approval "in substitution of Senate Bill No. 1129 taking into consideration P.S. Res. No. 734 and House Bill No. 11197." On March 24, 1994, S.B. No. 1630 was approved on second and third readings. On the same day, the Senate, thru Secretary Edgardo E. Tumangan, requested the House for a conference "in view of the disagreeing provisions of S.B. No. 1630 and H.B. No. 11197." It designated the following as members of its Committee: Senators Ernesto F. Herrera, Leticia R. Shahani, Alberto S. Romulo, John H. Osmea, Ernesto M. Maceda, Blas F. Ople, Francisco S. Tatad, Rodolfo G. Biazon, and Wigberto S. Taada. On the part of the House, the members of the Committee were: Congressmen Exequiel B. Javier, James L. Chiongbian, Renato V. Diaz, Arnulfo P. Fuentebella, Mariano M. Tajon, Gregorio Andolong, Thelma Almario, and Catalino Figueroa. After five (5) meetings, 1 the Bicameral Conference Committee submitted its Report to the Senate and the House stating: CONFERENCE COMMITTEE REPORT The Conference Committee on the disagreeing provisions of House Bill No. 11197, entitled: AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND 110 OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 113 AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED and Senate Bill No. 1630 entitled: AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 106, 107, 108 AND 110 OF TITLE IV, 112, 115, 117 AND 121 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 113, 114, 116, 119 AND 120 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES having met, after full and free conference, has agreed to recommend and do hereby recommend to their respective Houses that House Bill No. 11197, in consolidation with Senate Bill No. 1630, be approved in accordance with the attached copy of the bill as reconciled and approved by the conferees. Approved.

PUNO, J.: Petitioners plead that we affirm the self-evident proposition that they who make law should not break the law. There are many evils whose elimination can be trusted to time. The evil of lawlessness in lawmaking cannot. It must be slain on sight for it subverts the sovereignty of the people.

The Report was approved by the House on April 27, 1994. The Senate approved it on May 2, 1994. On May 5, 1994, the President signed the bill into law as R.A. No. 7716. There is no question that the Bicameral Conference Committee did more than reconcile differences between House Bill No. 11197 and Senate Bill No. 1630. In several instances, it either added new provisions or deleted provisions already approved in House Bill No. 11197 and Senate Bill No. 1630. These insertions/deletions numbering twenty four (24) are specified in detail by petitioner Tolentino as follows: 2 SOME SALIENT POINTS ON THE (AMENDMENTS TO THE VATE LAW [EO 273]) SHOWING ADDITIONS/INSERTIONS MADE BY BICAMERAL CONFERENCE COMMITTEE TO SB 1630 & HB 11197 I On Sec. 99 of the NIRC H.B. 11197 amends this section by including, as liable to VAT, any person who in the course of trade of business, sells, barters, or exchanges goods or PROPERTIES and any person who LEASES PERSONAL PROPERTIES. Senate Bill 1630 deleted Sec. 99 to give way for a new Section 99 DEFINITION OF TERMS where eleven (11) terms were defined. A new Section, Section 99-A was incorporated which included as subject to VAT, one who sells, exchanges, barters PROPERTIES and one who imports PROPERTIES. The BCC version (R.A. 7716) makes LESSORS of goods OR PROPERTIES and importers of goods LIABLE to VAT. II On Section 100 (VAT on sale of goods) A. The H.B., S.B., and the BCC (R.A. 7716) all included sale of PROPERTIES as subject to VAT. The term GOODS or PROPERTIES includes the following:

goodwill trademark, tradebrand or other like property or right.

2. Right or the privilege to use in the Philippines of any industrial, commercial, or scientific equipment.

2. The same

2. The same

3. Right or the privilege to use motion picture films, films, tapes and discs.

3. The same

3. The same

HB (pls. refer to Sec. 2)

1

SB (pls. refer To Sec. 1(4) 1. The same

BCC (RA 7716 (Sec. 2) 1. The same

4. Radio and Television time

4. The same

4. In addition to radio and television time the following were included: SATELLITE TRANSMISSION and CABLE TELEVISION TIME

. Right or the

privilege to use patent, copyright, design, or model, plan, secret formula or process,

4. Common carriers by LAND, AIR AND SEA (Ibid.,) 5. Other Similar properties 5. The Same 5. 'Other similar properties' was deleted 6. RADIO AND TELEVISION BROADCASTING 7. ALL OTHER FRANCHISE GRANTEES EXCEPT THOSE UNDER SECTION 117 OF THIS CODE 6. 6. 6. Real properties held primarily for sale to customers or held for lease in the ordinary course or business IV. On Section 103 (Exempt Transactions) The BCC deleted subsection (f) in its entirety, despite its retention in both the House and Senate Bills, thus under RA 7716, the "printing, publication, importation or sale of books and any newspaper, magazine, review, or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of advertisements" is subject to VAT. Subsection (g) was amended by the BCC (both Senate and House Bills did not) by changing the word TEN to FIVE, thus: "Importation of passenger and/or cargo vessel of more than five thousand ton to ocean going, including engine and spare parts of said vessel to be used by the importer himself as operator thereof." In short, importation of vessels with tonnage of more than 5 thousand is VAT exempt. Subsection L, was amended by the BCC by adding the qualifying phrase: EXCEPT THOSE RENDERED BY PROFESSIONALS. Subsection U which exempts from VAT "Transactions which are exempt under special laws", was amended by BCC by adding the phrase: EXCEPT THOSE GRANTED UNDER PD NOS. 66, 529, 972, 1491, and 1590, and NON-ELECTRIC COOPERATIVES under RA 6938. This is the reason why cooperatives are now subject to VAT. While the SALE OF REAL PROPERTIES was included in the exempt transactions under the House Bill, the BCC made a qualification by stating: (S) SALE OF REAL PROPERTIES NOT PRIMARILY HELD FOR SALE TO CUSTOMERS OR HELD FOR LEASE IN THE ORDINARY COURSE OF TRADE OR BUSINESS OR REAL PROPERTY UTILIZED FOR LOW-COST AND SOCIALIZED HOUSING AS DEFINED BY R.A. NO. 7279 8. SERVICES OF SURETY, FIDELITY, INDEMNITY, AND BONDING COMPANIES. 9. Also inserted by the BCC (on page B thereof) is the LEASE OR USE OF OR THE RIGHT TO USE OF SATTELITE TRANSMISSION AND CABLE TELEVISION TIME 5. SERVICES OF FRANCHISE GRANTEES OF TELEPHONE AND TELEGRAPH;

B. The HB and the BCC Bills has each a provision which includes THE SALE OF GOLD TO BANGKO SENTRAL NG PILIPINAS as falling under the term Export Sales, hence subject to 0% VAT. The Senate Bill does not contain such provision (See Section 102-A thereof). III. On Section 102 This section was amended to include as subject to a 10% VAT the gross receipts derived from THE SALE OR EXCHANGE OF SERVICES, INCLUDING THE USE OR LEASE OF PROPERTIES. The SB, HB, and BCC have the same provisions on this. However, on what are included in the term SALE OR EXCHANGE OF SERVICES, the BCC included/inserted the following (not found in either the House or Senate Bills): 1. Services of lessors of property WHETHER PERSONAL OR REAL; (See BCC Report/Bill p. 7) 2. WAREHOUSING SERVICES (Ibid.,) 3. Keepers of RESTHOUSES, PENSION HOUSES, INNS, RESORTS (Ibid.,)

OTHERWISE KNOWN AS THE URBAN DEVELOPMENT AND HOUSING ACT OF 1992 AND OTHER RELATED LAWS. Under the Senate Bill, the sale of real property utilized for low-cost and socialized housing as defined by RA 7279, is one of the exempt transactions. Under the House Bill, also exempt from VAT, is the SALE OF PROPERTIES OTHER THAN THE TRANSACTIONS MENTIONED IN THE FOREGOING PARAGRAPHS WITH A GROSS ANNUAL SALES AND/OR RECEIPTS OF WHICH DOES NOT EXCEED THE AMOUNT PRESCRIBED IN THE REGULATIONS TO BE PROMULGATED BY THE SECRETARY OF FINANCE WHICH SHALL NOT BE LESS THAN P350,000.00 OR HIGHER THAN P600,000.00 . . . Under the Senate Bill, the amount is P240,000.00. The BCC agreed at the amount of not less than P480,000.00 or more than P720,000.00 SUBJECT TO TAX UNDER SEC. 112 OF THIS CODE. The BCC did not include, as VAT exempt, the sale or transfer of securities as defined in the Revised Securities Act (BP 178) which was contained in both Senate and House Bills. V On Section 104 The phrase INCLUDING PACKAGING MATERIALS was included by the BCC on Section 104 (A) (1) (B), and the phrase ON WHICH A VALUE-ADDED TAX HAS BEEN ACTUALLY on Section 104 (A) (2). These phrases are not contained in either House and Senate Bills. VI On Section 107 Both House and Senate Bills provide for the payment of P500.00 VAT registration fee. The BCC provides for P1,000.00 VAT fee. VII On Section 112 While both the Senate and House Bills provide that a person whose sales or receipts and are exempt under Section 103[w] of the Code, and who are not VAT registered shall pay a tax equivalent to THREE (3) PERCENT of his gross quarterly sales or receipts, the BCC inserted the phrase: THREE PERCENT UPON THE EFFECTIVITY OF THIS ACT AND FOUR PERCENT (4%) TWO YEARS THEREAFTER. VIII On Section 115

Sec. 17 of SB 1630 Sec. 12 of House Bill 11197 amends this Section by clarifying that common carriers by land, air or water FOR THE TRANSPORT OF PASSENGERS are subject to Percentage Tax equivalent to 3% of their quarterly gross sales. The BCC adopted this and the House Bill's provision that the GROSS RECEIPTS OF COMMON CARRIERS DERIVED FROM THEIR INCOMING AND OUTGOING FREIGHT SHALL NOT BE SUBJECTED TO THE LOCAL TAXES IMPOSED UNDER RA 7160. The Senate Bill has no similar provision. IX On Section 117 This Section has not been touched by either Senate and House Bills. But the BCC amended it by subjecting franchises on ELECTRIC, GAS and WATER UTILITIES A TAX OF TWO PERCENT (2%) ON GROSS RECEIPTS DERIVED . . . . X On Section 121 The BCC adopted the Senate Bills' amendment to this section by subjecting to 5% premium tax on life insurance business. The House Bill does not contain this provision. XI Others A) The House Bill does not contain any provision on the deferment of VAT collection on Certain Goods and Services as does the Senate Bill (Section 19, SB 1630). But although the Senate Bill authorizes the deferment on certain goods and services for no longer than 3 years, there is no specific provision that authorizes the President to EXCLUDE from VAT any of these. The BCC uses the word EXCLUDE. B) Moreover, the Senate Bill defers the VAT on services of actors and actresses etc. for 3 years but the BCC defers it for only 2 years. C) Section 18 of the BCC Bill (RA 7716) is an entirely new provision not contained in the House/Senate Bills. D) The period within which to promulgate the implementing rules and regulations is within 60 days under SB 1630; No specific period under the House Bill, within 90 days under RA 7716 (BCC). E) The House Bill provides for a general repealing clause i.e., all inconsistent laws etc. are repealed. Section 16 of the Senate Bill expressly repeals Sections 113, 114, 116, 119 and 120 of the code. The same Senate Bill however contains a general repealing clause in Sec. 21 thereof. RA 7716 (BCC's Bill) expressly repeals Sections 113, 114 and 116 of the NIRC; Article 39 (c) (d) and (e) of EO 226 and provides the repeal of Sec.

119 and 120 of the NIRC upon the expiration of two (2) years unless otherwise excluded by the President. The charge that the Bicameral Conference Committee added new provisions in the bills of the two chambers is hardly disputed by respondents. Instead, respondents justify them. According to respondents: (1) the Bicameral Conference Committee has an ex post veto power or a veto after the fact of approval of the bill by both Houses; (2) the bill prepared by the Bicameral Conference Committee, with its additions and deletions, was anyway approved by both Houses; (3) it was the practice in past Congresses for conference committees to insert in bills approved by the two Houses new provisions that were not originally contemplated by them; and (4) the enrolled bill doctrine precludes inquiry into the regularity of the proceedings that led to the enactment of R.A. 7716. With due respect, I reject these contentions which will cave in on closer examination. First. There is absolutely no legal warrant for the bold submission that a Bicameral Conference Committee possesses the power to add/delete provisions in bills already approved on third reading by both Houses or an ex post veto power. To support this postulate that can enfeeble Congress itself, respondents cite no constitutional provision, no law, not even any rule or regulation. 3 Worse, their stance is categorically repudiated by the rules of both the Senate and the House of Representatives which define with precision the parameters of power of a Bicameral Conference Committee. Thus, Section 209, Rule XII of the Rules of the Senate provides; In the event that the Senate does not agree with the House of Representatives on the provision of any bill or joint resolution, the differences shall be settled by a conference committee of both Houseswhich shall meet within ten days after their composition. Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in or amendments to the subject measure, and shall be signed by the conferees. (Emphasis supplied) The counterpart rule of the House of Representatives is cast in near identical language. Section 85 of the Rules of the House of Representatives pertinently provides: In the event that the House does not agree with the Senate on the amendments to any bill or joint resolution, the differences may be settled by a conference committee of both chambers. . . . . Each report shall contain a detailed, sufficiently explicit statement of the changes in or amendments to the subject measure. (Emphasis supplied) The Jefferson's Manual has been adopted 4 as a supplement to our parliamentary rules and practice. Section 456 of Jefferson's Manual similarly confines the powers of a conference committee, viz: 5 The managers of a conference must confine themselves to the differences committed to them . . . and may not include subjects not within the disagreements, even though germane to a question in issue.

This rule of antiquity has been honed and honored in practice by the Congress of the United States. Thus, it is chronicled by Floyd Biddick, Parliamentarian Emeritus of the United States Senate, viz: 6 Committees of conference are appointed for the sole purpose of compromising and adjusting the differing and conflicting opinions of the two Houses and the committees of conference alone can grant compromises and modify propositions of either Houses within the limits of the disagreement. Conferees are limited to the consideration of differences between the two Houses. Conferees shall not insert in their report matters not committed to them by either House, nor shall they strike from the bill matters agreed to by both Houses. No matter on which there is nothing in either the Senate or House passed versions of a bill may be included in the conference report and actions to the contrary would subject the report to a point of order. (Emphasis ours) In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House of Representative to support the thesis of the respondents that a bicameral conference committee is clothed with an ex post veto power. But the thesis that a Bicameral Conference Committee can wield ex post veto power does not only contravene the rules of both the Senate and the House. It wages war against our settled ideals of representative democracy. For the inevitable, catastrophic effect of the thesis is to install a Bicameral Conference Committee as the Third Chamber of our Congress, similarly vested with the power to make laws but with the dissimilarity that its laws are not the subject of a free and full discussion of both Houses of Congress. With such a vagrant power, a Bicameral Conference Committee acting as a Third Chamber will be a constitutional monstrosity. It needs no omniscience to perceive that our Constitution did not provide for a Congress composed of three chambers. On the contrary, section 1, Article VI of the Constitution provides in clear and certain language: "The legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of Representatives . . ." Note that in vesting legislative power exclusively to the Senate and the House, the Constitution used the word "shall." Its command for a Congress of two houses is mandatory. It is not mandatory sometimes. In vesting legislative power to the Senate, the Constitution means the Senate ". . . composed of twenty-four Senators . . . elected at large by the qualified voters of the Philippines . . . ." 7 Similarly, when the Constitution vested the legislative power to the House, it means the House ". . . composed of not more than two hundred and fifty members . . . who shall be elected from legislative districts . . . and those who . . . shall be elected through a party-list system of registered national, regional, and sectoral parties or organizations." 8 The Constitution thus, did not vest on a Bicameral Conference Committee with an ad hoc membership the power to legislate for it exclusively vested legislative power to the Senate and the House as co-equal bodies. To be sure, the Constitution does not mention the Bicameral Conference Committees of Congress. No constitutional status is accorded to them. They are not even statutory creations. They owe their existence from the internal rules of the two Houses of Congress. Yet, respondents peddle the disconcerting idea that they should be recognized as a Third Chamber of Congress and with ex post veto power at that.

The thesis that a Bicameral Conference Committee can exercise law making power with ex post veto power is freighted with mischief. Law making is a power that can be used for good or for ill, hence, our Constitution carefully laid out a plan and a procedure for its exercise. Firstly, it vouchsafed that the power to make laws should be exercised by no other body except the Senate and the House. It ought to be indubitable that what is contemplated is the Senate acting as a full Senate and the House acting as a full House. It is only when the Senate and the House act as whole bodies that they truly represent the people. And it is only when they represent the people that they can legitimately pass laws. Laws that are not enacted by the people's rightful representatives subvert the people's sovereignty. Bicameral Conference Committees, with their ad hoc character and limited membership, cannot pass laws for they do not represent the people. The Constitution does not allow the tyranny of the majority. Yet, the respondents will impose the worst kind of tyranny the tyranny of the minority over the majority. Secondly, the Constitution delineated in deft strokes the steps to be followed in making laws. The overriding purpose of these procedural rules is to assure that only bills that successfully survive the searching scrutiny of the proper committees of Congress and the full and unfettered deliberations of both Houses can become laws. For this reason, a bill has to undergo three (3) mandatory separate readings in each House. In the case at bench, the additions and deletions made by the Bicameral Conference Committee did not enjoy the enlightened studies of appropriate committees. It is meet to note that the complexities of modern day legislations have made our committee system a significant part of the legislative process. Thomas Reed called the committee system as "the eye, the ear, the hand, and very often the brain of the house." President Woodrow Wilson of the United States once referred to the government of the United States as "a government by the Chairman of the Standing Committees of Congress. . . " 9 Neither did these additions and deletions of the Bicameral Conference Committee pass through the coils of collective deliberation of the members of the two Houses acting separately. Due to this shortcircuiting of the constitutional procedure of making laws, confusion shrouds the enactment of R.A. No. 7716. Who inserted the additions and deletions remains a mystery. Why they were inserted is a riddle. To use a Churchillian phrase, lawmaking should not be a riddle wrapped in an enigma. It cannot be, for Article II, section 28 of the Constitution mandates the State to adopt and implement a "policy of full public disclosure of all its transactions involving public interest." The Constitution could not have contemplated a Congress of invisible and unaccountable John and Mary Does. A law whose rationale is a riddle and whose authorship is obscure cannot bind the people. All these notwithstanding, respondents resort to the legal cosmetology that these additions and deletions should govern the people as laws because the Bicameral Conference Committee Report was anyway submitted to and approved by the Senate and the House of Representatives. The submission may have some merit with respect to provisions agreed upon by the Committee in the process of reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In these instances, the conflicting provisions had been previously screened by the proper committees, deliberated upon by both Houses and approved by them. It is, however, a different matter with respect to additions and deletions which were entirely new and which were made not to reconcile inconsistencies between S.B. No. 1630 and H.B. No. 11197. The members of the Bicameral Conference Committee did not have any authority to add new provisions or delete provisions already approved by both Houses as it was not necessary to discharge their limited task of reconciling differences in bills. At that late stage of law making, the Conference Committee cannot add/delete provisions which can become laws without undergoing the study and deliberation of both chambers given to bills on 1st, 2nd, and 3rd readings. Even the Senate and the House cannot enact a law which will not undergo these mandatory three (3) readings required by the Constitution. If the Senate and the House cannot enact such a law, neither can the lesser Bicameral Conference Committee. Moreover, the so-called choice given to the members of both Houses to either approve or disapprove the said additions and deletions is more of an optical illusion. These additions and deletions are not submitted separately for approval. They are tucked to the entire bill. The vote is on the bill as a package, i.e., together with the insertions and deletions. And the vote is either "aye" or "nay," without any further debate and deliberation. Quite often,

legislators vote "yes" because they approve of the bill as a whole although they may object to its amendments by the Conference Committee. This lack of real choice is well observed by Robert Luce: 10 Their power lies chiefly in the fact that reports of conference committees must be accepted without amendment or else rejected in toto. The impulse is to get done with the matter and so the motion to accept has undue advantage, for some members are sure to prefer swallowing unpalatable provisions rather than prolong controversy. This is the more likely if the report comes in the rush of business toward the end of a session, when to seek further conference might result in the loss of the measure altogether. At any time in the session there is some risk of such a result following the rejection of a conference report, for it may not be possible to secure a second conference, or delay may give opposition to the main proposal chance to develop more strength. In a similar vein, Prof. Jack Davies commented that "conference reports are returned to assembly and Senate on a take-it or leave-it-basis, and the bodies are generally placed in the position that to leave-it is a practical impossibility." 11 Thus, he concludes that "conference committee action is the most undemocratic procedure in the legislative process." 12 The respondents also contend that the additions and deletions made by the Bicameral Conference Committee were in accord with legislative customs and usages. The argument does not persuade for it misappreciates the value of customs and usages in the hierarchy of sources of legislative rules of procedure. To be sure, every legislative assembly has the inherent right to promulgate its own internal rules. In our jurisdiction, Article VI, section 16(3) of the Constitution provides that "Each House may determine the rules of its proceedings . . ." But it is hornbook law that the sources of Rules of Procedure are many and hierarchical in character. Mason laid them down as follows: 13 xxx xxx xxx 1. Rules of Procedure are derived from several sources. The principal sources are as follows: a. Constitutional rules. b. Statutory rules or charter provisions. c. Adopted rules. d. Judicial decisions. e. Adopted parliamentary authority. f. Parliamentary law. g. Customs and usages. 2. The rules from the different sources take precedence in the order listed above except that judicial decisions, since they are interpretations of

rules from one of the other sources, take the same precedence as the source interpreted. Thus, for example, an interpretation of a constitutional provision takes precedence over a statute. 3. Whenever there is conflict between rules from these sources the rule from the source listed earlier prevails over the rule from the source listed, later. Thus, where the Constitution requires three readings of bills, this provision controls over any provision of statute, adopted rules, adopted manual, or of parliamentary law, and a rule of parliamentary law controls over a local usage but must give way to any rule from a higher source of authority. (Emphasis ours) As discussed above, the unauthorized additions and deletions made by the Bicameral Conference Committee violated the procedure fixed by the Constitution in the making of laws. It is reasonless for respondents therefore to justify these insertions as sanctioned by customs and usages. Finally, respondents seek sanctuary in the conclusiveness of an enrolled bill to bar any judicial inquiry on whether Congress observed our constitutional procedure in the passage of R.A. No. 7716. The enrolled bill theory is a historical relic that should not continuously rule us from the fossilized past. It should be immediately emphasized that the enrolled bill theory originated in England where there is no written constitution and where Parliament is supreme. 14 In this jurisdiction, we have a written constitution and the legislature is a body of limited powers. Likewise, it must be pointed out that starting from the decade of the 40's, even American courts have veered away from the rigidity and unrealism of the conclusiveness of an enrolled bill. Prof. Sutherland observed: 15 xxx xxx xxx. Where the failure of constitutional compliance in the enactment of statutes is not discoverable from the face of the act itself but may be demonstrated by recourse to the legislative journals, debates, committee reports or papers of the governor, courts have used several conflicting theories with which to dispose of the issue. They have held: (1) that the enrolled bill is conclusive and like the sheriff's return cannot be attacked; (2) that the enrolled bill is prima facie correct and only in case the legislative journal shows affirmative contradiction of the constitutional requirement will the bill be held invalid, (3) that although the enrolled bill is prima facie correct, evidence from the journals, or other extrinsic sources is admissible to strike the bill down; (4) that the legislative journal is conclusive and the enrolled bill is valid only if it accords with the recital in the journal and the constitutional procedure. Various jurisdictions have adopted these alternative approaches in view of strong dissent and dissatisfaction against the philosophical underpinnings of the conclusiveness of an enrolled bill. Prof. Sutherland further observed: . . . Numerous reasons have been given for this rule. Traditionally, an enrolled bill was "a record" and as such was not subject to attack at common law. Likewise, the rule of conclusiveness was similar to the common law rule of the inviolability of the sheriff's return. Indeed, they had the same origin, that is, the sheriff was an officer of the king and likewise the parliamentary act was a regal act and no official might dispute the king's word. Transposed to our democratic system of government, courts held that as the legislature was an official branch of

government the court must indulge every presumption that the legislative act was valid. The doctrine of separation of powers was advanced as a strong reason why the court should treat the acts of a co-ordinate branch of government with the same respect as it treats the action of its own officers; indeed, it was thought that it was entitled to even greater respect, else the court might be in the position of reviewing the work of a supposedly equal branch of government. When these arguments failed, as they frequently did, the doctrine of convenience was advanced, that is, that it was not only an undue burden upon the legislature to preserve its records to meet the attack of persons not affected by the procedure of enactment, but also that it unnecessarily complicated litigation and confused the trial of substantive issues. Although many of these arguments are persuasive and are indeed the basis for the rule in many states today, they are not invulnerable to attack. The rule most relied on the sheriff's return or sworn official rule did not in civil litigation deprive the injured party of an action, for always he could sue the sheriff upon his official bond. Likewise, although collateral attack was not permitted, direct attack permitted raising the issue of fraud, and at a later date attack in equity was also available; and that the evidence of the sheriff was not of unusual weight was demonstrated by the fact that in an action against the sheriff no presumption of its authenticity prevailed. The argument that the enrolled bill is a "record" and therefore unimpeachable is likewise misleading, for the correction of records is a matter of established judicial procedure. Apparently, the justification is either the historical one that the king's word could not be questioned or the separation of powers principle that one branch of the government must treat as valid the acts of another. Persuasive as these arguments are, the tendency today is to avoid reaching results by artificial presumptions and thus it would seem desirable to insist that the enrolled bill stand or fall on the basis of the relevant evidence which may be submitted for or against it. (Emphasis ours) Thus, as far back as the 1940's, Prof. Sutherland confirmed that ". . . the tendency seems to be toward the abandonment of the conclusive presumption rule and the adoption of the third rule leaving only a prima faciepresumption of validity which may be attacked by any authoritative source of information." 16 I am not unaware that this Court has subscribed to the conclusiveness of an enrolled bill as enunciated in the 1947 lead case of Mabanag v. Lopez Vito, and reiterated in subsequent cases. 17 With due respect, I submit that these rulings are no longer good law. Part of the ratiocination in Mabanag states: xxx xxx xxx If for no other reason than that it conforms to the expressed policy of our law making body, we choose to follow the rule. Section 313 of the old Code of Civil Procedure, as amended by Act No. 2210, provides: "Official

documents" may be proved as follows: . . . (2) the proceedings of the Philippine Commission, or of any legislative body that may be provided for in the Philippine Islands, or of Congress, by the journals of those bodies or of either house thereof, or by published statutes or resolutions, or by copies certified by the clerk or secretary, or printed by their order; Provided, That in the case of Acts of the Philippine Commission or the Philippine Legislature, when there is an existence of a copy signed by the presiding officers and secretaries of said bodies, it shall be conclusive proof of the provisions of such Acts and of the due enactment thereof. Suffice to state that section 313 of the Old Code of Civil Procedure as amended by Act No. 2210 is no longer in our statute books. It has long been repealed by the Rules of Court. Mabanag also relied on jurisprudence and authorities in the United States which are under severe criticisms by modern scholars. Hence, even in the United States the conclusiveness of an enrolled bill has been junked by most of the States. It is also true that as late as last year, in the case of Philippine Judges Association v. Prado, op. cit., this Court still relied on the conclusiveness of an enrolled bill as it refused to invalidate a provision of law on the ground that it was merely inserted by the bicameral conference committee of both Houses. Prado, however, is distinguishable. In Prado, the alleged insertion of the second paragraph of section 35 of R.A. No. 7354 repealing the franking privilege of the judiciary does not appear to be an uncontested fact. In the case at bench, the numerous additions/deletions made by the Bicameral Conference Committee as detailed by petitioners Tolentino and Salonga are not disputed by the respondents. In Prado, the Court was not also confronted with the argument that it can no longer rely on the conclusiveness of an enrolled bill in light of the new provision in the Constitution defining judicial power. More specifically, section 1 of Article VIII now provides: Sec. 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied) Former Chief Justice Roberto R. Concepcion, the sponsor of this provision in the Constitutional Commission explained the sense and the reach of judicial power as follows: xxx xxx xxx . . . In other words, the judiciary is the final arbiter on the question of whether or not a branch of government or any of its officials has acted without jurisdiction or in excess of jurisdiction, or so capriciously as to constitute an abuse of discretion amounting to excess of jurisdiction. This is not only a judicial power but a duty to pass judgment on matters of this nature. This is the background of paragraph 2 of Section 1, which means that the courts cannot hereafter evade the duty to settle matters of this nature, by claiming that such matters constitute political question. (Emphasis ours)

The Constitution cannot be any clearer. What it granted to this Court is not a mere power which it can decline to exercise. Precisely to deter this disinclination, the Constitution imposed it as a duty of this Court to strike down any act of a branch or instrumentality of government or any of its officials done with grave abuse of discretion amounting to lack or excess of jurisdiction. Rightly or wrongly, the Constitution has elongated the checking powers of this Court against the other branches of government despite their more democratic character, the President and the legislators being elected by the people. It is, however, theorized that this provision is nothing new. 19 I beg to disagree for the view misses the significant changes made in our constitutional canvass to cure the legal deficiencies we discovered during martial law. One of the areas radically changed by the framers of the 1987 Constitution is the imbalance of power between and among the three great branches of our government the Executive, the Legislative and the Judiciary. To upgrade the powers of the Judiciary, the Constitutional Commission strengthened some more the independence of courts. Thus, it further protected the security of tenure of the members of the Judiciary by providing "No law shall be passed reorganizing the Judiciary when it undermines the security of tenure of its Members." 20 It also guaranteed fiscal autonomy to the Judiciary. 21 More, it depoliticalized appointments in the judiciary by creating the Judicial and Bar Council which was tasked with screening the list of prospective appointees to the judiciary. 22 The power of confirming appointments to the judiciary was also taken away from Congress. 23 The President was likewise given a specific time to fill up vacancies in the judiciary ninety (90) days from the occurrence of the vacancy in case of the Supreme Court 24and ninety (90) days from the submission of the list of recommendees by the Judicial and Bar Council in case of vacancies in the lower courts. 25 To further insulate appointments in the judiciary from the virus of politics, the Supreme Court was given the power to "appoint all officials and employees of the Judiciary in accordance with the Civil Service Law." 26 And to make the separation of the judiciary from the other branches of government more watertight, it prohibited members of the judiciary to be " . . . designated to any agency performing quasi judicial or administrative functions." 27 While the Constitution strengthened the sinews of the Supreme Court, it reduced the powers of the two other branches of government, especially the Executive. Notable of the powers of the President clipped by the Constitution is his power to suspend the writ of habeas corpus and to proclaim martial law. The exercise of this power is now subject to revocation by Congress. Likewise, the sufficiency of the factual basis for the exercise of said power may be reviewed by this Court in an appropriate proceeding filed by any citizen. 28 The provision defining judicial power as including the "duty of the courts of justice . . . to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government" constitutes the capstone of the efforts of the Constitutional Commission to upgrade the powers of this Court vis-a-vis the other branches of government. This provision was dictated by our experience under martial law which taught us that a stronger and more independent judiciary is needed to abort abuses in government. As sharply stressed by petitioner Salonga, this provision is distinctly Filipino and its interpretation should not be depreciated by undue reliance on inapplicable foreign jurisprudence. It is thus crystal clear that unlike other Supreme Courts, this Court has been mandated by our new Constitution to be a more active agent in annulling acts of grave abuse of discretion committed by a branch of government or any of its officials. This new role, however, will not compel the Court, appropriately defined by Prof. A. Bickel as the least dangerous branch of government, to assume imperial powers and run roughshod over the principle of separation of power for that is judicial tyranny by any language. But while respecting the essential of the principle of separation of power, the Court is not to be restricted by its non-essentials. Applied to the case at bench, by voiding R.A. No. 7716 on the ground that its enactment violated the procedure imposed by the Constitution in lawmaking, the Court is not by any means

18

wrecking the wall separating the powers between the legislature and the judiciary. For in so doing, the Court is not engaging in lawmaking which is the essence of legislative power. But the Court's interposition of power should not be defeated by the conclusiveness of the enrolled bill. A resort to this fiction will result in the enactment of laws not properly deliberated upon and passed by Congress. Certainly, the enrolled bill theory was not conceived to cover up violations of the constitutional procedure in law making, a procedure intended to assure the passage of good laws. The conclusiveness of the enrolled bill can, therefore, be disregarded for it is not necessary to preserve the principle of separation of powers. In sum, I submit that in imposing to this Court the duty to annul acts of government committed with grave abuse of discretion, the new Constitution transformed this Court from passivity to activism. This transformation, dictated by our distinct experience as a nation, is not merely evolutionary but revolutionary. Under the 1935 and 1973 Constitutions, this Court approached constitutional violations by initially determining what it cannot do; under the 1987 Constitution, there is a shift in stress this Court is mandated to approach constitutional violations not by finding out what it should not do but what it must do. The Court must discharge this solemn duty by not resuscitating a past that petrifies the present. I vote to declare R.A. No. 7716 unconstitutional.

Since the term "exclusively" has already been adequately defined in the various opinions, as to which there seems to be no dispute, I shall no longer offer my own definition. Verily, the provision in our Constitution requiring that all revenue bills shall originate exclusively from the Lower House is mandatory. The word "exclusively" is an "exclusive word," which is indicative of an intent that the provision is mandatory. 1 Hence, all American authorities expounding on the meaning and application of Sec. 7, par. (1), Art. I, of the U.S. Constitution cannot be used in the interpretation of Sec. 24, Art. VI, of our 1987 Constitution which has a distinct feature of "exclusiveness" all its own. Thus, when our Constitution absolutely requires as it is mandatory that a particular bill should exclusively emanate from the Lower House, there is no alternative to the requirement that the bill to become valid law must originate exclusively from that House. In the interpretation of constitutions, questions frequently arise as to whether particular sections are mandatory or directory. The courts usually hesitate to declare that a constitutional provision is directory merely in view of the tendency of the legislature to disregard provisions which are not said to be mandatory. Accordingly, it is the general rule to regard constitutional provisions as mandatory, and not to leave any discretion to the will of the legislature to obey or disregard them. This presumption as to mandatory quality is usually followed unless it is unmistakably manifest that the provisions are intended to be merely directory. So strong is the inclination in favor of giving obligatory force to the terms of the organic law that it has even been said that neither by the courts nor by any other department of the government may any provision of the Constitution be regarded as merely directory, but that each and everyone of its provisions should be treated as imperative and mandatory, without reference to the rules and distinguishing between the directory and the mandatory statutes. 2 The framers of our 1987 Constitution could not have used the term "exclusively" if they only meant to replicate and adopt in toto the U.S. version. By inserting "exclusively" in Sec. 24, Art. VI, of our Constitution, their message is clear: they wanted it different, strong, stringent. There must be a compelling reason for the inclusion of the word "exclusively," which cannot be an act of retrogression but progression, an improvement on its precursor. Thus, "exclusively" must be given its true meaning, its purpose observed and virtue recognized, for it could not have been conceived to be of minor consequence. That construction is to be sought which gives effect to the whole of the statute its every word. Ut magis valeat quam pereat. Consequently, any reference to American authorities, decisions and opinions, however wisely and delicately put, can only mislead in the interpretation of our own Constitution. To refer to them in defending the constitutionality of R.A. 7716, subject of the present petitions, is to argue on a false premise, i.e., that Sec. 24, Art. VI, of our 1987 Constitution is, or means exactly, the same as Sec. 7, par. (1), Art. I, of the U.S. Constitution, which is not correct. Hence, only a wrong conclusion can be drawn from a wrong premise. For example, it is argued that in the United States, from where our own legislature is patterned, the Senate can practically substitute its own tax measure for that of the Lower House. Thus, according to the Majority, citing an American case, "the validity of Sec. 37 which the Senate had inserted in the Tariff Act of 1909 by imposing an ad valorem tax based on the weight of vessels, was upheld against the claim that the revenue bill originated in the Senate in contravention of Art. I, Sec. 7, of the U.S. Constitution." 3 In an effort to be more convincing, the Majority even quotes the footnote in Introduction to American Government by F.A. Ogg and P.O. Ray which reads Thus in 1883 the upper house struck out everything after the enacting clause of a tariff bill and wrote its own measure, which the House eventually felt obliged to accept. It likewise added 847 amendments to

BELLOSILLO, J.: With a consensus already reached after due deliberations, silence perhaps should be the better part of discretion, except to vote. The different views and opinions expressed are so persuasive and convincing; they are more than enough to sway the pendulum for or against the subject petitions. The penetrating and scholarly dissertations of my brethren should dispense with further arguments which may only confound and confuse even the most learned of men. But there is a crucial point, a constitutional issue which, I submit, has been belittled, treated lightly, if not almost considered insignificant and purposeless. It is elementary, as much as it is fundamental. I am referring to the word "exclusively" appearing in Sec. 24, Art. VI, of our 1987 Constitution. This is regrettable, to say the least, as it involves a constitutional mandate which, wittingly or unwittingly, has been cast aside as trivial and meaningless. A comparison of the particular provision on the enactment of revenue bills in the U.S. Constitution with its counterpart in the Philippine Constitution will help explain my position. Under the U.S. Constitution, "[a]ll bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other bills" (Sec. 7, par. [1], Art. I). In contrast, our 1987 Constitution reads: "All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments" (Sec. 24, Art. VI; Emphasis supplied). As may be gleaned from the pertinent provision of our Constitution, all revenue bills are required to originate "exclusively" in the House of Representatives. On the other hand, the U.S. Constitution does not use the word "exclusively;" it merely says, "[a]ll bills for raising revenue shall originate in the House of Representatives."

the Payne-Aldrich tariff act of 1909, dictated the schedules of the emergency tariff act of 1921, rewrote an extensive tax revision bill in the same year, and recast most of the permanent tariff bill of 1922 4 which in fact suggests, very clearly, that the subject revenue bill actually originated from the Lower House and was only amended, perhaps considerably, by the Senate after it was passed by the former and transmitted to the latter. In the cases cited, where the statutes passed by the U.S. Congress were upheld, the revenue bills did not actually originate from the Senate but, in fact, from the Lower House. Thus, the Supreme Court of the United States, speaking through Chief Justice White in Rainey v. United States 5 upheld the revenue bill passed by Congress and adopted the ruling of the lower court that . . . the section in question is not void as a bill for raising revenue originating in the Senate and not in the House of Representatives. It appears that the section was proposed by the Senate as an amendment to a bill for raising revenue which originated in the House. That is sufficient. Flint v. Stone Tracy Co., 6 on which the Solicitor General heavily leans in his Consolidated Comment as well as in his Memorandum, does not support the thesis of the Majority since the subject bill therein actually originated from the Lower House and not from the Senate, and the amendment merely covered a certain provision in the House bill. In fine, in the cases cited which were lifted from American authorities, it appears that the revenue bills in question actually originated from the House of Representatives and were amended by the Senate only after they were transmitted to it. Perhaps, if the factual circumstances in those cases were exactly the same as the ones at bench, then the subject revenue or tariff bill may be upheld in this jurisdiction on the principle of substantial compliance, as they were in the United States, except possibly in instances where the House bill undergoes what is now referred to as "amendment by substitution," for that would be in derogation of our Constitution which vests solely in the House of Representatives the power to initiate revenue bills. A Senate amendment by substitution simply means that the bill in question did not in effect originate from the lower chamber but from the upper chamber and not disguises itself as a mere amendment of the House version. It is also theorized that in the U.S., amendment by substitution is recognized. That may be true. But the process may be validly effective only under the U.S. Constitution. The cases before us present a totally different factual backdrop. Several months before the Lower House could even pass HB No. 11197, P.S. Res. No. 734 and SB No. 1129 had already been filed in the Senate. Worse, the Senate subsequently approved SB No. 1630 "in substitution of SB No. 1129, taking into consideration P.S. Res. No. 734 and HB No. 11197," and not HB No. 11197 itself "as amended." Here, the Senate could not have proposed or concurred with amendments because there was nothing to concur with or amend except its own bill. It must be stressed that the process of concurring or amending presupposes that there exists a bill upon which concurrence may be based or amendments introduced. The Senate should have reported out HB No. 11197, as amended, even if in the amendment it took into consideration SB No. 1630. It should not have submitted to the Bicameral Conference Committee SB No. 1630 which, admittedly, did not originate exclusively from the Lower House. But even assuming that in our jurisdiction a revenue bill of the Lower House may be amended by substitution by the Senate although I am not prepared to accept it in view of Sec. 24, Art. VI, of our Constitution still R.A. 7716 could not have been the result of

amendment by substitution since the Senate had no House bill to speak of that it could amend when the Senate started deliberating on its own version. Be that as it may, I cannot rest easy on the proposition that a constitutional mandate calling for the exclusive power and prerogative of the House of Representatives may just be discarded and ignored by the Senate. Since the Constitution is for the observance of all the judiciary as well as the other departments of government and the judges are sworn to support its provisions, the courts are not at liberty to overlook or disregard its commands. And it is not fair and just to impute to them undue interference if they look into the validity of legislative enactments to determine whether the fundamental law has been faithfully observed in the process. It is their duty to give effect to the existing Constitution and to obey all constitutional provisions irrespective of their opinion as to the wisdom of such provisions. The rule is fixed that the duty in a proper case to declare a law unconstitutional cannot be declined and must be performed in accordance with the deliberate judgment of the tribunal before which the validity of the enactment is directly drawn into question. When it is clear that a statute transgresses the authority vested in the legislature by the Constitution, it is the duty of the courts to declare the act unconstitutional because they cannot shirk from it without violating their oaths of office. This duty of the courts to maintain the Constitution as the fundamental law of the state is imperative and unceasing; and, as Chief Justice Marshal said, whenever a statute is in violation of the fundamental law, the courts must so adjudge and thereby give effect to the Constitution. Any other course would lead to the destruction of the Constitution. Since the question as to the constitutionality of a statute is a judicial matter, the courts will not decline the exercise of jurisdiction upon the suggestion that action might be taken by political agencies in disregard of the judgment of the judicial tribunals. 7 It is my submission that the power and authority to originate revenue bills under our Constitution is vestedexclusively in the House of Representatives. Its members being more numerous than those of the Senate, elected more frequently, and more directly represent the people, are therefore considered better aware of the economic life of their individual constituencies. It is just proper that revenue bills originate exclusively from them. In this regard, we do not have to devote much time delving into American decisions and opinions and invoke them in the interpretation of our own Constitution which is different from the American version, particularly on the enactment of revenue bills. We have our own Constitution couched in a language our own legislators thought best. Insofar as revenue bills are concerned, our Constitution is not American; it is distinctively Filipino. And no amplitude of legerdemain can detract from our constitutional requirement that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originateexclusively in the House of Representatives, although the Senate may propose or concur with amendments. In this milieu, I am left no option but to vote to grant the petitions and strike down R.A. 7716 as unconstitutional.

G.R. No. L-59431 July 25, 1984 ANTERO M. SISON, JR., petitioner, vs.

RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents. Antero Sison for petitioner and for his own behalf. The Solicitor General for respondents.

FERNANDO, C.J.: The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class legislation, oppressive and capricious in character 5For petitioner, therefore, there is a transgression of both the equal protection and due process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7 The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on May 28, 1982.8 The facts as alleged were admitted but not the allegations which to their mind are "mere arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being those stated [in their] Special and Affirmative Defenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited while correctly quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit. This Court finds such a plea more than justified. The petition must be dismissed. 1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and which the government was called upon to enter optionally, and only 'because it was better equipped to administer for the public welfare than is any private individual or group of individuals,' continue to lose their well-defined boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain availability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits . Adversely affecting as it does properly rights, both the due process and equal protection clauses inay properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of absolutes." 16 This is merely to emphasize that it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in the Philippines. 3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or executive, act that runs counter to it. In any case therefore where it can be demonstrated that the challenged statutory provision as petitioner here alleges fails to abide by its command, then this Court must so declare and adjudge it null. The injury thus is centered on the question of whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is constitutionally infirm. 4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here. does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are invoked, considering that they arc not fixed rules but rather broad standards, there is a need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. 18 5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds. 19 6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional mandate whether the assailed act is in the exercise of the lice power or the power of eminent domain is to demonstrated that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumtances which if not Identical are analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest." 20 That same formulation applies as well to taxation measures. The equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of the laws benefits being available to all and the affairs of men being governed by that serene

and impartial uniformity, which is of the very essence of the Idea of law. There is, however, wisdom, as well as realism in these words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, address to the attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same." 21Hence the constant reiteration of the view that classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" 23 7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the same force and effect in every place where the subject may be found. " 26 He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable." 27 The problem of classification did not present itself in that case. It did not arise until nine years later, when the Supreme Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform." 29 There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar situation." 30 8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different categories. To repeat, it. is enough that the classification must rest upon substantial distinctions that make real differences. In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers are e not entitled to make deductions for income tax purposes because they are in the same situation more or less. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income. 9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction between compensation and taxable net income of professionals and businessman certainly not a suspect classification, WHEREFORE, the petition is dismissed. Costs against petitioner.

Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur. Teehankee, J., concurs in the result. Plana, J., took no part.

Separate Opinions

AQUINO, J., concurring: I concur in the result. The petitioner has no cause of action for prohibition. ABAD SANTOS, J., dissenting: This is a frivolous suit. While the tax rates for compensation income are lower than those for net income such circumtance does not necessarily result in lower tax payments for these receiving compensation income. In fact, the reverse will most likely be the case; those who file returns on the basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote for dismissal.

Separate Opinions AQUINO, J., concurring: I concur in the result. The petitioner has no cause of action for prohibition. ABAD SANTOS, J., dissenting: This is a frivolous suit. While the tax rates for compensation income are lower than those for net income such circumtance does not necessarily result in lower tax payments for these receiving compensation income. In fact, the reverse will most likely be the case; those who file returns on the basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote for dismissal.

G.R. No. 163583

August 20, 2008

centavos (P6.50) per pack, the tax shall be Five pesos and sixty centavos (P5.60) per pack; (4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be One peso and twelve centavos (P1.12) per pack. Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity of this Act shall be taxed under the highest classification of any variant of that brand. xxxx New brands shall be classified according to their current net retail price. For the above purpose, net retail price shall mean the price at which the cigarette is sold on retail in 20 major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro Manila, the net retail price shall mean the price at which the cigarette is sold in five major supermarkets in the region excluding the amount intended to cover the applicable excise tax and the value-added tax. The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex "D" of this Act, shall remain in force until revised by Congress. (Emphasis supplied) As such, new brands of cigarettes shall be taxed according to their current net retail price while existing or "old" brands shall be taxed based on their net retail price as of October 1, 1996. To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97,2 which classified the existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New brands, or those registered after January 1, 1997, shall be initially assessed at their suggested retail price until such time that the appropriate survey to determine their current net retail price is conducted. Pertinent portion of the regulations reads SECTION 2. Definition of Terms. xxxx 3. Duly registered or existing brand of cigarettes shall include duly registered, existing or active brands of cigarettes, prior to January 1, 1997. xxxx 6. New Brands shall mean brands duly registered after January 1, 1997 and shall include duly registered, inactive brands of cigarette not sold in commercial quantity before January 1, 1997.

BRITISH AMERICAN TOBACCO, petitioner, vs. JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Department of Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the Bureau of Internal Revenue, respondents. Philip Morris Philippines Manufacturing, Inc., fortune tobacco, corp., MIGHTY CORPORATION, and JT InTERNATIONAL, S.A., respondents-in-intervention. DECISION YNARES-SANTIAGO, J.: This petition for review assails the validity of: (1) Section 145 of the National Internal Revenue Code (NIRC), as recodified by Republic Act (RA) 8424; (2) RA 9334, which further amended Section 145 of the NIRC on January 1, 2005; (3) Revenue Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue Memorandum Order No. 6-2003. Petitioner argues that the said provisions are violative of the equal protection and uniformity clauses of the Constitution. RA 8240, entitled "An Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended and For Other Purposes," took effect on January 1, 1997. In the same year, Congress passed RA 8424 or The Tax Reform Act of 1997, re-codifying the NIRC. Section 142 was renumbered as Section 145 of the NIRC. Paragraph (c) of Section 145 provides for four tiers of tax rates based on the net retail price per pack of cigarettes. To determine the applicable tax rates of existing cigarette brands, a survey of the net retail prices per pack of cigarettes was conducted as of October 1, 1996, the results of which were embodied in Annex "D" of the NIRC as the duly registered, existing or active brands of cigarettes. Paragraph (c) of Section 145,
1

states

SEC. 145. Cigars and cigarettes. xxxx (c) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below: (1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be Thirteen pesos and forty-four centavos (P13.44) per pack; (2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (10.00) per pack, the tax shall be Eight pesos and ninety-six centavos (P8.96) per pack; (3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty

Section 4. Classification and Manner of Taxation of Existing Brands, New Brands and Variant of Existing Brands. xxxx B. New Brand New brands shall be classified according to their current net retail price. In the meantime that the current net retail price has not yet been established, the suggested net retail price shall be used to determine the specific tax classification. Thereafter, a survey shall be conducted in 20 major supermarkets or retail outlets in Metro Manila (for brands of cigarette marketed nationally) or in five (5) major supermarkets or retail outlets in the region (for brands which are marketed only outside Metro Manila) at which the cigarette is sold on retail in reams/cartons, three (3) months after the initial removal of the new brand to determine the actual net retail price excluding the excise tax and value added tax which shall then be the basis in determining the specific tax classification. In case the current net retail price is higher than the suggested net retail price, the former shall prevail. Any difference in specific tax due shall be assessed and collected inclusive of increments as provided for by the National Internal Revenue Code, as amended. In June 2001, petitioner British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with a suggested retail price of P9.90 per pack.3 Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack. On February 17, 2003, Revenue Regulations No. 9-2003,4 amended Revenue Regulations No. 1-97 by providing, among others, a periodic review every two years or earlier of the current net retail price of new brands and variants thereof for the purpose of establishing and updating their tax classification, thus: For the purpose of establishing or updating the tax classification of new brands and variant(s) thereof, their current net retail price shall be reviewed periodically through the conduct of survey or any other appropriate activity, as mentioned above, every two (2) years unless earlier ordered by the Commissioner. However, notwithstanding any increase in the current net retail price, the tax classification of such new brands shall remain in force until the same is altered or changed through the issuance of an appropriate Revenue Regulations. Pursuant thereto, Revenue Memorandum Order No. 6-20035 was issued on March 11, 2003, prescribing the guidelines and procedures in establishing current net retail prices of new brands of cigarettes and alcohol products. Subsequently, Revenue Regulations No. 22-20036 was issued on August 8, 2003 to implement the revised tax classification of certain new brands introduced in the market after January 1, 1997, based on the survey of their current net retail price. The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and P21.23, per pack, respectively.7 Respondent Commissioner of the Bureau of Internal Revenue thus recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strikes average net retail price is above P10.00 per pack. Thus, on September 1, 2003, petitioner filed before the Regional Trial Court (RTC) of Makati, Branch 61, a petition for injunction with prayer for the issuance of a temporary restraining

order (TRO) and/or writ of preliminary injunction, docketed as Civil Case No. 03-1032. Said petition sought to enjoin the implementation of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal protection and uniformity provisions of the Constitution. Respondent Commissioner of Internal Revenue filed an Opposition8 to the application for the issuance of a TRO. On September 4, 2003, the trial court denied the application for TRO, holding that the courts have no authority to restrain the collection of taxes.9 Meanwhile, respondent Secretary of Finance filed a Motion to Dismiss,10contending that the petition is premature for lack of an actual controversy or urgent necessity to justify judicial intervention. In an Order dated March 4, 2004, the trial court denied the motion to dismiss and issued a writ of preliminary injunction to enjoin the implementation of Revenue Regulations Nos. 197, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003.11 Respondents filed a Motion for Reconsideration12 and Supplemental Motion for Reconsideration.13 At the hearing on the said motions, petitioner and respondent Commissioner of Internal Revenue stipulated that the only issue in this case is the constitutionality of the assailed law, order, and regulations.14 On May 12, 2004, the trial court rendered a decision15 upholding the constitutionality of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003. The trial court also lifted the writ of preliminary injunction. The dispositive portion of the decision reads: WHEREFORE, premises considered, the instant Petition is hereby DISMISSED for lack of merit. The Writ of Preliminary Injunction previously issued is hereby lifted and dissolved. SO ORDERED.16 Petitioner brought the instant petition for review directly with this Court on a pure question of law. While the petition was pending, RA 9334 (An Act Increasing The Excise Tax Rates Imposed on Alcohol And Tobacco Products, Amending For The Purpose Sections 131, 141, 143, 144, 145 and 288 of the NIRC of 1997, As Amended), took effect on January 1, 2005. The statute, among others, (1) increased the excise tax rates provided in paragraph (c) of Section 145; (2) mandated that new brands of cigarettes shall initially be classified according to their suggested net retail price, until such time that their correct tax bracket is finally determined under a specified period and, after which, their classification shall remain in force until revised by Congress; (3) retained Annex "D" as tax base of those surveyed as of October 1, 1996 including the classification of brands for the same products which, although not set forth in said Annex "D," were registered on or before January 1, 1997 and were being commercially produced and marketed on or after October 1, 1996, and which continue to be commercially produced and marketed after the effectivity of this Act. Said classification shall remain in force until revised by Congress; and

(4) provided a legislative freeze on brands of cigarettes introduced between the period January 2, 199717 to December 31, 2003, such that said cigarettes shall remain in the classification under which the BIR has determined them to belong as of December 31, 2003, until revised by Congress. Pertinent portions, of RA 9334, provides: SEC. 145. Cigars and Cigarettes. xxxx (C) Cigarettes Packed by Machine. There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below: (1) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be: Effective on January 1, 2005, Two pesos (P2.00) per pack; Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack; Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack. (2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be: Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack; Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack; Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack. (3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be: Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack; Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;

Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and Effective on January 1, 2011, Twelve pesos (P12.00) per pack. (4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be: Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack; Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack; Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack. xxxx New brands, as defined in the immediately following paragraph, shall initially be classified according to their suggested net retail price. New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240. Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the new brand against the net retail price as defined herein and determine the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified. After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail price as of the time of revalidation in order to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be classified; Provided however, That brands of cigarettes introduced in the domestic market between January 1, 1997 [should be January 2, 1997] and December 31, 2003 shall remain in the classification under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of Congress. Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be conducted by the Bureau of Internal Revenue itself, or the National Statistics Office when deputized for the purpose by the Bureau of Internal Revenue, shall mean the price at which the cigarette is sold in retail in at least twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to cover the applicable excise

tax and the value-added tax. For brands which are marketed only outside Metro Manila, the "net retail price" shall mean the price at which the cigarette is sold in at least five (5) major supermarkets in the region excluding the amount intended to cover the applicable excise tax and value-added tax. The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex "D", including the classification of brands for the same products which, although not set forth in said Annex "D", were registered and were being commercially produced and marketed on or after October 1, 1996, and which continue to be commercially produced and marketed after the effectivity of this Act, shall remain in force until revised by Congress. (Emphasis added) Under RA 9334, the excise tax due on petitioners products was increased to P25.00 per pack. In the implementation thereof, respondent Commissioner assessed petitioners importation of 911,000 packs of Lucky Strike cigarettes at the increased tax rate of P25.00 per pack, rendering it liable for taxes in the total sum of P22,775,000.00.18 Hence, petitioner filed a Motion to Admit Attached Supplement19 and a Supplement20 to the petition for review, assailing the constitutionality of RA 9334 insofar as it retained Annex "D" and praying for a downward classification of Lucky Strike products at the bracket taxable at P8.96 per pack. Petitioner contended that the continued use of Annex "D" as the tax base of existing brands of cigarettes gives undue protection to said brands which are still taxed based on their price as of October 1996 notwithstanding that they are now sold at the same or even at a higher price than new brands like Lucky Strike. Thus, old brands of cigarettes such as Marlboro and Philip Morris which, like Lucky Strike, are sold at or more than P22.00 per pack, are taxed at the rate of P10.88 per pack, while Lucky Strike products are taxed at P26.06 per pack. In its Comment to the supplemental petition, respondents, through the Office of the Solicitor General (OSG), argued that the passage of RA 9334, specifically the provision imposing a legislative freeze on the classification of cigarettes introduced into the market between January 2, 1997 and December 31, 2003, rendered the instant petition academic. The OSG claims that the provision in Section 145, as amended by RA 9334, prohibiting the reclassification of cigarettes introduced during said period, "cured the perceived defect of Section 145 considering that, like the cigarettes under Annex "D," petitioners brands and other brands introduced between January 2, 1997 and December 31, 2003, shall remain in the classification under which the BIR has placed them and only Congress has the power to reclassify them. On March 20, 2006, Philip Morris Philippines Manufacturing Incorporated filed a Motion for Leave to Intervene with attached Comment-in-Intervention.21 This was followed by the Motions for Leave to Intervene of Fortune Tobacco Corporation,22 Mighty Corporation, 23 and JT International, S.A., with their respective Comments-in-Intervention. The Intervenors claim that they are parties-in-interest who stand to be affected by the ruling of the Court on the constitutionality of Section 145 of the NIRC and its Annex "D" because they are manufacturers of cigarette brands which are included in the said Annex. Hence, their intervention is proper since the protection of their interest cannot be addressed in a separate proceeding. According to the Intervenors, no inequality exists because cigarettes classified by the BIR based on their net retail price as of December 31, 2003 now enjoy the same status quo provision that prevents the BIR from reclassifying cigarettes included in Annex "D." It added that the Court has no power to pass upon the wisdom of the legislature in retaining Annex "D" in RA 9334; and that the nullification of said Annex would bring about tremendous loss of revenue to the government, chaos in the collection of taxes, illicit trade

of cigarettes, and cause decline in cigarette demand to the detriment of the farmers who depend on the tobacco industry. Intervenor Fortune Tobacco further contends that petitioner is estopped from questioning the constitutionality of Section 145 and its implementing rules and regulations because it entered into the cigarette industry fully aware of the existing tax system and its consequences. Petitioner imported cigarettes into the country knowing that its suggested retail price, which will be the initial basis of its tax classification, will be confirmed and validated through a survey by the BIR to determine the correct tax that would be levied on its cigarettes. Moreover, Fortune Tobacco claims that the challenge to the validity of the BIR issuances should have been brought by petitioner before the Court of Tax Appeals (CTA) and not the RTC because it is the CTA which has exclusive appellate jurisdiction over decisions of the BIR in tax disputes. On August 7, 2006, the OSG manifested that it interposes no objection to the motions for intervention.24Therefore, considering the substantial interest of the intervenors, and in the higher interest of justice, the Court admits their intervention. Before going into the substantive issues of this case, we must first address the matter of jurisdiction, in light of Fortune Tobaccos contention that petitioner should have brought its petition before the Court of Tax Appeals rather than the regional trial court. The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic Act No. 9282. Section 7 thereof states, in pertinent part: Sec. 7. Jurisdiction. The CTA shall exercise: a. Exclusive appellate jurisdiction to review by appeal, as herein provided: 1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue; 2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; xxx.25 While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts. This is within the scope of judicial power, which includes the authority

of the courts to determine in an appropriate action the validity of the acts of the political departments. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.26 In Drilon v. Lim,27 it was held: We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187, this authority being embraced in the general definition of the judicial power to determine what are the valid and binding laws by the criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over all civil cases in which the subject of the litigation is incapable of pecuniary estimation, even as the accused in a criminal action has the right to question in his defense the constitutionality of a law he is charged with violating and of the proceedings taken against him, particularly as they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question. The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C) of the NIRC, as amended, and the validity of its implementing rules and regulations. In fact, the RTC limited the resolution of the subject case to the issue of the constitutionality of the assailed provisions. The determination of whether the assailed law and its implementing rules and regulations contravene the Constitution is within the jurisdiction of regular courts. The Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts.28 Petitioner, therefore, properly filed the subject case before the RTC. We come now to the issue of whether petitioner is estopped from assailing the authority of the Commissioner of Internal Revenue. Fortune Tobacco raises this objection by pointing out that when petitioner requested the Commissioner for a ruling that its Lucky Strike Soft Pack cigarettes was a "new brand" rather than a variant of an existing brand, and thus subject to a lower specific tax rate, petitioner executed an undertaking to comply with the procedures under existing regulations for the assessment of deficiency internal revenue taxes. Fortune Tobacco argues that petitioner, after invoking the authority of the Commissioner of Internal Revenue, cannot later on turn around when the ruling is adverse to it. Estoppel, an equitable principle rooted in natural justice, prevents persons from going back on their own acts and representations, to the prejudice of others who have relied on them.29 The principle is codified in Article 1431 of the Civil Code, which provides: Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon. Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court, viz: Sec. 2. Conclusive presumptions. The following are instances of conclusive presumptions:

(a) Whenever a party has by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission be permitted to falsify it. The elements of estoppel are: first, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably, upon that communication; third, the other would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act upon the information given or that a reasonable person in the actor's position would expect or foresee such action.30 In the early case of Kalalo v. Luz,31 the elements of estoppel, as related to the party to be estopped, are: (1) conduct amounting to false representation or concealment of material facts; or at least calculated to convey the impression that the facts are other than, and inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least expectation that this conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts. We find that petitioner was not guilty of estoppel. When it made the undertaking to comply with all issuances of the BIR, which at that time it considered as valid, petitioner did not commit any false misrepresentation or misleading act. Indeed, petitioner cannot be faulted for initially undertaking to comply with, and subjecting itself to the operation of Section 145(C), and only later on filing the subject case praying for the declaration of its unconstitutionality when the circumstances change and the law results in what it perceives to be unlawful discrimination. The mere fact that a law has been relied upon in the past and all that time has not been attacked as unconstitutional is not a ground for considering petitioner estopped from assailing its validity. For courts will pass upon a constitutional question only when presented before it in bona fide cases for determination, and the fact that the question has not been raised before is not a valid reason for refusing to allow it to be raised later.32 Now to the substantive issues. To place this case in its proper context, we deem it necessary to first discuss how the assailed law operates in order to identify, with precision, the specific provisions which, according to petitioner, have created a grossly discriminatory classification scheme between old and new brands. The pertinent portions of RA 8240, as amended by RA 9334, are reproduced below for ready reference: SEC. 145. Cigars and Cigarettes. xxxx (C) Cigarettes Packed by Machine. There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below: (1) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be: Effective on January 1, 2005, Two pesos (P2.00) per pack;

Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack; Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack. (2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be: Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack; Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack; Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack. (3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be: Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack; Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack; Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and Effective on January 1, 2011, Twelve pesos (P12.00) per pack. (4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be: Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack; Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack; Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and xxxx

Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.

New brands, as defined in the immediately following paragraph, shall initially be classified according to their suggested net retail price. New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240. Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the new brand against the net retail price as defined herein and determine the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified. After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail price as of the time of revalidation in order to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be classified; Provided however, That brands of cigarettes introduced in the domestic market between January 1, 1997 [should be January 2, 1997] and December 31, 2003 shall remain in the classification under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of Congress. Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be conducted by the Bureau of Internal Revenue itself, or the National Statistics Office when deputized for the purpose by the Bureau of Internal Revenue, shall mean the price at which the cigarette is sold in retail in at least twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro Manila, the "net retail price" shall mean the price at which the cigarette is sold in at least five (5) major supermarkets in the region excluding the amount intended to cover the applicable excise tax and value-added tax. The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex "D", including the classification of brands for the same products which, although not set forth in said Annex "D", were registered and were being commercially produced and marketed on or after October 1, 1996, and which continue to be commercially produced and marketed after the effectivity of this Act, shall remain in force until revised by Congress. As can be seen, the law creates a four-tiered system which we may refer to as the lowpriced,33 medium-priced,34high-priced,35 and premium-priced36 tax brackets. When a brand is introduced in the market, the current net retail price is determined through the aforequoted specified procedure. The current net retail price is then used to classify under which tax bracket the brand belongs in order to finally determine the corresponding excise tax rate on a per pack basis. The assailed feature of this law pertains to the mechanism where, after a brand is classified based on its current net retail price, the classification is

frozen and only Congress can thereafter reclassify the same. From a practical point of view, Annex "D" is merely a by-product of the whole mechanism and philosophy of the assailed law. That is, the brands under Annex "D" were also classified based on their current net retail price, the only difference being that they were the first ones so classified since they were the only brands surveyed as of October 1, 1996, or prior to the effectivity of RA 8240 on January 1, 1997.37 Due to this legislative classification scheme, it is possible that over time the net retail price of a previously classified brand, whether it be a brand under Annex "D" or a new brand classified after the effectivity of RA 8240 on January 1, 1997, would increase (due to inflation, increase of production costs, manufacturers decision to increase its prices, etc.) to a point that its net retail price pierces the tax bracket to which it was previously classified.38 Consequently, even if its present day net retail price would make it fall under a higher tax bracket, the previously classified brand would continue to be subject to the excise tax rate under the lower tax bracket by virtue of the legislative classification freeze. Petitioner claims that this is what happened in 2004 to the Marlboro and Philip Morris brands, which were permanently classified under Annex "D." As of October 1, 1996, Marlboro had net retail prices ranging from P6.78 to P6.84 while Philip Morris had net retail prices ranging from P7.39 to P7.48. Thus, pursuant to RA 8240,39Marlboro and Philip Morris were classified under the high-priced tax bracket and subjected to an excise tax rate of P8.96 per pack. Petitioner then presented evidence showing that after the lapse of about seven years or sometime in 2004, Marlboros and Philip Morris net retail prices per pack both increased to about P15.59.40 This meant that they would fall under the premium-priced tax bracket, with a higher excise tax rate of P13.44 per pack,41 had they been classified based on their 2004 net retail prices. However, due to the legislative classification freeze, they continued to be classified under the high-priced tax bracket with a lower excise tax rate. Petitioner thereafter deplores the fact that its Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights cigarettes, introduced in the market sometime in 2001 and validated by a BIR survey in 2003, were found to have net retail prices of P11.53, P11.59 and P10.34,42 respectively, which are lower than those of Marlboro and Philip Morris. However, since petitioners cigarettes were newly introduced brands in the market, they were taxed based on their current net retail prices and, thus, fall under the premium-priced tax bracket with a higher excise tax rate of P13.44 per pack. This unequal tax treatment between Marlboro and Philip Morris, on the one hand, and Lucky Strike, on the other, is the crux of petitioners contention that the legislative classification freeze violates the equal protection and uniformity of taxation clauses of the Constitution. It is apparent that, contrary to its assertions, petitioner is not only questioning the undue favoritism accorded to brands under Annex "D," but the entire mechanism and philosophy of the law which freezes the tax classification of a cigarette brand based on its current net retail price. Stated differently, the alleged discrimination arising from the legislative classification freeze between the brands under Annex "D" and petitioners newly introduced brands arose only because the former were classified based on their "current" net retail price as of October 1, 1996 andpetitioners newly introduced brands were classified based on their "current" net retail price as of 2003. Without this corresponding freezing of the classification of petitioners newly introduced brands based on their current net retail price, it would be impossible to establish that a disparate tax treatment occurred between the Annex "D" brands and petitioners newly introduced brands. This clarification is significant because, under these circumstances, a declaration of unconstitutionality would necessarily entail nullifying the whole mechanism of the law and not just Annex "D." Consequently, if the assailed law is declared unconstitutional on equal protection grounds, the entire method by which a brand of cigarette is classified would have to be invalidated. As a result, no method to classify brands under Annex "D" as well as new brands would be left behind and the whole Section 145 of the NIRC, as amended, would become inoperative.43

To simplify the succeeding discussions, we shall refer to the whole mechanism and philosophy of the assailed law which freezes the tax classification of a cigarette brand based on its current net retail price and which, thus, produced different classes of brands based on the time of their introduction in the market (starting with the brands in Annex "D" since they were the first brands so classified as of October 1, 1996) as the classification freeze provision.44 As thus formulated, the central issue is whether or not the classification freeze provision violates the equal protection and uniformity of taxation clauses of the Constitution. In Sison, Jr. v. Ancheta,45 this Court, through Chief Justice Fernando, explained the applicable standard in deciding equal protection and uniformity of taxation challenges: Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional mandate whether the assailed act is in the exercise of the police power or the power of eminent domain is to demonstrate "that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumstances, which if not identical are analogous. If law be looks upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest." That same formulation applies as well to taxation measures. The equal protection clause is, of course, inspired by the noble concept of approximating the ideal of the laws's benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the very essence of the idea of law. There is, however, wisdom, as well as realism, in these words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, addressed to the attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same." Hence the constant reiteration of the view that classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz v. Araneta, this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation shall be uniform and equitable." This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco, decided in 1940, when the tax "operates with the same force and effect in every place where the subject may be found." He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable." The problem of classification did not present itself in that case. It did not arise until nine years later, when the Supreme Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation, . .

. As clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform." There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar situation."46 (Emphasis supplied) In consonance thereto, we have held that "in our jurisdiction, the standard and analysis of equal protection challenges in the main have followed the rational basis test, coupled with a deferential attitude to legislative classifications and a reluctance to invalidate a law unless there is a showing of a clear and unequivocal breach of the Constitution."47 Within the present context of tax legislation on sin products which neither contains a suspect classification nor impinges on a fundamental right, the rational-basis test thus finds application. Under this test, a legislative classification, to survive an equal protection challenge, must be shown to rationally further a legitimate state interest.48 The classifications must be reasonable and rest upon some ground of difference having a fair and substantial relation to the object of the legislation.49 Since every law has in its favor the presumption of constitutionality, the burden of proof is on the one attacking the constitutionality of the law to prove beyond reasonable doubt that the legislative classification is without rational basis.50 The presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes, and that there is no conceivable basis which might support it.51 A legislative classification that is reasonable does not offend the constitutional guaranty of the equal protection of the laws. The classification is considered valid and reasonable provided that: (1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal, to both present and future conditions; and (4) it applies equally to all those belonging to the same class.52 The first, third and fourth requisites are satisfied. The classification freeze provision was inserted in the law for reasons of practicality and expediency. That is, since a new brand was not yet in existence at the time of the passage of RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a new brand. The current net retail price, similar to what was used to classify the brands under Annex "D" as of October 1, 1996, was thus the logical and practical choice. Further, with the amendments introduced by RA 9334, the freezing of the tax classifications now expressly applies not just to Annex "D" brands but to newer brands introduced after the effectivity of RA 8240 on January 1, 1997 and any new brand that will be introduced in the future.53 (However, as will be discussed later, the intent to apply the freezing mechanism to newer brands was already in place even prior to the amendments introduced by RA 9334 to RA 8240.) This does not explain, however, why the classification is "frozen" after its determination based on current net retail price and how this is germane to the purpose of the assailed law. An examination of the legislative history of RA 8240 provides interesting answers to this question. RA 8240 was the first of three parts in the Comprehensive Tax Reform Package then being pushed by the Ramos Administration. It was enacted with the following objectives stated in the Sponsorship Speech of Senator Juan Ponce Enrile (Senator Enrile), viz: First, to evolve a tax structure which will promote fair competition among the players in the industries concerned and generate buoyant and stable revenue for the government. Second, to ensure that the tax burden is equitably distributed not only amongst the industries affected but equally amongst the various levels of our society that

are involved in various markets that are going to be affected by the excise tax on distilled spirits, fermented liquor, cigars and cigarettes. In the case of firms engaged in the industries producing the products that we are about to tax, this means relating the tax burden to their market share, not only in terms of quantity, Mr. President, but in terms of value. In case of consumers, this will mean evolving a multi-tiered rate structure so that low-priced products are subject to lower tax rates and higher-priced products are subject to higher tax rates. Third, to simplify the tax administration and compliance with the tax laws that are about to unfold in order to minimize losses arising from inefficiencies and tax avoidance scheme, if not outright tax evasion.54 In the initial stages of the crafting of the assailed law, the Department of Finance (DOF) recommended to Congress a shift from the then existing ad valorem taxation system to a specific taxation system with respect to sin products, including cigarettes. The DOF noted that the ad valorem taxation system was a source of massive tax leakages because the taxpayer was able to evade paying the correct amount of taxes through the undervaluation of the price of cigarettes using various marketing arms and dummy corporations. In order to address this problem, the DOF proposed a specific taxation system where the cigarettes would be taxed based on volume or on a per pack basis which was believed to be less susceptible to price manipulation. The reason was that the BIR would only need to monitor the sales volume of cigarettes, from which it could easily compute the corresponding tax liability of cigarette manufacturers. Thus, the DOF suggested the use of a three-tiered system which operates in substantially the same manner as the four-tiered system under RA 8240 as earlier discussed. The proposal of the DOF was embodied in House Bill (H.B.) No. 6060, the pertinent portions of which states SEC. 142. Cigars and cigarettes. (c) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below: (1) If the manufacturers or importers wholesale price (net of excise tax and value-added tax) per pack exceeds four pesos and twenty centavos (P4.20), the tax shall be seven pesos and fifty centavos (P7.50); (2) If the manufacturers or importers wholesale price (net of excise tax and value-added tax) per pack exceeds three pesos and ninety centavos (P3.90) but does not exceed four pesos and twenty centavos (P4.20), the tax shall be five pesos and fifty centavos (P5.50): provided, that after two (2) years from the effectivity of this Act, cigarettes otherwise subject to tax under this subparagraph shall be taxed under subparagraph (1) above. (3) If the manufacturers or importers wholesale price (net of excise tax and value-added tax) per pack does not exceeds three pesos and ninety centavos (P3.90), the tax rate shall be one peso (P1.00). Variants of existing brands and new brands of cigarettes packed by machine to be introduced in the domestic market after the effectivity of this Act, shall be taxed under paragraph (c)(1) hereof.

The rates of specific tax on cigars and cigarettes under paragraphs (a), (b), and (c) hereof, including the price levels for purposes of classifying cigarettes packed by machine, shall be revised upward two (2) years after the effectivity of this Act and every two years thereafter by the Commissioner of Internal Revenue, subject to the approval of the Secretary of Finance, taking into account the movement of the consumer price index for cigars and cigarettes as established by the National Statistics Office: provided, that the increase in taxes and/or price levels shall be equal to the present change in such consumer price index for the two-year period: provided, further, that the President, upon the recommendation of the Secretary of Finance, may suspend or defer the adjustment in price levels and tax rates when the interest of the national economy and general welfare so require, such as the need to obviate unemployment, and economic and social dislocation: provided, finally, that the revised price levels and tax rates authorized herein shall in all cases be rounded off to the nearest centavo and shall be in force and effect on the date of publication thereof in a newspaper of general circulation. x x x (Emphasis supplied) What is of particular interest with respect to the proposal of the DOF is that it contained a provision for the periodic adjustment of the excise tax rates and tax brackets, and a corresponding periodic resurvey and reclassification of cigarette brands based on the increase in the consumer price index as determined by the Commissioner of Internal Revenue subject to certain guidelines. The evident intent was to prevent inflation from eroding the value of the excise taxes that would be collected from cigarettes over time by adjusting the tax rate and tax brackets based on the increase in the consumer price index. Further, under this proposal, old brands as well as new brands introduced thereafter would be subjected to a resurvey and reclassification based on their respective values at the end of every two years in order to align them with the adjustment of the excise tax rate and tax brackets due to the movement in the consumer price index.55 Of course, we now know that the DOF proposal, insofar as the periodic adjustment of tax rates and tax brackets, and the periodic resurvey and reclassification of cigarette brands are concerned, did not gain approval from Congress. The House and Senate pushed through with their own versions of the excise tax system on beers and cigarettes both denominated as H.B. No. 7198. For convenience, we shall refer to the bill deliberated upon by the House as the House Version and that of the Senate as the Senate Version. The Houses Committee on Ways and Means, then chaired by Congressman Exequiel B. Javier (Congressman Javier), roundly rejected the DOF proposal. Instead, in its Committee Report submitted to the plenary, it proposed a different excise tax system which used a specific tax as a basic tax with an ad valorem comparator. Further, it deleted the proposal to have a periodic adjustment of tax rates and the tax brackets as well as periodic resurvey and reclassification of cigarette brands, to wit: The rigidity of the specific tax system calls for the need for frequent congressional intervention to adjust the tax rates to inflation and to keep pace with the expanding needs of government for more revenues. The DOF admits this flaw inherent in the tax system it proposed. Hence, to obviate the need for remedial legislation, the DOF is asking Congress to grant to the Commissioner the power to revise, one, the specific tax rates: and two, the price levels of beer and cigarettes. What the DOF is asking, Mr. Speaker, is for Congress to delegate to the Commissioner of Internal Revenue the power to fix the tax rates and classify the subjects of taxation based on their price levels for purposes of fixing the tax rates. While we sympathize with the predicament of the DOF, it is not for Congress to abdicate such power. The power sought to be delegated to be exercised by the Commissioner of Internal Revenue is a legislative power vested by the Constitution

in Congress pursuant to Section 1, Article VI of the Constitution. Where the power is vested, there it must remain in Congress, a body of representatives elected by the people. Congress may not delegate such power, much less abdicate it. xxxx Moreover, the grant of such power, if at all constitutionally permissible, to the Commissioner of Internal Revenue is fraught with ethical implications. The debates on how much revenue will be raised, how much money will be taken from the pockets of taxpayers, will inexorably shift from the democratic Halls of Congress to the secret and non-transparent corridors of unelected agencies of government, the Department of Finance and the Bureau of Internal Revenue, which are not accountable to our people. We cannot countenance the shift for ethical reasons, lest we be accused of betraying the trust reposed on this Chamber by the people. x xx A final point on this proposal, Mr. Speaker, is the exercise of the taxing power of the Commissioner of Internal Revenue which will be triggered by inflation rates based on the consumer price index. Simply stated, Mr. Speaker, the specific tax rates will be fixed by the Commissioner depending on the price levels of beers and cigarettes as determined by the consumers price index. This is a novel idea, if not necessarily weird in the field of taxation. What if the brewer or the cigarette manufacturer sells at a price below the consumers price index? Will it be taxed on the basis of the consumers price index which is over and above its wholesale or retail price as the case may be? This is a weird form of exaction where the tax is based not on what the brewer or manufacturer actually realized but on an imaginary wholesale or retail price. This amounts to a taxation based on presumptive price levels and renders the specific tax a presumptive tax. We hope, the DOF and the BIR will also honor a presumptive tax payment. Moreover, specific tax rates based on price levels tied to consumers price index as proposed by the DOF engenders anti-trust concerns. The proposal if enacted into law will serve as a barrier to the entry of new players in the beer and cigarette industries which are presently dominated by shared monopolies. A new player in these industries will be denied business flexibility to fix its price levels to promote its product and penetrate the market as the price levels are dictated by the consumer price index. The proposed tax regime, Mr. Speaker, will merely enhance the stranglehold of the oligopolies in the beer and cigarette industries, thus, reversing the governments policy of dismantling monopolies and combinations in restraint of trade.56 For its part, the Senates Committee on Ways and Means, then chaired by Senator Juan Ponce Enrile (Senator Enrile), developed its own version of the excise tax system on cigarettes. The Senate Version consisted of a four-tiered system and, interestingly enough, contained a periodic excise tax rate and tax bracket adjustment as well as a periodic resurvey and reclassification of brands provision ("periodic adjustment and reclassification provision," for brevity) to be conducted by the DOF in coordination with the BIR and the National Statistics Office based on the increase in the consumer price index similar to the one proposed by the DOF, viz: SEC. 4 Section 142 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: "SEC. 142. Cigars and cigarettes.

xxxx (c) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below: (1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00) per pack; (2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) per pack, the tax shall be Eight pesos (P8.00) per pack; (3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) up to Six pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack; (4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack. Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity of this Act shall be taxed under the highest classification of any variant of that brand. xxx The rates of specific tax on cigars and cigarettes under subparagraph (a), (b) and (c) hereof, including the net retail prices for purposes of classification, shall be adjusted on the sixth of January three years after the effectivity of this Act and every three years thereafter. The adjustment shall be in accordance with the inflation rate measured by the average increase in the consumer price index over the three-year period. The adjusted tax rates and net price levels shall be in force on the eighth of January. Within the period hereinabove mentioned, the Secretary of Finance shall direct the conduct of a survey of retail prices of each brand of cigarettes in coordination with the Bureau of Internal Revenue and the National Statistics Office. For purposes of this Section, net retail price shall mean the price at which the cigarette is sold on retail in 20 major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro Manila, the net retail price shall mean the price at which the cigarette is sold in five major supermarkets in the region excluding the amount intended to cover the applicable excise tax and the value-added tax. The classification of each brand of cigarettes in the initial year of implementation of this Act shall be based on its average net retail price as of October 1, 1996. The said classification by brand shall remain in force until January 7, 2000.

New brands shall be classified according to their current net retail price.57 (Emphasis supplied) During the period of interpellations, the late Senator Raul S. Roco (Senator Roco) expressed doubts as to the legality and wisdom of putting a periodic adjustment and reclassification provision: Senator Enrile: This will be the first time that a tax burden will be allowed to be automatically adjusted upwards based on a system of indexing tied up with the Consumers Price Index (CPI). Although I must add that we have adopted a similar system in adjusting the personal tax exemption from income tax of our individual taxpayers. Senator Roco: They are not exactly the same, Mr. President. But even then, we do note that this the first time we are trying to put an automatic adjustment. My concern is, why do we propose now this automatic adjustment? What is the reason that impels the committee? Maybe we can be enlightened and maybe we shall embrace it forthwith. But what is the reason? Senator Enrile: Mr. President, we will recall that in the House of Representatives, it has adopted a tax proposal on these products based on a specific tax as a basic tax with an ad valorem comparator. The Committee on Ways and Means of the Senate has not seen it fit to adopt this system, but it recognized the possibility that there may be an occasion where the price movement in the country might unwarrantedly move upwards, in which case, if we peg the government to a specific tax rate of P6.30, P9.30 and P12.30 for beer, since we are talking of beer, 58 the government might lose in the process. In order to consider the interest of the government in this, Mr. President, and in order to obviate the possibility that some of these products categorized under the different tiers with different specific tax rates from moving upwards and piercing their own tiers and thereby expose themselves to an incremental tax of higher magnitude, it was felt that we should adopt a system where, in spite of any escalation in the price of these products in the future, the tax rates could be adjusted upwards so that none of these products would leave their own tier. That was the basic principle under which we crafted this portion of the tax proposal. Senator Roco: Mr. President, we certainly share the judgment of the distinguished gentleman as regards the comparator provision in the House of Representatives and we appreciate the reasons given. But we are under the impression that the House also, aside from the comparator, has an adjustment clause that is fixed. It has fixed rates for the adjustment. So that one of the basic differences between the Senate proposed version now and the House version is that, the House of Representatives has manifested its will and judgment as regards the tax to which we will adjust, whereas the Senate version relegates fundamentally that judgment to the Department of Finance. Senator Enrile: That is correct, Mr. President, because we felt that in imposing a fixed adjustment, we might be fixing an amount that is either too high or too low. We cannot foresee the economic trends in this country over a period of two years, three years, let alone ten years. So we felt that a mechanism ought to be adopted in order to serve the interest of the government, the interest of the producers, and the interest of the consuming public.

Senator Roco: This is where, Mr. President, my policy difficulties start. Under the Constitution I think it is Article VI, Section 24, and it was the distinguished chairman of the Committee on Ways and Means who made this Chamber very conscious of this provision revenue measures and tariff measures shall originate exclusively from the House of Representatives. The reason for this, Mr. President, is, there is a long history why the House of Representatives must originate judgments on tax. The House members represent specific districts. They represent specific constituencies, and the whole history of parliamentarism, the whole history of Congress as an institution is founded on the proposition that the direct representatives of the people must speak about taxes. Mr. President, while the Senate can concur and can introduce amendments, the proposed change here is radical. This is the policy difficulty that I wish to clarify with the gentleman because the judgment call now on the amount of tax to be imposed is not coming from Congress. It is shifted to the Department of Finance. True, the Secretary of Finance may have been the best finance officer two years ago and now the best finance officer in Asia, but that does not make him qualified to replace the judgment call of the House of Representatives. That is my first difficulty. Senator Enrile: Mr. President, precisely the law, in effect, authorizes this rate beforehand. The computation of the rate is the only thing that was left to the Department of Finance as a tax implementor of Congress. This is not unusual because we have already, as I said, adopted a system similar to this. If we adjust the personal exemption of an individual taxpayer, we are in effect adjusting the applicable tax rate to him. Senator Roco: But the point I was trying to demonstrate, Mr. President, is that we depart precisely from the mandate of the Constitution that judgment on revenue must emanate from Congress. Here, it is shifted to the Department of Finance for no visible or patent reason insofar as I could understand. The only difference is, who will make the judgment? Should it be Congress? Senator Enrile: Mr. President, forgive me for answering sooner than I should. My understanding of the Constitution is that all revenue measures must emanate from the House. That is all the Constitution says. Now, it does not say that the judgment call must belong to the House. The judgment call can belong both to the House and to the Senate. We can change whatever proposal the House did. Precisely, we are now crafting a measure, and we are saying that this is the rate subject to an adjustment which we also provide. We are not giving any unusual power to the Secretary of Finance because we tell him, "This is the formula that you must adopt in arriving at the adjustment so that you do not have to come back to us."59 Apart from his doubts as to the legality of the delegation of taxing power to the DOF and BIR, Senator Roco also voiced out his concern about the possible abuse and corruption that will arise from the periodic adjustment and reclassification provision. Continuing Senator Roco: Mr. President, if that is the argument, that the distinguished gentleman has a different legal interpretation, we will then now examine the choice. Because his legal interpretation is different from mine, then the issues becomes: Is it more advantageous that this judgment be exercised by the

House? Should we not concur or modify in terms of the exercise by the House of its power or are we better off giving this judgment call to the Department of Finance? Let me now submit, Mr. President, that in so doing, it is more advantageous to fix the rate so that even if we modify the rates identified by Congress, it is better and less susceptible to abuse. For instance, Mr. President, would the gentlemen wish to demonstrate to us how this will be done? On page 8, lines 5 to 9, there is a provision here as to when the Secretary of Finance shall direct the conduct of survey of retail prices of each brand of fermented liquor in coordination with the Bureau of Internal Revenue and the National Statistics Office. These offices are not exactly noted, Mr. President, for having been sanctified by the Holy Spirit in their noble intentions. x x x60 (Emphasis supplied) Pressing this point, Senator Roco continued his query: Senator Roco: x x x [On page 8, lines 5 to 9] it says that during the two-year period, the Secretary of Finance shall direct the conduct of the survey. How? When? Which retail prices and what brand shall he consider? When he coordinates with the Bureau of Internal Revenue, what is the Bureau of Internal Revenue supposed to be doing? What is the National Statistics Office supposed to be doing, and under what guides and standards? May the gentleman wish to demonstrate how this will be done? My point, Mr. President, is, by giving the Secretary of Finance, the BIR and the National Statistics Office discretion over a two-year period will invite corruption and arbitrariness, which is more dangerous than letting the House of Representatives and this Chamber set the adjustment rate. Why not set the adjustment rate? Why should Congress not exercise that judgment now? x x x Senator Enrile: x x x Senator Roco: x x x We respectfully submit that the Chairman consider choosing the judgment of this Chamber and the House of Representatives over a delegated judgment of the Department of Finance. Again, it is not to say that I do not trust the Department of Finance. It has won awards, and I also trust the undersecretary. But that is beside the point. Tomorrow, they may not be there.61 (Emphasis supplied) This point was further dissected by the two senators. There was a genuine difference of opinion as to which system one with a fixed excise tax rate and classification or the other with a periodic adjustment of excise tax rate and reclassification was less susceptible to abuse, as the following exchanges show: Senator Enrile: Mr. President, considering the sensitivity of these products from the viewpoint of exerted pressures because of the understandable impact of this measure on the pockets of the major players producing these products, the committee felt that perhaps to lessen such pressures, it is best that we now

establish a norm where the tax will be adjusted without incurring too much political controversy as has happened in the case of this proposal. Senator Roco: But that is exactly the same reason we say we must rely upon Congress because Congress, if it is subjected to pressure, at least balances off because of political factors. When the Secretary of Finance is now subjected to pressure, are we saying that the Secretary of Finance and the Department of Finance is better-suited to withstand the pressure? Or are we saying "Let the Finance Secretary decide whom to yield"? I am saying that the temptation and the pressure on the Secretary of Finance is more dangerous and more corruption-friendly than ascertaining for ourselves now a fixed rate of increase for a fixed period. Senator Enrile: Mr. President, perhaps the gentleman may not agree with this representation, but in my humble opinion, this formulation is less susceptible to pressure because there is a definite point of reference which is the consumer price index, and that consumer price index is not going to be used only for this purpose. The CPI is used for a national purpose, and there is less possibility of tinkering with it.62 Further, Senator Roco, like Congressman Javier, expressed the view that the periodic adjustment and reclassification provision would create an anti-competitive atmosphere. Again, Senators Roco and Enrile had genuine divergence of opinions on this matter, to wit: Senator Roco: x x x On the marketing level, an adjustment clause may, in fact, be disadvantageous to both companies, whether it is the Lucio Tan companies or the San Miguel companies. If we have to adjust our marketing position every two years based on the adjustment clause, the established company may survive, but the new ones will have tremendous difficulty. Therefore, this provision tends to indicate an anticompetitive bias. It is good for San Miguel and the Lucio Tan companies, but the new companies assuming there may be new companies and we want to encourage them because of the old point of liberalization will be at a disadvantage under this situation. If this observation will find receptivity in the policy consideration of the distinguished Gentleman, maybe we can also further, later on, seek amendments to this automatic adjustment clause in some manner. Senator Enrile: Mr. President, I cannot foresee any anti-competitiveness of this provision with respect to a new entrant, because a new entrant will not just come in without studying the market. He is a lousy businessman if he will just come in without studying the market. If he comes in, he will determine at what retail price level he will market his product, and he will be coming under any of the tiers depending upon his net retail price. Therefore, I do not see how this particular provision will affect a new entrant. Senator Roco: Be that as it may, Mr. President, we obviously will not resort to debate until this evening, and we will have to look for other ways of resolving the policy options.

Let me just close that particular area of my interpellation, by summarizing the points we were hoping could be clarified. 1. That the automatic adjustment clause is at best questionable in law. 2. It is corruption-friendly in the sense that it shifts the discretion from the House of Representatives and this Chamber to the Secretary of Finance, no matter how saintly he may be. 3. There is, although the judgment call of the gentleman disagrees to our view, an anticompetitive situation that is geared at63 After these lengthy exchanges, it appears that the views of Senator Enrile were sustained by the Senate Body because the Senate Version was passed on Third Reading without substantially altering the periodic adjustment and reclassification provision. It was actually at the Bicameral Conference Committee level where the Senate Version underwent major changes. The Senate Panel prevailed upon the House Panel to abandon the basic excise tax rate and ad valoremcomparator as the means to determine the applicable excise tax rate. Thus, the Senates four-tiered system was retained with minor adjustments as to the excise tax rate per tier. However, the House Panel prevailed upon the Senate Panel to delete the power of the DOF and BIR to periodically adjust the excise tax rate and tax brackets, and periodically resurvey and reclassify the cigarette brands based on the increase in the consumer price index. In lieu thereof, the classification of existing brands based on their average net retail price as of October 1, 1996 was "frozen" and a fixed across-the-board 12% increase in the excise tax rate of each tier after three years from the effectivity of the Act was put in place. There is a dearth of discussion in the deliberations as to the applicability of the freezing mechanism to new brands after their classification is determined based on their current net retail price. But a plain reading of the text of RA 8240, even before its amendment by RA 9334, as well as the previously discussed deliberations would readily lead to the conclusion that the intent of Congress was to likewise apply the freezing mechanism to new brands. Precisely, Congress rejected the proposal to allow the DOF and BIR to periodically adjust the excise tax rate and tax brackets as well as to periodically resurvey and reclassify cigarettes brands which would have encompassed old and new brands alike. Thus, it would be absurd for us to conclude that Congress intended to allow the periodic reclassification of new brands by the BIR after their classification is determined based on their current net retail price. We shall return to this point when we tackle the second issue. In explaining the changes made at the Bicameral Conference Committee level, Senator Enrile, in his report to the Senate plenary, noted that the fixing of the excise tax rates was done to avoid confusion.64 Congressman Javier, for his part, reported to the House plenary the reasons for fixing the excise tax rate and freezing the classification, thus: Finally, this twin feature, Mr. Speaker, fixed specific tax rates and frozen classification, rejects the Senate version which seeks to abdicate the power of Congress to tax by pegging the rates as well as the classification of sin products to consumer price index which practically vests in the Secretary of Finance the power to fix the rates and to classify the products for tax purposes.65 (Emphasis supplied) Congressman Javier later added that the frozen classification was intended to give stability to the industry as the BIR would be prevented from tinkering with the classification since it

would remain unchanged despite the increase in the net retail prices of the previously classified brands.66 This would also assure the industry players that there would be no new impositions as long as the law is unchanged.67 From the foregoing, it is quite evident that the classification freeze provision could hardly be considered arbitrary, or motivated by a hostile or oppressive attitude to unduly favor older brands over newer brands. Congress was unequivocal in its unwillingness to delegate the power to periodically adjust the excise tax rate and tax brackets as well as to periodically resurvey and reclassify the cigarette brands based on the increase in the consumer price index to the DOF and the BIR. Congress doubted the constitutionality of such delegation of power, and likewise, considered the ethical implications thereof. Curiously, the classification freeze provision was put in place of the periodic adjustment and reclassification provision because of the belief that the latter would foster an anti-competitive atmosphere in the market. Yet, as it is, this same criticism is being foisted by petitioner upon theclassification freeze provision. To our mind, the classification freeze provision was in the main the result of Congresss earnest efforts to improve the efficiency and effectivity of the tax administration over sin products while trying to balance the same with other state interests. In particular, the questioned provision addressed Congresss administrative concerns regarding delegating too much authority to the DOF and BIR as this will open the tax system to potential areas for abuse and corruption. Congress may have reasonably conceived that a tax system which would give the least amount of discretion to the tax implementers would address the problems of tax avoidance and tax evasion. To elaborate a little, Congress could have reasonably foreseen that, under the DOF proposal and the Senate Version, the periodic reclassification of brands would tempt the cigarette manufacturers to manipulate their price levels or bribe the tax implementers in order to allow their brands to be classified at a lower tax bracket even if their net retail prices have already migrated to a higher tax bracket after the adjustment of the tax brackets to the increase in the consumer price index. Presumably, this could be done when a resurvey and reclassification is forthcoming. As briefly touched upon in the Congressional deliberations, the difference of the excise tax rate between the medium-priced and the high-priced tax brackets under RA 8240, prior to its amendment, was P3.36. For a moderately popular brand which sells around 100 million packs per year, this easily translates to P336,000,000.68 The incentive for tax avoidance, if not outright tax evasion, would clearly be present. Then again, the tax implementers may use the power to periodically adjust the tax rate and reclassify the brands as a tool to unduly oppress the taxpayer in order for the government to achieve its revenue targets for a given year. Thus, Congress sought to, among others, simplify the whole tax system for sin products to remove these potential areas of abuse and corruption from both the side of the taxpayer and the government. Without doubt, theclassification freeze provision was an integral part of this overall plan. This is in line with one of the avowed objectives of the assailed law "to simplify the tax administration and compliance with the tax laws that are about to unfold in order to minimize losses arising from inefficiencies and tax avoidance scheme, if not outright tax evasion."69 RA 9334 did not alter this classification freeze provision of RA 8240. On the contrary, Congress affirmed this freezing mechanism by clarifying the wording of the law. We can thus reasonably conclude, as the deliberations on RA 9334 readily show, that the administrative concerns in tax administration, which moved Congress to enact the classification freeze provision in RA 8240, were merely continued by RA 9334. Indeed, administrative concerns may provide a legitimate, rational basis for legislative classification.70 In the case at bar, these administrative concerns in the measurement and collection of excise taxes on sin products are readily apparent as afore-discussed.

Aside from the major concern regarding the elimination of potential areas for abuse and corruption from the tax administration of sin products, the legislative deliberations also show that the classification freeze provision was intended to generate buoyant and stable revenues for government. With the frozen tax classifications, the revenue inflow would remain stable and the government would be able to predict with a greater degree of certainty the amount of taxes that a cigarette manufacturer would pay given the trend in its sales volume over time. The reason for this is that the previously classified cigarette brands would be prevented from moving either upward or downward their tax brackets despite the changes in their net retail prices in the future and, as a result, the amount of taxes due from them would remain predictable. The classification freeze provision would, thus, aid in the revenue planning of the government.71 All in all, the classification freeze provision addressed Congresss administrative concerns in the simplification of tax administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable revenue generation, and ease of projection of revenues. Consequently, there can be no denial of the equal protection of the laws since the rational-basis test is amply satisfied. Going now to the contention of petitioner that the classification freeze provision unduly favors older brands over newer brands, we must first contextualize the basis of this claim. As previously discussed, the evidence presented by the petitioner merely showed that in 2004, Marlboro and Philip Morris, on the one hand, and Lucky Strike, on the other, would have been taxed at the same rate had the classification freeze provision been not in place. But due to the operation of the classification freeze provision, Lucky Strike was taxed higher. From here, petitioner generalizes that this differential tax treatment arising from the classification freeze provision adversely impacts the fairness of the playing field in the industry, particularly, between older and newer brands. Thus, it is virtually impossible for new brands to enter the market. Petitioner did not, however, clearly demonstrate the exact extent of such impact. It has not been shown that the net retail prices of other older brands previously classified under this classification system have already pierced their tax brackets, and, if so, how this has affected the overall competition in the market. Further, it does not necessarily follow that newer brands cannot compete against older brands because price is not the only factor in the market as there are other factors like consumer preference, brand loyalty, etc. In other words, even if the newer brands are priced higher due to the differential tax treatment, it does not mean that they cannot compete in the market especially since cigarettes contain addictive ingredients so that a consumer may be willing to pay a higher price for a particular brand solely due to its unique formulation. It may also be noted that in 2003, the BIR surveyed 29 new brands72 that were introduced in the market after the effectivity of RA 8240 on January 1, 1997, thus negating the sweeping generalization of petitioner that the classification freeze provision has become an insurmountable barrier to the entry of new brands. Verily, where there is a claim of breach of the due process and equal protection clauses, considering that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail.73 Be that as it may, petitioners evidence does suggest that, at least in 2004, Philip Morris and Marlboro, older brands, would have been taxed at the same rate as Lucky Strike, a newer brand, due to certain conditions (i.e., the increase of the older brands net retail prices beyond the tax bracket to which they were previously classified after the lapse of some time) were it not for the classification freeze provision. It may be conceded that this has adversely affected, to a certain extent, the ability of petitioner to competitively price its newer brands vis--vis the subject older brands. Thus, to a limited extent, the assailed law seems to derogate one of its avowed objectives,i.e. promoting fair competition among the players in the industry. Yet, will this occurrence, by itself, render the assailed law unconstitutional on equal protection grounds?

We answer in the negative. Whether Congress acted improvidently in derogating, to a limited extent, the states interest in promoting fair competition among the players in the industry, while pursuing other state interests regarding the simplification of tax administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable revenue generation, and ease of projection of revenues through the classification freeze provision, and whether the questioned provision is the best means to achieve these state interests, necessarily go into the wisdom of the assailed law which we cannot inquire into, much less overrule. The classification freeze provisionhas not been shown to be precipitated by a veiled attempt, or hostile attitude on the part of Congress to unduly favor older brands over newer brands. On the contrary, we must reasonably assume, owing to the respect due a co-equal branch of government and as revealed by the Congressional deliberations, that the enactment of the questioned provision was impelled by an earnest desire to improve the efficiency and effectivity of the tax administration of sin products. For as long as the legislative classification is rationally related to furthering some legitimate state interest, as here, the rational-basis test is satisfied and the constitutional challenge is perfunctorily defeated. We do not sit in judgment as a supra-legislature to decide, after a law is passed by Congress, which state interest is superior over another, or which method is better suited to achieve one, some or all of the states interests, or what these interests should be in the first place. This policy-determining power, by constitutional fiat, belongs to Congress as it is its function to determine and balance these interests or choose which ones to pursue. Time and again we have ruled that the judiciary does not settle policy issues. The Court can only declare what the law is and not what the law should be. Under our system of government, policy issues are within the domain of the political branches of government and of the people themselves as the repository of all state power.74 Thus, the legislative classification under the classification freeze provision, after having been shown to be rationally related to achieve certain legitimate state interests and done in good faith, must, perforce, end our inquiry. Concededly, the finding that the assailed law seems to derogate, to a limited extent, one of its avowed objectives (i.e. promoting fair competition among the players in the industry) would suggest that, by Congresss own standards, the current excise tax system on sin products is imperfect. But, certainly, we cannot declare a statute unconstitutional merely because it can be improved or that it does not tend to achieve all of its stated objectives.75This is especially true for tax legislation which simultaneously addresses and impacts multiple state interests.76Absent a clear showing of breach of constitutional limitations, Congress, owing to its vast experience and expertise in the field of taxation, must be given sufficient leeway to formulate and experiment with different tax systems to address the complex issues and problems related to tax administration. Whatever imperfections that may occur, the same should be addressed to the democratic process to refine and evolve a taxation system which ideally will achieve most, if not all, of the states objectives. In fine, petitioner may have valid reasons to disagree with the policy decision of Congress and the method by which the latter sought to achieve the same. But its remedy is with Congress and not this Court. As succinctly articulated in Vance v. Bradley:77 The Constitution presumes that, absent some reason to infer antipathy, even improvident decisions will eventually be rectified by the democratic process, and that judicial intervention is generally unwarranted no matter how unwisely we may think a political branch has acted. Thus, we will not overturn such a statute unless the varying treatment of different groups or persons is so unrelated to the

achievement of any combination of legitimate purposes that we can only conclude that the legislature's actions were irrational.78 We now tackle the second issue. Petitioner asserts that Revenue Regulations No. 1-97, as amended by Revenue Regulations No. 9-2003, Revenue Regulations No. 22-2003 and Revenue Memorandum Order No. 62003, are invalid insofar as they empower the BIR to reclassify or update the classification of new brands of cigarettes based on their current net retail prices every two years or earlier. It claims that RA 8240, even prior to its amendment by RA 9334, did not authorize the BIR to conduct said periodic resurvey and reclassification. The questioned provisions are found in the following sections of the assailed issuances: (1) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, viz: For the purpose of establishing or updating the tax classification of new brands and variant(s) thereof, their current net retail price shall be reviewed periodically through the conduct of survey or any other appropriate activity, as mentioned above, every two (2) years unless earlier ordered by the Commissioner. However, notwithstanding any increase in the current net retail price, the tax classification of such new brands shall remain in force until the same is altered or changed through the issuance of an appropriate Revenue Regulations. (2) Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by machine, viz: II. POLICIES AND GUIDELINES 1. The conduct of survey covered by this Order, for purposes of determining the current retail prices of new brands of cigarettes and alcohol products introduced in the market on or after January 1, 1997, shall be undertaken in the following instances: xxxx b. For reclassification of new brands of said excisable products that were introduced in the market after January 1, 1997. xxxx 4. The determination of the current retail prices of new brands of the aforesaid excisable products shall be initiated as follows: xxxx b. After the lapse of the prescribed two-year period or as the Commissioner may otherwise direct, the appropriate tax reclassification of these brands based on the

current net retail prices thereof shall be determined by a survey to be conducted upon a written directive by the Commissioner. For this purpose, a memorandum order to the Assistant Commissioner, Large Taxpayers Service, Heads, Excise Tax Areas, and Regional Directors of all Revenue Regions, except Revenue Region Nos. 4, 5, 6, 7, 8 and 9, shall be issued by the Commissioner for the submission of the list of major supermarkets/retail outlets where the above excisable products are being sold, as well as the list of selected revenue officers who shall be designated to conduct the said activity(ies). xxxx 6. The results of the survey conducted in Revenue Region Nos. 4 to 9 shall be submitted directly to the Chief, LT Assistance Division II (LTAD II), National Office for consolidation. On the other hand, the results of the survey conducted in Revenue Regions other than Revenue Region Nos. 4 to 9, shall be submitted to the Office of the Regional Director for regional consolidation. The consolidated regional survey, together with the accomplished survey forms shall be transmitted to the Chief, LTAD II for national consolidation within three (3) days from date of actual receipt from the survey teams. The LTAD II shall be responsible for the evaluation and analysis of the submitted survey forms and the preparation of the recommendation for the updating/revision of the tax classification of each brand of cigarettes and alcohol products. The said recommendation, duly validated by the ACIR, LTS, shall be submitted to the Commissioner for final review within ten (10) days from the date of actual receipt of complete reports from all the surveying Offices. 7. Upon final review by the Commissioner of the revised tax classification of the different new brands of cigarettes and alcohol products, the appropriate revenue regulations shall be prepared and submitted for approval by the Secretary of Finance. xxxx III. PROCEDURES xxxx Large Taxpayers Assistance Division II xxxx 1. Perform the following preparatory procedures on the identification of brands to be surveyed, supermarkets/retail outlets where the survey shall be conducted, and the personnel selected to conduct the survey. xxxx b. On the tax reclassification of new brands

i. Submit a master list of registered brands covered by the survey pursuant to the provisions of Item II.2 of this Order containing the complete description of each brand, existing net retail price and the corresponding tax rate thereof. ii. Submit to the ACIR, LTS, a list of major supermarkets/retail outlets within the territorial jurisdiction of the concerned revenue regions where the survey will be conducted to be used as basis in the issuance of Mission Orders. Ensure that the minimum number of establishments to be surveyed, as prescribed under existing revenue laws and regulations, is complied with. In addition, the names and designations of revenue officers selected to conduct the survey shall be clearly indicated opposite the names of the establishments to be surveyed. There is merit to the contention. In order to implement RA 8240 following its effectivity on January 1, 1997, the BIR issued Revenue Regulations No. 1-97, dated December 13, 1996, which mandates a one-time classification only.79 Upon their launch, new brands shall be initially taxed based on their suggested net retail price. Thereafter, a survey shall be conducted within three (3) months to determine their current net retail prices and, thus, fix their official tax classifications. However, the BIR made a turnaround by issuing Revenue Regulations No. 9-2003, dated February 17, 2003, which partly amended Revenue Regulations No. 1-97, by authorizing the BIR to periodically reclassify new brands (i.e., every two years or earlier) based on their current net retail prices. Thereafter, the BIR issued Revenue Memorandum Order No. 62003, dated March 11, 2003, prescribing the guidelines on the implementation of Revenue Regulations No. 9-2003. This was patent error on the part of the BIR for being contrary to the plain text and legislative intent of RA 8240. It is clear that the afore-quoted portions of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and Revenue Memorandum Order No. 6-2003 unjustifiably emasculate the operation of Section 145 of the NIRC because they authorize the Commissioner of Internal Revenue to update the tax classification of new brands every two years or earlier subject only to its issuance of the appropriate Revenue Regulations, when nowhere in Section 145 is such authority granted to the Bureau. Unless expressly granted to the BIR, the power to reclassify cigarette brands remains a prerogative of the legislature which cannot be usurped by the former. More importantly, as previously discussed, the clear legislative intent was for new brands to benefit from the same freezing mechanism accorded to Annex "D" brands. To reiterate, in enacting RA 8240, Congress categorically rejected the DOF proposal and Senate Version which would have empowered the DOF and BIR to periodically adjust the excise tax rate and tax brackets, and to periodically resurvey and reclassify cigarette brands. (This resurvey and reclassification would have naturally encompassed both old and new brands.) It would thus, be absurd for us to conclude that Congress intended to allow the periodic reclassification of new brands by the BIR after their classification is determined based on their current net retail price while limiting the freezing of the classification to Annex "D" brands. Incidentally, Senator Ralph G. Recto expressed the following views during the deliberations on RA 9334, which later amended RA 8240: Senator Recto: Because, like I said, when Congress agreed to adopt a specific tax system [under R.A. 8240], when Congress did not index the brackets, and Congress did not index the rates but only provided for a one rate increase in the year 2000, we shifted from ad valorem which was based on value to a system of specific which is based on volume. Congress then, in effect, determined the classification based on the prices at that particular period of time and classified these products accordingly.

Of course, Congress then decided on what will happen to the new brands or variants of existing brands. To favor government, a variant would be classified as the highest rate of tax for that particular brand. In case of a new brand, Mr. President, then the BIR should classify them. But I do not think it was the intention of Congress then to give the BIR the authority to reclassify them every so often. I do not think it was the intention of Congress to allow the BIR to classify a new brand every two years, for example, because it will be arbitrary for the BIR to do so. x x x80 (Emphasis supplied) For these reasons, the amendments introduced by RA 9334 to RA 8240, insofar as the freezing mechanism is concerned, must be seen merely as underscoring the legislative intent already in place then, i.e. new brands as being covered by the freezing mechanism after their classification based on their current net retail prices. Unfortunately for petitioner, this result will not cause a downward reclassification of Lucky Strike. It will be recalled that petitioner introduced Lucky Strike in June 2001. However, as admitted by petitioner itself, the BIR did not conduct the required market survey within three months from product launch. As a result, Lucky Strike was never classified based on its actual current net retail price. Petitioner failed to timely seek redress to compel the BIR to conduct the requisite market survey in order to fix the tax classification of Lucky Strike. In the meantime, Lucky Strike was taxed based on its suggested net retail price of P9.90 per pack, which is within the high-priced tax bracket. It was only after the lapse of two years or in 2003 that the BIR conducted a market survey which was thefirst time that Lucky Strikes actual current net retail price was surveyed and found to be from P10.34 to P11.53 per pack, which is within the premium-priced tax bracket. The case of petitioner falls under a situation where there was no reclassification based on its current net retail price which would have been invalid as previously explained. Thus, we cannot grant petitioners prayer for a downward reclassification of Lucky Strike because it was never reclassified by the BIR based on its actual current net retail price. It should be noted though that on August 8, 2003, the BIR issued Revenue Regulations No. 22-2003 which implemented the revised tax classifications of new brands based on their current net retail prices through the market survey conducted pursuant to Revenue Regulations No. 9-2003. Annex "A" of Revenue Regulations No. 22-2003 lists the result of the market survey and the corresponding recommended tax classification of the new brands therein aside from Lucky Strike. However, whether these other brands were illegally reclassified based on their actual current net retail prices by the BIR must be determined on a case-to-case basis because it is possible that these brands were classified based on their actual current net retail price for the first time in the year 2003 just like Lucky Strike. Thus, we shall not make any pronouncement as to the validity of the tax classifications of the other brands listed therein. Finally, it must be noted that RA 9334 introduced changes in the manner by which the current net retail price of a new brand is determined and how its classification is permanently fixed, to wit: New brands, as defined in the immediately following paragraph, shall initially be classified according to their suggested net retail price. New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240 [on January 1, 1997]. Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally manufactured or imported cigarettes are intended by the manufacture or importer to be sold on retail in major supermarkets or retail outlets

in Metro Manila for those marketed nationwide, and in other regions, for those with regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the new brand against the net retail price as defined herein and determine the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified. After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail price as of the time of revalidation in order to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be classified; Provided however, That brands of cigarettes introduced in the domestic market between January 1, 1997 and December 31, 2003 shall remain in the classification under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of Congress. (Emphasis supplied) Thus, Revenue Regulations No. 9-2003 and Revenue Memorandum Order No. 6-2003 should be deemed modified by the above provisions from the date of effectivity of RA 9334 on January 1, 2005. In sum, Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, as pertinent to cigarettes packed by machine, are invalid insofar as they grant the BIR the power to reclassify or update the classification of new brands every two years or earlier. Further, these provisions are deemed modified upon the effectivity of RA 9334 on January 1, 2005 insofar as the manner of determining the permanent classification of new brands is concerned. We now tackle the last issue. Petitioner contends that RA 8240, as amended by RA 9334, and its implementing rules and regulations violate the General Agreement on Tariffs and Trade (GATT) of 1947, as amended, specifically, Paragraph 2, Article III, Part II: 2. The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1. It claims that it is the duty of this Court to correct, in favor of the GATT, whatever inconsistency exists between the assailed law and the GATT in order to prevent triggering the international dispute settlement mechanism under the GATT-WTO Agreement. We disagree. The classification freeze provision uniformly applies to all newly introduced brands in the market, whether imported or locally manufactured. It does not purport to single out imported cigarettes in order to unduly favor locally produced ones. Further, petitioners evidence was anchored on the alleged unequal tax treatment between old and new brands which involves a different frame of reference vis--vis local and imported products.

Petitioner has, therefore, failed to clearly prove its case, both factually and legally, within the parameters of the GATT. At any rate, even assuming arguendo that petitioner was able to prove that the classification freeze provisionviolates the GATT, the outcome would still be the same. The GATT is a treaty duly ratified by the Philippine Senate and under Article VII, Section 2181 of the Constitution, it merely acquired the status of a statute.82Applying the basic principles of statutory construction in case of irreconcilable conflict between statutes, RA 8240, as amended by RA 9334, would prevail over the GATT either as a later enactment by Congress or as a special law dealing with the taxation of sin products. Thus, in Abbas v. Commission on Elections,83 we had occasion to explain: Petitioners premise their arguments on the assumption that the Tripoli Agreement is part of the law of the land, being a binding international agreement. The Solicitor General asserts that the Tripoli Agreement is neither a binding treaty, not having been entered into by the Republic of the Philippines with a sovereign state and ratified according to the provisions of the 1973 or 1987 Constitutions, nor a binding international agreement. We find it neither necessary nor determinative of the case to rule on the nature of the Tripoli Agreement and its binding effect on the Philippine Government whether under public international or internal Philippine law. In the first place, it is now the Constitution itself that provides for the creation of an autonomous region in Muslim Mindanao. The standard for any inquiry into the validity of R.A. No. 6734 would therefore be what is so provided in the Constitution. Thus, any conflict between the provisions of R.A. No. 6734 and the provisions of the Tripoli Agreement will not have the effect of enjoining the implementation of the Organic Act. Assuming for the sake of argument that the Tripoli Agreement is a binding treaty or international agreement, it would then constitute part of the law of the land. But as internal law it would not be superior to R.A. No. 6734, an enactment of the Congress of the Philippines, rather it would be in the same class as the latter [SALONGA, PUBLIC INTERNATIONAL LAW 320 (4th ed., 1974), citing Head Money Cases, 112 U.S. 580 (1884) and Foster v. Nelson, 2 Pet. 253 (1829)]. Thus, if at all, R.A. No. 6734 would be amendatory of the Tripoli Agreement, being a subsequent law. Only a determination by this Court that R.A. No. 6734 contravenes the Constitution would result in the granting of the reliefs sought. (Emphasis supplied) WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the Regional Trial Court of Makati, Branch 61, in Civil Case No. 03-1032, is AFFIRMED with MODIFICATION. As modified, this Court declares that: (1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is CONSTITUTIONAL; and that (2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by machine, are INVALIDinsofar as they grant the BIR the power to reclassify or update the classification of new brands every two years or earlier. SO ORDERED.

G.R. No. 168056 September 1, 2005 ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO, Petitioners, vs. THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondent. x-------------------------x G.R. No. 168207 AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEA III, Petitioners, vs. EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY OF FINANCE, GUILLERMO L. PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE, Respondent. x-------------------------x G.R. No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO ANTONIO; PETRON DEALERS ASSOCIATION represented by its President, RUTH E. BARBIBI; ASSOCIATION OF CALTEX DEALERS OF THE PHILIPPINES represented by its President, MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business under the name and style of "ANB NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ doing business under the name and style of "SHELL GATE N. DOMINGO"; BETHZAIDA TAN doing business under the name and style of "ADVANCE SHELL STATION"; REYNALDO P. MONTOYA doing business under the name and style of "NEW LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing business under the name and style of "RED FIELD SHELL SERVICE STATION"; DONICA CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. MARBIBI doing business under the name and style of "R&R PETRON STATION"; PETER M. UNGSON doing business under the name and style of "CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing business under the name and style of "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS doing business under the name and style of "STARCARGA ENTERPRISES"; ADORACION MAEBO doing business under the name and style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business under the name and style of "LEONAS GASOLINE STATION and SERVICE CENTER"; CARMELITA BALDONADO doing business under the name and style of "FIRST CHOICE SERVICE CENTER"; MERCEDITAS A. GARCIA doing business under the name and style of "LORPED SERVICE CENTER"; RHEAMAR A. RAMOS doing business under the name and style of "RJRAM PTT GAS STATION"; MA. ISABEL VIOLAGO doing business under the name and style of "VIOLAGO-PTT SERVICE CENTER"; MOTORISTS HEART CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS HARVARD CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS HERITAGE CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA;

PHILIPPINE STANDARD OIL CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; ROMEO MANUEL doing business under the name and style of "ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ III doing business under the name and style of "TRUE SERVICE STATION", Petitioners, vs. CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, Respondent. x-------------------------x G.R. No. 168463 FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S. HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A. CASIO, Petitioners, vs. CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, and EDUARDO R. ERMITA, in his capacity as Executive Secretary, Respondent. x-------------------------x G.R. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner, vs. HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC Commissioner of the Bureau of Internal Revenue; and HON. ALEXANDER AREVALO, in his capacity as the OIC Commissioner of the Bureau of Customs, Respondent. DECISION AUSTRIA-MARTINEZ, J.: The expenses of government, having for their object the interest of all, should be borne by everyone, and the more man enjoys the advantages of society, the more he ought to hold himself honored in contributing to those expenses. -Anne Robert Jacques Turgot (1727-1781) French statesman and economist Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased emoluments for health workers, and wider coverage for full value-added tax benefits these are the reasons why Republic Act No. 9337 (R.A. No. 9337)1 was enacted. Reasons, the wisdom of which, the Court even with its extensive constitutional power of

review, cannot probe. The petitioners in these cases, however, question not only the wisdom of the law, but also perceived constitutional infirmities in its passage. Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional. LEGISLATIVE HISTORY R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and Senate Bill No. 1950. House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on Ways and Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.) Eric D. Singson introduced on August 8, 2004. The President certified the bill on January 7, 2005 for immediate enactment. On January 27, 2005, the House of Representatives approved the bill on second and third reading. House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill No. 3555. The House Committee on Ways and Means approved the bill on February 2, 2005. The President also certified it as urgent on February 8, 2005. The House of Representatives approved the bill on second and third reading on February 28, 2005. Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7, 2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos. 3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the bill on March 11, 2005, and was approved by the Senate on second and third reading on April 13, 2005. On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a committee conference on the disagreeing provisions of the proposed bills. Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill No. 3705, and Senate Bill No. 1950, "after having met and discussed in full free and conference," recommended the approval of its report, which the Senate did on May 10, 2005, and with the House of Representatives agreeing thereto the next day, May 11, 2005. On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to the President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337. July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the Court issued a temporary restraining order, effective immediately and continuing until further orders, enjoining respondents from enforcing and implementing the law. Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary restraining order on July 1, 2005, to wit:

J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little background. You know when the law took effect on July 1, 2005, the Court issued a TRO at about 5 oclock in the afternoon. But before that, there was a lot of complaints aired on television and on radio. Some people in a gas station were complaining that the gas prices went up by 10%. Some people were complaining that their electric bill will go up by 10%. Other times people riding in domestic air carrier were complaining that the prices that theyll have to pay would have to go up by 10%. While all that was being aired, per your presentation and per our own understanding of the law, thats not true. Its not true that the e-vat law necessarily increased prices by 10% uniformly isnt it? ATTY. BANIQUED : No, Your Honor. J. PANGANIBAN : It is not? ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted the Petroleum companies some subsidy . . . interrupted J. PANGANIBAN : Thats correct . . . ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted J. PANGANIBAN : . . . mitigating measures . . . ATTY. BANIQUED : Yes, Your Honor. J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the Excise Tax and the import duties. That is why, it is not correct to say that the VAT as to petroleum dealers increased prices by 10%. ATTY. BANIQUED : Yes, Your Honor. J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover the E-Vat tax. If you consider the excise tax and the import duties, the Net Tax would probably be in the neighborhood of 7%? We are not going into exact figures I am just trying to deliver a point that different industries, different products, different services are hit differently. So its not correct to say that all prices must go up by 10%. ATTY. BANIQUED : Youre right, Your Honor.

mercy of that confusion of an across the board increase of 10%, which you yourself now admit and I think even the Government will admit is incorrect. In some cases, it should be 3% only, in some cases it should be 6% depending on these mitigating measures and the location and situation of each product, of each service, of each company, isnt it? ATTY. BANIQUED : Yes, Your Honor. J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the clarification of all these and we wish the government will take time to clarify all these by means of a more detailed implementing rules, in case the law is upheld by this Court. . . .6 The Court also directed the parties to file their respective Memoranda. G.R. No. 168056 Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain a uniform provisoauthorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the following conditions have been satisfied, to wit: . . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %). Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution. G.R. No. 168207

J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a mitigating measure. So, therefore, there is no justification to increase the fares by 10% at best 7%, correct? ATTY. BANIQUED : I guess so, Your Honor, yes. J. PANGANIBAN : There are other products that the people were complaining on that first day, were being increased arbitrarily by 10%. And thats one reason among many others this Court had to issue TRO because of the confusion in the implementation. Thats why we added as an issue in this case, even if its tangentially taken up by the pleadings of the parties, the confusion in the implementation of the E-vat. Our people were subjected to the

On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337. Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on the ground that it amounts to an undue delegation of legislative power, petitioners also contend that the increase in the VAT rate to 12% contingent on any of the two conditions being satisfied violates the due process clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax burden on the people, in that: (1) the 12% increase is ambiguous because it does not state if the rate would be returned to the original 10% if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to year;

and (3) the increase in the VAT rate, which is supposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should only be based on fiscal adequacy. Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral Conference Committee is a violation of the "no-amendment rule" upon last reading of a bill laid down in Article VI, Section 26(2) of the Constitution. G.R. No. 168461 Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell Dealers, Inc.,et al., assailing the following provisions of R.A. No. 9337: 1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall be amortized over a 60-month period, if the acquisition, excluding the VAT components, exceeds One Million Pesos (P1, 000,000.00); 2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be credited against the output tax; and 3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on gross payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of goods and properties) and 108 (sale of services and use or lease of properties) of the NIRC. Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and confiscatory. Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or property without due process of law under Article III, Section 1 of the Constitution. According to petitioners, the contested sections impose limitations on the amount of input tax that may be claimed. Petitioners also argue that the input tax partakes the nature of a property that may not be confiscated, appropriated, or limited without due process of law. Petitioners further contend that like any other property or property right, the input tax credit may be transferred or disposed of, and that by limiting the same, the government gets to tax a profit or value-added even if there is no profit or value-added. Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1) the entity has a high ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions with the government, is not based on real and substantial differences to meet a valid classification. Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of the Constitution, and that it is the smaller businesses with higher input tax to output tax ratio that will suffer the consequences thereof for it wipes out whatever meager margins the petitioners make. G.R. No. 168463

Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this petition forcertiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the following grounds: 1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation of Article VI, Section 28(2) of the Constitution; 2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions present in Senate Bill No. 1950 and House Bill No. 3705; and 3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125,7 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the Constitution, which provides that all appropriation, revenue or tariff bills shall originate exclusively in the House of Representatives G.R. No. 168730 On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20, 2005, alleging unconstitutionality of the law on the ground that the limitation on the creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect, thus violating the principle that tax collection and revenue should be solely allocated for public purposes and expenditures. Petitioner Garcia further claims that allowing these establishments to pass on the tax to the consumers is inequitable, in violation of Article VI, Section 28(1) of the Constitution. RESPONDENTS COMMENT The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily, respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to cast doubt on its validity. Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA 630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the bicameral proceedings, exclusive origination of revenue measures and the power of the Senate concomitant thereto, have already been settled. With regard to the issue of undue delegation of legislative power to the President, respondents contend that the law is complete and leaves no discretion to the President but to increase the rate to 12% once any of the two conditions provided therein arise. Respondents also refute petitioners argument that the increase to 12%, as well as the 70% limitation on the creditable input tax, the 60-month amortization on the purchase or importation of capital goods exceedingP1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary, oppressive, and confiscatory, and that it violates the constitutional principle on progressive taxation, among others. Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform agenda. A reform in the value-added system of taxation is the core revenue measure that will tilt the balance towards a sustainable macroeconomic environment necessary for economic growth. ISSUES

The Court defined the issues, as follows: PROCEDURAL ISSUE Whether R.A. No. 9337 violates the following provisions of the Constitution: a. Article VI, Section 24, and b. Article VI, Section 26(2) SUBSTANTIVE ISSUES 1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the following provisions of the Constitution: a. Article VI, Section 28(1), and

It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax credit method."15 E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No. 8241 or the Improved VAT Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 and finally, the presently beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act. The Court will now discuss the issues in logical sequence. PROCEDURAL ISSUE I. Whether R.A. No. 9337 violates the following provisions of the Constitution: a. Article VI, Section 24, and

b. Article VI, Section 28(2) b. Article VI, Section 26(2) 2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution: a. Article VI, Section 28(1), and b. Article III, Section 1 RULING OF THE COURT 2) Deleting entirely the no pass-on provisions found in both the House and Senate bills; As a prelude, the Court deems it apt to restate the general principles and concepts of valueadded tax (VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature. The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and services.8 Being an indirect tax on expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer,9 with the seller acting merely as a tax collector.10 The burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers. In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without transferring the burden to someone else.11 Examples are individual and corporate income taxes, transfer taxes, and residence taxes.12 In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different mode. Prior to 1978, the system was a single-stage tax computed under the "cost deduction method" and was payable only by the original sellers. The single-stage system was subsequently modified, and a mixture of the "cost deduction method" and "tax credit method" was used to determine the value-added tax payable.13 Under the "tax credit method," an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.14 3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax; and 4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition to the value-added tax. Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee. It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it would be utterly impracticable to transact the business of the nation, either at all, or at least with decency, deliberation, and order."19Thus, Article VI, Section 16 (3) of the Constitution provides that "each House may determine the rules of its proceedings." Pursuant to this inherent constitutional power to promulgate and implement its own rules of procedure, the respective rules of each house of Congress provided for the creation of a Bicameral Conference Committee. A. The Bicameral Conference Committee Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee exceeded its authority by: 1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;

Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows: Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on the amendment to any bill or joint resolution, the differences may be settled by the conference committees of both chambers. In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and support the House Bill. If the differences with the Senate are so substantial that they materially impair the House Bill, the panel shall report such fact to the House for the latters appropriate action. Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed, sufficiently explicit statement of the changes in or amendments to the subject measure. ... The Chairman of the House panel may be interpellated on the Conference Committee Report prior to the voting thereon. The House shall vote on the Conference Committee Report in the same manner and procedure as it votes on a bill on third and final reading. Rule XII, Section 35 of the Rules of the Senate states: Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision of any bill or joint resolution, the differences shall be settled by a conference committee of both Houses which shall meet within ten (10) days after their composition. The President shall designate the members of the Senate Panel in the conference committee with the approval of the Senate. Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in, or amendments to the subject measure, and shall be signed by a majority of the members of each House panel, voting separately. A comparative presentation of the conflicting House and Senate provisions and a reconciled version thereof with the explanatory statement of the conference committee shall be attached to the report. ... The creation of such conference committee was apparently in response to a problem, not addressed by any constitutional provision, where the two houses of Congress find themselves in disagreement over changes or amendments introduced by the other house in a legislative bill. Given that one of the most basic powers of the legislative branch is to formulate and implement its own rules of proceedings and to discipline its members, may the Court then delve into the details of how Congress complies with its internal rules or how it conducts its business of passing legislation? Note that in the present petitions, the issue is not whether provisions of the rules of both houses creating the bicameral conference committee are unconstitutional, but whether the bicameral conference committee has strictly complied with the rules of both houses, thereby remaining within the jurisdiction conferred upon it by Congress.

In the recent case of Farias vs. The Executive Secretary,20 the Court En Banc, unanimously reiterated and emphasized its adherence to the "enrolled bill doctrine," thus, declining therein petitioners plea for the Court to go behind the enrolled copy of the bill. Assailed in said case was Congresss creation of two sets of bicameral conference committees, the lack of records of said committees proceedings, the alleged violation of said committees of the rules of both houses, and the disappearance or deletion of one of the provisions in the compromise bill submitted by the bicameral conference committee. It was argued that such irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election Act. Striking down such argument, the Court held thus: Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate President and the certification of the Secretaries of both Houses of Congress that it was passed are conclusive of its due enactment. A review of cases reveals the Courts consistent adherence to the rule. The Court finds no reason to deviate from the salutary rule in this case where the irregularities alleged by the petitioners mostly involved the internal rules of Congress, e.g., creation of the 2nd or 3rd Bicameral Conference Committee by the House. This Court is not the proper forum for the enforcement of these internal rules of Congress, whether House or Senate. Parliamentary rules are merely procedural and with their observance the courts have no concern. Whatever doubts there may be as to the formal validity of Rep. Act No. 9006 must be resolved in its favor. The Court reiterates its ruling in Arroyo vs. De Venecia, viz.: But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to inquire into allegations that, in enacting a law, a House of Congress failed to comply with its own rules, in the absence of showing that there was a violation of a constitutional provision or the rights of private individuals. In Osmea v. Pendatun, it was held: "At any rate, courts have declared that the rules adopted by deliberative bodies are subject to revocation, modification or waiver at the pleasure of the body adopting them. And it has been said that "Parliamentary rules are merely procedural, and with their observance, the courts have no concern. They may be waived or disregarded by the legislative body." Consequently, "mere failure to conform to parliamentary usage will not invalidate the action (taken by a deliberative body) when the requisite number of members have agreed to a particular measure."21(Emphasis supplied) The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities committed by the conference committee in introducing changes or deleting provisions in the House and Senate bills. Akin to the Farias case,22 the present petitions also raise an issue regarding the actions taken by the conference committee on matters regarding Congress compliance with its own internal rules. As stated earlier, one of the most basic and inherent power of the legislature is the power to formulate rules for its proceedings and the discipline of its members. Congress is the best judge of how it should conduct its own business expeditiously and in the most orderly manner. It is also the sole concern of Congress to instill discipline among the members of its conference committee if it believes that said members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot apply to questions regarding only the internal operation of Congress, thus, the Court is wont to deny a review of the internal proceedings of a co-equal branch of government. Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of Finance,23the Court already made the pronouncement that "[i]f a change is desired in the practice [of the Bicameral Conference Committee] it must be sought

in Congress since this question is not covered by any constitutional provision but is only an internal rule of each house." 24 To date, Congress has not seen it fit to make such changes adverted to by the Court. It seems, therefore, that Congress finds the practices of the bicameral conference committee to be very useful for purposes of prompt and efficient legislative action. Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the bicameral conference committees, the Court deems it necessary to dwell on the issue. The Court observes that there was a necessity for a conference committee because a comparison of the provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed disagreements. As pointed out in the petitions, said disagreements were as follows: House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950 With regard to "Stand-By Authority" in favor of President Provides for 12% VAT on Provides for 12% VAT in Provides for a single rate of every sale of goods or general on sales of goods or 10% VAT on sale of goods properties (amending Sec. properties and reduced rates or properties (amending 106 of NIRC); 12% VAT for sale of certain locally Sec. 106 of NIRC), 10% on importation of goods manufactured goods and VAT on sale of services (amending Sec. 107 of petroleum products and raw including sale of electricity NIRC); and 12% VAT on materials to be used in the by generation companies, sale of services and use or manufacture thereof transmission and lease of properties (amending Sec. 106 of NIRC); distribution companies, and (amending Sec. 108 of 12% VAT on importation of use or lease of properties NIRC) goods and reduced rates for (amending Sec. 108 of certain imported products NIRC) including petroleum products (amending Sec. 107 of NIRC); and 12% VAT on sale of services and use or lease of properties and a reduced rate for certain services including power generation (amending Sec. 108 of NIRC) With regard to the "no pass-on" provision No similar provision Provides that the VAT Provides that the VAT imposed on power generation imposed on sales of and on the sale of petroleum electricity by generation products shall be absorbed by companies and services of generation companies or transmission companies sellers, respectively, and shall and distribution companies, not be passed on to as well as those of consumers franchise grantees of electric utilities shall not apply to residential end-users. VAT shall be absorbed by generation, transmission, and distribution companies. With regard to 70% limit on input tax credit Provides that the input tax No similar provision Provides that the input tax credit for capital goods on credit for capital goods on which a VAT has been which a VAT has been paid paid shall be equally shall be equally distributed

distributed over 5 years or over 5 years or the the depreciable life of depreciable life of such such capital goods; the capital goods; the input tax input tax credit for goods credit for goods and and services other than services other than capital capital goods shall not goods shall not exceed exceed 5% of the total 90% of the output VAT. amount of such goods and services; and for persons engaged in retail trading of goods, the allowable input tax credit shall not exceed 11% of the total amount of goods purchased. With regard to amendments to be made to NIRC provisions regarding income and excise taxes No similar provision No similar Provided for amendments to several provision NIRC provisions regarding corporate income, percentage, franchise and excise taxes The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) what rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation, transmission and distribution companies should not be passed on to consumers, as proposed in the Senate bill, or both the VAT imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale of petroleum products should not be passed on to consumers, as proposed in the House bill; (3) in what manner input tax credits should be limited; (4) and whether the NIRC provisions on corporate income taxes, percentage, franchise and excise taxes should be amended. There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, the Bicameral Conference Committee was mandated by the rules of both houses of Congress to act on the same by settling said differences and/or disagreements. The Bicameral Conference Committee acted on the disagreeing provisions by making the following changes: 1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the Conference Committee Report that the Bicameral Conference Committee tried to bridge the gap in the difference between the 10% VAT rate proposed by the Senate, and the various rates with 12% as the highest VAT rate proposed by the House, by striking a compromise whereby the present 10% VAT rate would be retained until certain conditions arise, i.e., the value-added tax collection as a percentage of gross domestic product (GDP) of the previous year exceeds 2 4/5%, or National Government deficit as a percentage of GDP of the previous year exceeds 1%, when the President, upon recommendation of the Secretary of Finance shall raise the rate of VAT to 12% effective January 1, 2006. 2. With regard to the disagreement on whether only the VAT imposed on electricity generation, transmission and distribution companies should not be passed on to consumers or whether both the VAT imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale of petroleum products may be passed on to consumers, the Bicameral Conference Committee chose to settle such disagreement by altogether deleting from its Report any no pass-on provision. 3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral Conference Committee decided to adopt the position of the House by putting a

limitation on the amount of input tax that may be credited against the output tax, although it crafted its own language as to the amount of the limitation on input tax credits and the manner of computing the same by providing thus: (A) Creditable Input Tax. . . . ... Provided, The input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such shorter period: . . . (B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, . . . 4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise, percentage and excise taxes, the conference committee decided to include such amendments and basically adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate of the tax to be imposed. Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral Conference Committee is mandated to settle the differences between the disagreeing provisions in the House bill and the Senate bill. The term "settle" is synonymous to "reconcile" and "harmonize."25 To reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the specific provisions of either the House bill or Senate bill, (b) decide that neither provisions in the House bill or the provisions in the Senate bill would be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing provisions. In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing provisions were meant only to reconcile and harmonize the disagreeing provisions for it did not inject any idea or intent that is wholly foreign to the subject embraced by the original provisions. The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the Senate is retained until such time that certain conditions arise when the 12% VAT wanted by the House shall be imposed, appears to be a compromise to try to bridge the difference in the rate of VAT proposed by the two houses of Congress. Nevertheless, such compromise is still totally within the subject of what rate of VAT should be imposed on taxpayers.

The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the reason for deleting the no pass-on provision in this wise: . . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no sector should be a beneficiary of legislative grace, neither should any sector be discriminated on. The VAT is an indirect tax. It is a pass on-tax. And lets keep it plain and simple. Lets not confuse the bill and put a no pass-on provision. Two-thirds of the world have a VAT system and in this two-thirds of the globe, I have yet to see a VAT with a no pass-though provision. So, the thinking of the Senate is basically simple, lets keep the VAT simple.26 (Emphasis supplied) Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed the support of either House."27 With regard to the amount of input tax to be credited against output tax, the Bicameral Conference Committee came to a compromise on the percentage rate of the limitation or cap on such input tax credit, but again, the change introduced by the Bicameral Conference Committee was totally within the intent of both houses to put a cap on input tax that may be credited against the output tax. From the inception of the subject revenue bill in the House of Representatives, one of the major objectives was to "plug a glaring loophole in the tax policy and administration by creating vital restrictions on the claiming of input VAT tax credits . . ." and "[b]y introducing limitations on the claiming of tax credit, we are capping a major leakage that has placed our collection efforts at an apparent disadvantage."28 As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate Bill No. 1950, since said provisions were among those referred to it, the conference committee had to act on the same and it basically adopted the version of the Senate. Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to subjects of the provisions referred to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to lack or excess of jurisdiction committed by the Bicameral Conference Committee. In the earlier cases of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of Finance,30 the Court recognized the long-standing legislative practice of giving said conference committee ample latitude for compromising differences between the Senate and the House. Thus, in the Tolentino case, it was held that: . . . it is within the power of a conference committee to include in its report an entirely new provision that is not found either in the House bill or in the Senate bill. If the committee can propose an amendment consisting of one or two provisions, there is no reason why it cannot propose several provisions, collectively considered as an "amendment in the nature of a substitute," so long as such amendment is germane to the subject of the bills before the committee. After all, its report was not final but needed the approval of both houses of Congress to become valid as an act of the legislative department. The charge that in this case the Conference Committee acted as a third legislative chamber is thus without any basis.31 (Emphasis supplied) B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "NoAmendment Rule"

Article VI, Sec. 26 (2) of the Constitution, states: No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal. Petitioners argument that the practice where a bicameral conference committee is allowed to add or delete provisions in the House bill and the Senate bill after these had passed three readings is in effect a circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate from its ruling in the Tolentino case that: Nor is there any reason for requiring that the Committees Report in these cases must have undergone three readings in each of the two houses. If that be the case, there would be no end to negotiation since each house may seek modification of the compromise bill. . . . Art. VI. 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in either house of Congress, not to the conference committee report.32 (Emphasis supplied) The Court reiterates here that the "no-amendment rule" refers only to the procedure to be followed by each house of Congress with regard to bills initiated in each of said respective houses, before said bill is transmitted to the other house for its concurrence or amendment. Verily, to construe said provision in a way as to proscribe any further changes to a bill after one house has voted on it would lead to absurdity as this would mean that the other house of Congress would be deprived of its constitutional power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction by the Bicameral Conference Committee of amendments and modifications to disagreeing provisions in bills that have been acted upon by both houses of Congress is prohibited. C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination of Revenue Bills Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate income taxes and percentage, excise taxes. Petitioners refer to the following provisions, to wit: Section 27 28(A)(1) 28(B)(1) 34(B)(1) 116 117 119 121 148 151 236 Rates of Income Tax on Domestic Corporation Tax on Resident Foreign Corporation Inter-corporate Dividends Inter-corporate Dividends Tax on Persons Exempt from VAT Percentage Tax on domestic carriers and keepers of Garage Tax on franchises Tax on banks and Non-Bank Financial Intermediaries Excise Tax on manufactured oils and other fuels Excise Tax on mineral products Registration requirements

237 288

Issuance of receipts or sales or commercial invoices Disposition of Incremental Revenue

Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the House. They aver that House Bill No. 3555 proposed amendments only regarding Sections 106, 107, 108, 110 and 114 of the NIRC, while House Bill No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110 and 111 of the NIRC; thus, the other sections of the NIRC which the Senate amended but which amendments were not found in the House bills are not intended to be amended by the House of Representatives. Hence, they argue that since the proposed amendments did not originate from the House, such amendments are a violation of Article VI, Section 24 of the Constitution. The argument does not hold water. Article VI, Section 24 of the Constitution reads: Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives but the Senate may propose or concur with amendments. In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move for amending provisions of the NIRC dealing mainly with the valueadded tax. Upon transmittal of said House bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC provisions on the value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the introduction by the Senate of provisions not dealing directly with the value- added tax, which is the only kind of tax being amended in the House bills, still within the purview of the constitutional provision authorizing the Senate to propose or concur with amendments to a revenue bill that originated from the House? The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus: . . . To begin with, it is not the law but the revenue bill which is required by the Constitution to "originate exclusively" in the House of Representatives. It is important to emphasize this, because a bill originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. . . . At this point, what is important to note is that, as a result of the Senate action, a distinct bill may be produced. To insist that a revenue statute and not only the bill which initiated the legislative process culminating in the enactment of the law must substantially be the same as the House bill would be to deny the Senates power not only to "concur with amendments" but also to "propose amendments." It would be to violate the coequality of legislative power of the two houses of Congress and in fact make the House superior to the Senate. Given, then, the power of the Senate to propose amendments, the Senate can propose its own version even with respect to bills which are required by the Constitution to originate in the House. ...

Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an increase of the public debt, private bills and bills of local application must come from the House of Representatives on the theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the local needs and problems. On the other hand, the senators, who are elected at large, are expected to approach the same problems from the national perspective. Both views are thereby made to bear on the enactment of such laws.33 (Emphasis supplied) Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the amendments that may be introduced by the Senate to the House revenue bill. Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in the House bills are still in furtherance of the intent of the House in initiating the subject revenue bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on the floor, which was later substituted by House Bill No. 3555, stated: One of the challenges faced by the present administration is the urgent and daunting task of solving the countrys serious financial problems. To do this, government expenditures must be strictly monitored and controlled and revenues must be significantly increased. This may be easier said than done, but our fiscal authorities are still optimistic the government will be operating on a balanced budget by the year 2009. In fact, several measures that will result to significant expenditure savings have been identified by the administration. It is supported with a credible package of revenue measures that include measures to improve tax administration and control the leakages in revenues from income taxes and the value-added tax (VAT). (Emphasis supplied) Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that: In the budget message of our President in the year 2005, she reiterated that we all acknowledged that on top of our agenda must be the restoration of the health of our fiscal system. In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced budget by the year 2009, we need to seize windows of opportunities which might seem poignant in the beginning, but in the long run prove effective and beneficial to the overall status of our economy. One such opportunity is a review of existing tax rates, evaluating the relevance given our present conditions.34(Emphasis supplied) Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring in sizeable revenues for the government to supplement our countrys serious financial problems, and improve tax administration and control of the leakages in revenues from income taxes and value-added taxes. As these house bills were transmitted to the Senate, the latter, approaching the measures from the point of national perspective, can introduce amendments within the purposes of those bills. It can provide for ways that would soften the impact of the VAT measure on the

consumer,i.e., by distributing the burden across all sectors instead of putting it entirely on the shoulders of the consumers. The sponsorship speech of Sen. Ralph Recto on why the provisions on income tax on corporation were included is worth quoting: All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion in additional revenues annually even while by mitigating prices of power, services and petroleum products. However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from the VAT on twelve goods and services. The rest of the tab P10.5 billion- will be picked by corporations. What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why should the latter bear all the pain? Why should the fiscal salvation be only on the burden of the consumer? The corporate worlds equity is in form of the increase in the corporate income tax from 32 to 35 percent, but up to 2008 only. This will raise P10.5 billion a year. After that, the rate will slide back, not to its old rate of 32 percent, but two notches lower, to 30 percent. Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency provision that will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal medicine will have an expiry date. For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their sacrifice brief. We would like to assure them that not because there is a light at the end of the tunnel, this government will keep on making the tunnel long. The responsibility will not rest solely on the weary shoulders of the small man. Big business will be there to share the burden.35 As the Court has said, the Senate can propose amendments and in fact, the amendments made on provisions in the tax on income of corporations are germane to the purpose of the house bills which is to raise revenues for the government. Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the reforms to the VAT system, as these sections would cushion the effects of VAT on consumers. Considering that certain goods and services which were subject to percentage tax and excise tax would no longer be VAT-exempt, the consumer would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften the impact of VAT. Again, in his sponsorship speech, Sen. Recto said: However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel, to lessen the effect of a VAT on this product. For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT. And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT chain, we will however bring down the excise tax on socially sensitive products such as diesel, bunker, fuel and kerosene.

... What do all these exercises point to? These are not contortions of giving to the left hand what was taken from the right. Rather, these sprang from our concern of softening the impact of VAT, so that the people can cushion the blow of higher prices they will have to pay as a result of VAT.36 The other sections amended by the Senate pertained to matters of tax administration which are necessary for the implementation of the changes in the VAT system. To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the house bills, which is to supplement our countrys fiscal deficit, among others. Thus, the Senate acted within its power to propose those amendments. SUBSTANTIVE ISSUES I. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the following provisions of the Constitution: a. Article VI, Section 28(1), and b. Article VI, Section 28(2) A. No Undue Delegation of Legislative Power Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes undue delegation of the legislative power to tax. The assailed provisions read as follows: SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows: SEC. 106. Value-Added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor:provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied. (i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or

(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %). SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows: SEC. 107. Value-Added Tax on Importation of Goods. (A) In General. There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any: provided, further, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any of the following conditions has been satisfied. (i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or (ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %). SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows: SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services: provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied. (i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or (ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %). (Emphasis supplied) Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual abdication by Congress of its exclusive power to tax because such delegation is not within the purview of Section 28 (2), Article VI of the Constitution, which provides: The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the government.

They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services, which cannot be included within the purview of tariffs under the exempted delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to the government and usually imposed on goods or merchandise imported or exported. Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the legislative power to tax is contrary to republicanism. They insist that accountability, responsibility and transparency should dictate the actions of Congress and they should not pass to the President the decision to impose taxes. They also argue that the law also effectively nullified the Presidents power of control, which includes the authority to set aside and nullify the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance. Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the conditions provided by the law to bring about either or both the conditions precedent. On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition of the 12% rate would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, contrary to the principle of no taxation without representation. They submit that the Secretary of Finance is not mandated to give a favorable recommendation and he may not even give his recommendation. Moreover, they allege that no guiding standards are provided in the law on what basis and as to how he will make his recommendation. They claim, nonetheless, that any recommendation of the Secretary of Finance can easily be brushed aside by the President since the former is a mere alter ego of the latter, such that, ultimately, it is the President who decides whether to impose the increased tax rate or not. A brief discourse on the principle of non-delegation of powers is instructive. The principle of separation of powers ordains that each of the three great branches of government has exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere.37 A logical corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in the Latin maxim: potestas delegata non delegari potest which means "what has been delegated, cannot be delegated."38 This doctrine is based on the ethical principle that such as delegated power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through the intervening mind of another.39 With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of Representatives." The powers which Congress is prohibited from delegating are those which are strictly, or inherently and exclusively, legislative. Purely legislative power, which can never be delegated, has been described as the authority to make a complete law complete as to the time when it shall take effect and as to whom it shall be applicable and to determine the expediency of its enactment.40 Thus, the rule is that in order that a court may be justified in holding a statute unconstitutional as a delegation of legislative power, it must appear that the power involved is purely legislative in nature that is, one appertaining exclusively to the legislative department. It is the nature of the power, and not the liability of its use or the manner of its exercise, which determines the validity of its delegation.

Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized limitations or exceptions: (1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution; (2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution; (3) Delegation to the people at large; (4) Delegation to local governments; and (5) Delegation to administrative bodies. In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by the delegate;41 and (b) fixes a standard the limits of which are sufficiently determinate and determinable to which the delegate must conform in the performance of his functions.42 A sufficient standard is one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it. It indicates the circumstances under which the legislative command is to be effected.43 Both tests are intended to prevent a total transference of legislative authority to the delegate, who is not allowed to step into the shoes of the legislature and exercise a power essentially legislative.44 In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and extent of delegation of power in this wise: In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to inquire whether the statute was complete in all its terms and provisions when it left the hands of the legislature so that nothing was left to the judgment of any other appointee or delegate of the legislature. ... The true distinction, says Judge Ranney, is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring an authority or discretion as to its execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter no valid objection can be made. ... It is contended, however, that a legislative act may be made to the effect as law after it leaves the hands of the legislature. It is true that laws may be made effective on certain contingencies, as by proclamation of the executive or the adoption by the people of a particular community. In Wayman vs. Southard, the Supreme Court of the United States ruled that the legislature may delegate a power not legislative which it may itself rightfully exercise.The power to ascertain facts is such a power which may be delegated. There is nothing essentially legislative in ascertaining the existence of facts or conditions as the basis of the taking into effect of a law. That is a mental process

common to all branches of the government. Notwithstanding the apparent tendency, however, to relax the rule prohibiting delegation of legislative authority on account of the complexity arising from social and economic forces at work in this modern industrial age, the orthodox pronouncement of Judge Cooley in his work on Constitutional Limitations finds restatement in Prof. Willoughby's treatise on the Constitution of the United States in the following language speaking of declaration of legislative power to administrative agencies: The principle which permits the legislature to provide that the administrative agent may determine when the circumstances are such as require the application of a law is defended upon the ground that at the time this authority is granted, the rule of public policy, which is the essence of the legislative act, is determined by the legislature. In other words, the legislature, as it is its duty to do, determines that, under given circumstances, certain executive or administrative action is to be taken, and that, under other circumstances, different or no action at all is to be taken. What is thus left to the administrative official is not the legislative determination of what public policy demands, but simply the ascertainment of what the facts of the case require to be done according to the terms of the law by which he is governed. The efficiency of an Act as a declaration of legislative will must, of course, come from Congress, but the ascertainment of the contingency upon which the Act shall take effect may be left to such agencies as it may designate. The legislature, then, may provide that a law shall take effect upon the happening of future specified contingencies leaving to some other person or body the power to determine when the specified contingency has arisen.(Emphasis supplied).46 In Edu vs. Ericta,47 the Court reiterated: What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal them; the test is the completeness of the statute in all its terms and provisions when it leaves the hands of the legislature. To determine whether or not there is an undue delegation of legislative power, the inquiry must be directed to the scope and definiteness of the measure enacted. The legislative does not abdicate its functions when it describes what job must be done, who is to do it, and what is the scope of his authority. For a complex economy, that may be the only way in which the legislative process can go forward. A distinction has rightfully been made between delegation of power to make the laws which necessarily involves a discretion as to what it shall be, which constitutionally may not be done, and delegation of authority or discretion as to its execution to be exercised under and in pursuance of the law, to which no valid objection can be made. The Constitution is thus not to be regarded as denying the legislature the necessary resources of flexibility and practicability. (Emphasis supplied).48 Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to depend, but the legislature must prescribe sufficient standards, policies or limitations on their authority.49 While the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise of such power may be left to them, including the power to determine the existence of facts on which its operation depends.50 The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of correlating information and making recommendations is the kind of subsidiary activity which the legislature may perform through its members, or which it may delegate to others to perform. Intelligent legislation on the complicated problems of modern society is impossible in the absence of accurate information on the part of the legislators, and any reasonable method of securing such information is proper.51 The

Constitution as a continuously operative charter of government does not require that Congress find for itself every fact upon which it desires to base legislative action or that it make for itself detailed determinations which it has declared to be prerequisite to application of legislative policy to particular facts and circumstances impossible for Congress itself properly to investigate.52 In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6 which reads as follows: That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %). The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the control of the executive. No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the wordshall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion.53 Where the law is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the mandate is obeyed.54 Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions are present. The time of taking into effect of the 12% VAT rate is based on the happening of a certain specified contingency, or upon the ascertainment of certain facts or conditions by a person or body other than the legislature itself. The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law effectively nullified the Presidents power of control over the Secretary of Finance by mandating the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance. The Court cannot also subscribe to the position of petitioners Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the recommendation of the Secretary of Finance." Neither does the Court find persuasive the submission of petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed aside by the President since the former is a mere alter ego of the latter.

When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of the Department of Finance he is the assistant and agent of the Chief Executive. The multifarious executive and administrative functions of the Chief Executive are performed by and through the executive departments, and the acts of the secretaries of such departments, such as the Department of Finance, performed and promulgated in the regular course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive. The Secretary of Finance, as such, occupies a political position and holds office in an advisory capacity, and, in the language of Thomas Jefferson, "should be of the President's bosom confidence" and, in the language of AttorneyGeneral Cushing, is "subject to the direction of the President."55 In the present case, in making his recommendation to the President on the existence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In such instance, he is not subject to the power of control and direction of the President. He is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take effect.56The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented, considering that he possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them. His function is to gather and collate statistical data and other pertinent information and verify if any of the two conditions laid out by Congress is present. His personality in such instance is in reality but a projection of that of Congress. Thus, being the agent of Congress and not of the President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance and to substitute the judgment of the former for that of the latter. Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1%). If either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006. There is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible.57 Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process can go forward.58 As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the legislative power to tax is contrary to the principle of republicanism, the same deserves scant consideration. Congress did not delegate the power to tax but the mere implementation of the law. The intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the legislative policy. That Congress chose to do so in such a manner is not within the province of the Court to inquire into, its task being to interpret the law.59 The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create the conditions to bring about either or both the conditions precedent does not deserve any merit as this argument is highly speculative. The Court does not rule on allegations which are manifestly conjectural, as these may not exist at all. The Court deals with facts, not fancies; on realities, not appearances. When the Court acts on appearances instead of realities, justice and law will be short-lived. B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden

Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional tax burden on the people. Petitioners also argue that the 12% increase, dependent on any of the 2 conditions set forth in the contested provisions, is ambiguous because it does not state if the VAT rate would be returned to the original 10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to year. Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are clear. It does not provide for a return to the 10% rate nor does it empower the President to so revert if, after the rate is increased to 12%, the VAT collection goes below the 24/5 of the GDP of the previous year or that the national government deficit as a percentage of GDP of the previous year does not exceed 1%. Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress may tread upon.60 Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court finds none, petitioners argument is, at best, purely speculative. There is no basis for petitioners fear of a fluctuating VAT rate because the law itself does not provide that the rate should go back to 10% if the conditions provided in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law is clear and unambiguous, so that there is no occasion for the court's seeking the legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction.61 Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based on fiscal adequacy. Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another condition, i.e., the national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %). Respondents explained the philosophy behind these alternative conditions: 1. VAT/GDP Ratio > 2.8% The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less than 2.8%, it means that government has weak or no capability of implementing the VAT or that VAT is not effective in the function of the tax collection. Therefore, there is no value to increase it to 12% because such action will also be ineffectual. 2. Natl Govt Deficit/GDP >1.5% The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of government has reached a relatively sound position or is towards the direction of a balanced budget position. Therefore, there is no need to increase the VAT rate since the fiscal house is in a relatively healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed a need to increase the VAT rate.62

That the first condition amounts to an incentive to the President to increase the VAT collection does not render it unconstitutional so long as there is a public purpose for which the law was passed, which in this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue. The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith in his Canons of Taxation (1776), as: IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state.63 It simply means that sources of revenues must be adequate to meet government expenditures and their variations.64 The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the countrys gloomy state of economic affairs, thus: First, let me explain the position that the Philippines finds itself in right now. We are in a position where 90 percent of our revenue is used for debt service. So, for every peso of revenue that we currently raise, 90 goes to debt service. Thats interest plus amortization of our debt. So clearly, this is not a sustainable situation. Thats the first fact. The second fact is that our debt to GDP level is way out of line compared to other peer countries that borrow money from that international financial markets. Our debt to GDP is approximately equal to our GDP. Again, that shows you that this is not a sustainable situation. The third thing that Id like to point out is the environment that we are presently operating in is not as benign as what it used to be the past five years. What do I mean by that? In the past five years, weve been lucky because we were operating in a period of basically global growth and low interest rates. The past few months, we have seen an inching up, in fact, a rapid increase in the interest rates in the leading economies of the world. And, therefore, our ability to borrow at reasonable prices is going to be challenged. In fact, ultimately, the question is our ability to access the financial markets. When the President made her speech in July last year, the environment was not as bad as it is now, at least based on the forecast of most financial institutions. So, we were assuming that raising 80 billion would put us in a position where we can then convince them to improve our ability to borrow at lower rates. But conditions have changed on us because the interest rates have gone up. In fact, just within this room, we tried to access the market for a billion dollars because for this year alone, the Philippines will have to borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We were trying to access last week and the market was not as favorable and up to now we have not accessed and we might pull back because the conditions are not very good. So given this situation, we at the Department of Finance believe that we really need to front-end our deficit reduction. Because it is deficit that is causing the increase of the debt

and we are in what we call a debt spiral. The more debt you have, the more deficit you have because interest and debt service eats and eats more of your revenue. We need to get out of this debt spiral. And the only way, I think, we can get out of this debt spiral is really have a front-end adjustment in our revenue base.65 The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable catastrophe. Whether the law is indeed sufficient to answer the states economic dilemma is not for the Court to judge. In theFarias case, the Court refused to consider the various arguments raised therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that: . . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion of the political branches of the government. It is not for this Court to look into the wisdom or propriety of legislative determination. Indeed, whether an enactment is wise or unwise, whether it is based on sound economic theory, whether it is the best means to achieve the desired results, whether, in short, the legislative discretion within its prescribed limits should be exercised in a particular manner are matters for the judgment of the legislature, and the serious conflict of opinions does not suffice to bring them within the range of judicial cognizance.66 In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive policy, given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of legislation."67 II. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution: a. Article VI, Section 28(1), and b. Article III, Section 1 A. Due Process and Equal Protection Clauses Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the constitutional right against deprivation of life, liberty of property without due process of law, as embodied in Article III, Section 1 of the Constitution. Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of the law. The doctrine is that where the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail.68

Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input tax that may be credited against the output tax. It states, in part: "[P]rovided, that the input tax inclusive of the input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT: " Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by a VAT-registered person on the importation of goods or local purchase of good and services, including lease or use of property, in the course of trade or business, from a VAT-registered person, and Output Tax is the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under the law. Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed. In effect, a portion of the input tax that has already been paid cannot now be credited against the output tax. Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less than 70% of the output tax, then 100% of such input tax is still creditable. More importantly, the excess input tax, if any, is retained in a businesss books of accounts and remains creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that "if the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters." In addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or refund for any unused input taxes, to the extent that such input taxes have not been applied against the output taxes. Such unused input tax may be used in payment of his other internal revenue taxes. The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It ends at the net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the fact that such unapplied/unutilized input tax may be credited in the subsequent periods as allowed by the carry-over provision of Section 110(B) or that it may later on be refunded through a tax credit certificate under Section 112(B). Therefore, petitioners argument must be rejected. On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on the input tax. According to petitioner, the limitation on the creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect, which violates the principle that tax collection and revenue should be for public purposes and expenditures As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT payable, three possible scenarios may arise: First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes that he paid and passed on by the suppliers, then no payment is required;

Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has to be paid to the Bureau of Internal Revenue (BIR);69 and Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions, any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes, at the taxpayers option.70 Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his input tax only up to the extent of 70% of the output tax. In laymans term, the value-added taxes that a person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the value-added taxes that is due to him on a taxable transaction. There is no retention of any tax collection because the person/taxpayer has already previously paid the input tax to a seller, and the seller will subsequently remit such input tax to the BIR. The party directly liable for the payment of the tax is the seller.71 What only needs to be done is for the person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against his output taxes. Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the nature of a property that may not be confiscated, appropriated, or limited without due process of law. The input tax is not a property or a property right within the constitutional purview of the due process clause. A VAT-registered persons entitlement to the creditable input tax is a mere statutory privilege. The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested rights in statutory privileges. The state may change or take away rights, which were created by the law of the state, although it may not take away property, which was vested by virtue of such rights.72 Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable from the taxes payable, although it becomes part of the cost, which is deductible from the gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered persons against the output tax was introduced.73 This was adopted by the Expanded VAT Law (R.A. No. 7716),74 and The Tax Reform Act of 1997 (R.A. No. 8424).75 The right to credit input tax as against the output tax is clearly a privilege created by law, a privilege that also the law can remove, or in this case, limit. Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337, amending Section 110(A) of the NIRC, which provides: SEC. 110. Tax Credits. (A) Creditable Input Tax. Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds One million pesos (P1,000,000.00): Provided, however, That if the estimated useful life of

the capital goods is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a shorter period: Provided, finally, That in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or license upon payment of the compensation, rental, royalty or fee. The foregoing section imposes a 60-month period within which to amortize the creditable input tax on purchase or importation of capital goods with acquisition cost of P1 Million pesos, exclusive of the VAT component. Such spread out only poses a delay in the crediting of the input tax. Petitioners argument is without basis because the taxpayer is not permanently deprived of his privilege to credit the input tax. It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case amounts to a 4-year interest-free loan to the government.76 In the same breath, Congress also justified its move by saying that the provision was designed to raise an annual revenue of 22.6 billion.77 The legislature also dispelled the fear that the provision will fend off foreign investments, saying that foreign investors have other tax incentives provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign investments were not deterred.78 Again, for whatever is the purpose of the 60-month amortization, this involves executive economic policy and legislative wisdom in which the Court cannot intervene. With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads: SEC. 114. Return and Payment of Value-added Tax. (C) Withholding of Value-added Tax. The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and services which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For purposes of this Section, the payor or person in control of the payment shall be considered as the withholding agent. The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made. Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT withholding system. The government in this case is constituted as a withholding agent with respect to their payments for goods and services. Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld -- 3% on gross payments for purchases of goods; 6% on gross payments for services supplied by contractors other than by public works contractors; 8.5% on gross payments for services supplied by public work contractors; or 10% on payment for the lease or use of properties or property rights to nonresident owners. Under the present Section 114(C), these different rates, except for the 10% on lease or property rights payment to nonresidents, were deleted, and a uniform rate of 5% is applied.

The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to creditable, means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five percent (5%)." In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the concept of final withholding tax on income was explained, to wit: SECTION 2.57. Withholding of Tax at Source (A) Final Withholding Tax. Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as full and final payment of the income tax due from the payee on the said income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of underwithholding, the deficiency tax shall be collected from the payor/withholding agent. (B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payee on said income. Taxes withheld on income payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78 also of these regulations) are creditable in nature. As applied to value-added tax, this means that taxable transactions with the government are subject to a 5% rate, which constitutes as full payment of the tax payable on the transaction. This represents the net VAT payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed input VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction.79 The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat differently taxable transactions with the government.80 This is supported by the fact that under the old provision, the 5% tax withheld by the government remains creditable against the tax liability of the seller or contractor, to wit: SEC. 114. Return and Payment of Value-added Tax. (C) Withholding of Creditable Value-added Tax. The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall becreditable against the value-added tax liability of the seller or contractor: Provided, however, That in the case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in control of the payment shall be considered as the withholding agent. The valued-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made. (Emphasis supplied)

As amended, the use of the word final and the deletion of the word creditable exhibits Congresss intention to treat transactions with the government differently. Since it has not been shown that the class subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It applies to all those who deal with the government. Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR, provides that should the actual input tax exceed 5% of gross payments, the excess may form part of the cost. Equally, should the actual input tax be less than 5%, the difference is treated as income.81 Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a profit or value-added even if there is no profit or value-added. Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the Court on this point will only be, as Shakespeare describes life in Macbeth,82 "full of sound and fury, signifying nothing." Whats more, petitioners contention assumes the proposition that there is no profit or valueadded. It need not take an astute businessman to know that it is a matter of exception that a business will sell goods or services without profit or value-added. It cannot be overstressed that a business is created precisely for profit. The equal protection clause under the Constitution means that "no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances."83 The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the States power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination, or arbitrariness.84 Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or invests in capital equipment, or has several transactions with the government, is not based on real and substantial differences to meet a valid classification. The argument is pedantic, if not outright baseless. The law does not make any classification in the subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods of assessment, valuation and collection. Petitioners alleged distinctions are based on variables that bear different consequences. While the implementation of the law may yield varying end results depending on ones profit margin and value-added, the Court cannot go beyond what the legislature has laid down and interfere with the affairs of business. The equal protection clause does not require the universal application of the laws on all persons or things without distinction. This might in fact sometimes result in unequal protection. What the clause requires is equality among equals as determined according to a valid classification. By classification is meant the grouping of persons or things similar to each other in certain particulars and different from all others in these same particulars.85

Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmea III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation seeks to amend the 70% limitation by increasing the same to 90%. This, according to petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory. On this score, suffice it to say that these are still proposed legislations. Until Congress amends the law, and absent any unequivocal basis for its unconstitutionality, the 70% limitation stays. B. Uniformity and Equitability of Taxation Article VI, Section 28(1) of the Constitution reads: The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same class everywhere with all people at all times.86 In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services and use or lease of properties. These same sections also provide for a 0% rate on certain sales and transaction. Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final withholding tax by the government. It must be stressed that the rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class.87 R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding P1,500,000.00.88Also, basic marine and agricultural food products in their original state are still not subject to the tax,89 thus ensuring that prices at the grassroots level will remain accessible. As was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90 The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public. It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors those with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty burden the law entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section 109(v), i.e., transactions with gross annual sales and/or receipts not exceeding P1.5 Million. This acts as a equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on equal-footing.

Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on those previously exempt. Excise taxes on petroleum products91 and natural gas92 were reduced. Percentage tax on domestic carriers was removed.93 Power producers are now exempt from paying franchise tax.94 Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the burden of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35% income tax rate, from a previous 32%.95 Intercorporate dividends of nonresident foreign corporations are still subject to 15% final withholding tax but the tax credit allowed on the corporations domicile was increased to 20%.96 The Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes anymore.97 Even the sale by an artist of his works or services performed for the production of such works was not spared. All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise rest largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable. C. Progressivity of Taxation Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the smaller business with higher input tax-output tax ratio that will suffer the consequences. Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was also lifted from Adam Smiths Canons of Taxation, and it states: I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. Taxation is progressive when its rate goes up depending on the resources of the person affected.98 The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income. In other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the income earned by a person or profit margin marked by a business, such that the higher the income or profit margin, the smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the income or profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or businesses with low-profit margins that is always hardest hit. Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall "evolve a progressive system of taxation." The Court stated in the Tolentino case, thus: The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall evolve a progressive system of taxation. The constitutional provision has been interpreted to mean simply that direct

taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized. (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17 (1) of the 1973 Constitution from which the present Art. VI, 28 (1) was taken. Sales taxes are also regressive. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4 amending 103 of the NIRC)99 CONCLUSION It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on the plight of the masses. But it does not have the panacea for the malady that the law seeks to remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply because of its yokes. Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the judiciary should stand ready to afford relief. There are undoubtedly many wrongs the judicature may not correct, for instance, those involving political questions. . . . Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all political or social ills; We should not forget that the Constitution has judiciously allocated the powers of government to three distinct and separate compartments; and that judicial interpretation has tended to the preservation of the independence of the three, and a zealous regard of the prerogatives of each, knowing full well that one is not the guardian of the others and that, for official wrong-doing, each may be brought to account, either by impeachment, trial or by the ballot box.100 The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things considered, there is no raison d'tre for the unconstitutionality of R.A. No. 9337. WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207, 168461, 168463, and 168730, are hereby DISMISSED. There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337, the temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein decision. SO ORDERED.

SEPARATE CONCURRING AND DISSENTING OPINION

DAVIDE, JR., C.J.: While I still hold on to my position expressed in my dissenting opinion in the first VAT cases,1 I partly yield to the application to the cases at bar of the rule on "germaneness" therein enunciated. Thus, I concur with the ponenciaof my highly-esteemed colleague Mme. Justice Ma. Alicia Austria-Martinez except as regards its ruling on the issue of whether Republic Act No. 9337 violates Section 24, Article VI of the Constitution. R.A. No. 9337 primarily aims to restructure the value-added tax (VAT) system by broadening its base and raising the rate so as to generate more revenues for the government that can assuage the economic predicament that our country is now facing. This recently enacted law stemmed from three legislative bills: House Bill (HB) No. 3555, HB No. 3705, and Senate Bill (SB) 1950. The first (HB No. 3555) called for the amendment of Sections 106, 107, 108, 109, 110, and 111 of the National Internal Revenue Code (NIRC) as amended; while the second (HB No. 3705) proposed amendments to Sections 106, 107, 108, 110, and 114 of the NIRC, as amended. It is significant to note that all these Sections specifically deal with VAT. And indubitably, these bills are revenue bills in that they are intended to levy taxes and raise funds for the government.2 On the other hand, SB No. 1950 introduced amendments to "Sections 27, 28, 34, 106, 108, 109, 110, 111, 112, 113, 114, 116, 117, 118, 119, 125, 148, 236, 237, and 288" of the NIRC, as amended. Among the provisions sought to be amended, only Sections 106, 108, 109, 110, 111, 112, 113, 114, and 116 pertain to VAT. And while Sections 236, 237, and 288 are administrative provisions pertaining to registration requirements and issuance of receipts commercial invoices, the proposed amendments thereto are related to VAT. Hence, the proposed amendments to these Sections were validly taken cognizance of and properly considered by the Bicameral Conference Committee (BCC). However, I am of the opinion that the inclusion into the law of the amendments proposed in SB No. 1950 to the following provisions (with modifications on the rates of taxes) is invalid. Provision Subject matter Section 27 Rate of income tax on domestic corporations Section 28(A)(1) Rate of income tax on resident foreign corporation Section 28(B)(1) Rate of income tax on non-resident foreign corporation Section 28(B)(5-b) Rate of income tax on intra-corporate dividends received by non-resident foreign corporation Section 34(B)(1) Deductions from gross income Section 117 Percentage tax on domestic carriers and keepers of garages Section 119 Tax on franchises Section 148 Excise tax on manufactured oils and other fuels

Obviously, these provisions do not deal with VAT. It must be noted that the House Bills initiated amendments to provisions pertaining to VAT only. Doubtless, the Senate has the constitutional power to concur with the amendments to the VAT provisions introduced in the House Bills or even to propose its own version of VAT measure. But that power does not extend to initiation of other tax measures, such as introducing amendments to provisions on corporate income taxes, percentage taxes, franchise taxes, and excise taxes like what the Senate did in these cases. It was beyond the ambit of the authority of the Senate to propose amendments to provisions not covered by the House Bills or not related to the subject matter of the House Bills, which is VAT. To allow the Senate to do so would be tantamount to vesting in it the power to initiate revenue bills -- a power that exclusively pertains to the House of Representatives under Section 24, Article VI of the Constitution, which provides: Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives but the Senate may propose or concur with amendments. Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank Financial Intermediaries) and 151 (Excise Tax on Mineral Products) of the NIRC, as amended, have been included by the BCC in R.A. N0. 9337 even though they were not found in the Senate and House Bills. In Philippine Judges Association v. Prado,3 the Court described the function of a conference committee in this wise: "A conference committee may deal generally with the subject matter or it may be limited to resolving the precise differences between the two houses. Even where the conference committee is not by rule limited in its jurisdiction, legislative custom severely limits the freedom with which new subject matter can be inserted into the conference bill." The limitation on the power of a conference committee to insert new provisions was laid down in Tolentino v. Secretary of Finance.4 There, the Court, while recognizing the power of a conference committee to include in its report an entirely new provision that is not found either in the House bill or in the Senate bill, held that the exercise of that power is subject to the condition that the said provision is "germane to the subject of the House andSenate bills." As pointed out by the petitioners, Tolentino differs from the present cases in the sense that in that case the amendments introduced in the Senate bill were on the same subject matter treated in the House bill, which was VAT, and the new provision inserted by the conference committee had relation to that subject matter. Specifically, HB No. 11197 called for the (1) amendment of Sections 99,100,102,103,104,105,106,107, 108, 110, 112,115, 116, 236,237, and 238 of the NIRC, as amended; and (2) repeal of Sections 113 and 114 of the NIRC, as amended. SB No. 1630, on the other hand, proposed the (1) amendment of Sections 99,100,102,103,104,105,107, 108, 110, 112, 236, 237, and 238 of the NIRC, as amended; and (2) repeal of Sections 113, 114, and 116 of the NIRC, as amended. In short, all the provisions sought to be changed in the Senate bill were covered in the House bill. Although the new provisions inserted by the conference committee were not found in either the House or Senate bills, they were germane to the general subject of the bills. In the present cases, the provisions inserted by the BCC, namely, Sections 121 (Percentage Tax on Banks and Non-Bank Financial Intermediaries) and 151 (Excise Tax on Mineral Products) of the NIRC, as amended, are undoubtedly germane to SB No. 1950, which introduced amendments to the provisions on percentage and excise taxes -- but foreign to HB Nos. 3555 and 3705, which dealt with VAT only. Since the proposed amendments in the Senate bill relating to percentage and excise taxes cannot themselves be sustained because they did not take their root from, or are not related to the subject of, HB Nos. 3705 and 3555, in violation of Section 24, Article VI of the Constitution, the new provisions inserted by the BCC on percentage and excise taxes would have no leg to stand on.

I understand very well that the amendments of the Senate and the BCC relating to corporate income, percentage, franchise, and excise taxes were designed to "soften the impact of VAT measure on the consumer, i.e., by distributing the burden across all sectors instead of putting it entirely on the shoulders of the consumers" and to alleviate the countrys financial problems by bringing more revenues for the government. However, these commendable intentions do not justify a deviation from the Constitution, which mandates that the initiative for filing revenue bills should come from the House of Representatives, not from the Senate. After all, these aims may still be realized by means of another bill that may later be initiated by the House of Representatives. Therefore, I vote to declare R.A. No. 9337 as constitutional insofar as it amends provisions pertaining to VAT. However, I vote to declare as unconstitutional Sections 1, 2, 3, 14, 15, 16, 17, and 18 thereof which, respectively, amend Sections 27, 28, 34, 117, 119, 121, 148, and 151 of the NIRC, as amended because these amendments deal with subject matters which were not touched or covered by the bills emanating from the House of Representatives, thereby violating Section 24 of Article VI of the Constitution. HILARIO G. DAVIDE, JR.

indeed may not occur at all."5 The ripeness requirement must be satisfied for each challenged legal provision and parts of a statute so that those which are "not immediately involved are not thereby thrown open for a judicial determination of constitutionality."6 It is manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannot hurdle the requirement of ripeness. These sections give the President the power to raise the VAT rate to 12% on January 1, 2006 upon satisfaction of certain factbased conditions. We are not endowed with the infallible gift of prophesy to know whether these conditions are certain to happen. The power to adjust the tax rate given to the President is futuristic and may or may not be exercised. The Court is therefore beseeched to render a conjectural judgment based on hypothetical facts. Such a supplication has to be rejected. Second. With due respect, I submit that the most important constitutional issue posed by the petitions at bar relates to the parameters of power of a Bicameral Conference Committee. Most of the issues in the petitions at bar arose because the Bicameral Conference Committee concerned exercised powers that went beyond reconciling the differences between Senate Bill No. 1950 and House Bill Nos. 3705 and 3555. In Tolentino v. Secretary of Finance,7 I ventured the view that a Bicameral Conference Committee has limited powers and cannot be allowed to act as if it were a "third house" of Congress. I further warned that unless its roving powersare reigned in, a Bicameral Conference Committee can wreck the lawmaking process which is a cornerstone of the democratic, republican regime established in our Constitution. The passage of time fortifies my faith that there ought to be no legal u-turn on this preeminent principle. I wish, therefore, to reiterate my reasons for this unbending view, viz:8 Section 209, Rule XII of the Rules of the Senate provides: In the event that the Senate does not agree with the House of Representatives on the provision of any bill or joint resolution, the differences shall be settled by a conference committee of both Houses which shall meet within ten days after their composition. Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in or amendments to the subject measure, and shall be signed by the conferees. (Emphasis supplied) The counterpart rule of the House of Representatives is cast in near identical language. Section 85 of the Rules of the House of Representatives pertinently provides: In the event that the House does not agree with the Senate on the amendments to any bill or joint resolution, the differences may be settled by a conference committee of both chambers. x x x. Each report shall contain a detailed, sufficiently explicit statement of the changes in or amendments to the subject measure. (Emphasis supplied) The Jeffersons Manual has been adopted as a supplement to our parliamentary rules and practice. Section 456 of Jeffersons Manual similarly confines the powers of a conference committee, viz:

CONCURRING AND DISSENTING OPINION PUNO, J.: The main opinion of Madam Justice Martinez exhaustively discusses the numerous constitutional and legal issues raised by the petitioners. Be that as it may, I wish to raise the following points, viz: First. Petitioners assail sections 4 to 6 of Republic Act No. 9337 as violative of the principle of non-delegation of legislative power. These sections authorize the President, upon recommendation of the Secretary of Finance, to raise the value-added tax (VAT) rate to 12% effective January 1, 2006, upon satisfaction of the following conditions: viz: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %). The power of judicial review under Article VIII, section 5(2) of the 1987 Constitution is limited to the review of "actual cases and controversies."1 As rightly stressed by retired Justice Vicente V. Mendoza, this requirement gives the judiciary "the opportunity, denied to the legislature, of seeing the actual operation of the statute as it is applied to actual facts and thus enables it to reach sounder judgment" and "enhances public acceptance of its role in our system of government."2 It also assures that the judiciary does not intrude on areas committed to the other branches of government and is confined to its role as defined by the Constitution.3 Apposite thereto is the doctrine of ripeness whose basic rationale is "to prevent the courts, through premature adjudication, from entangling themselves in abstract disagreements."4 Central to the doctrine is the determination of "whether the case involvesuncertain or contingent future events that may not occur as anticipated, or

The managers of a conference must confine themselves to the differences committed to them and may not include subjects not within the disagreements, even though germane to a question in issue. This rule of antiquity has been honed and honored in practice by the Congress of the United States. Thus, it is chronicled by Floyd Biddick, Parliamentarian Emeritus of the United States Senate, viz: Committees of conference are appointed for the sole purpose of compromising and adjusting the differing and conflicting opinions of the two Houses and the committees of conference alone can grant compromises and modify propositions of either Houses within the limits of the disagreement. Conferees are limited to the consideration of differences between the two Houses. Congress shall not insert in their report matters not committed to them by either House, nor shall they strike from the bill matters agreed to by both Houses. No matter on which there is nothing in either the Senate or House passed versions of a bill may be included in the conference report and actions to the contrary would subject the report to a point of order. (Emphasis ours) In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House of Representatives to support the thesis of the respondents that a bicameral conference committee is clothed with an ex post veto power. But the thesis that a Bicameral Conference Committee can wield ex post veto power does not only contravene the rules of both the Senate and the House. It wages war against our settled ideals of representative democracy. For the inevitable, catastrophic effect of the thesis is to install a Bicameral Conference Committee as the Third Chamber of our Congress, similarly vested with the power to make laws but with the dissimilarity that its laws are not the subject of a free and full discussion of both Houses of Congress. With such a vagrant power, a Bicameral Conference Committee acting as a Third Chamber will be a constitutional monstrosity. It needs no omniscience to perceive that our Constitution did not provide for a Congress composed of three chambers. On the contrary, section 1, Article VI of the Constitution provides in clear and certain language: "The legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of Representatives " Note that in vesting legislative power exclusively to the Senate and the House, the Constitution used the word "shall." Its command for a Congress of two houses is mandatory. It is not mandatory sometimes. In vesting legislative power to the Senate, the Constitution means the Senate " composed of twenty-four Senators xxx elected at large by the qualified voters of the Philippines " Similarly, when the Constitution vested the legislative power to the House, it means the House " composed of not more than two hundred and fifty members xxx who shall be elected from legislative districts xxx and those who xxx shall be elected through a party-list system of registered national, regional, and sectoral parties or organizations." The Constitution thus, did not vest on a Bicameral Conference Committee with an ad hoc membership the power to legislate for it exclusively vested legislative power to the Senate and the House as co-equal bodies. To be sure, the Constitution does not mention the Bicameral Conference Committees of Congress. No constitutional status is accorded to them. They are not even statutory creations. They owe their existence from the internal rules of the two Houses of Congress. Yet, respondents peddle the disconcerting idea that they should be recognized as a Third Chamber of Congress and with ex post veto power at that.

The thesis that a Bicameral Conference Committee can exercise law making power with ex post veto power is freighted with mischief. Law making is a power that can be used for good or for ill, hence, our Constitution carefully laid out a plan and a procedure for its exercise. Firstly, it vouchsafed that the power to make laws should be exercised by no other body except the Senate and the House. It ought to be indubitable that what is contemplated is the Senate acting as a full Senate and the House acting as a full House. It is only when the Senate and the House act as whole bodies that they truly represent the people. And it is only when they represent the people that they can legitimately pass laws. Laws that are not enacted by the peoples rightful representatives subvert the peoples sovereignty. Bicameral Conference Committees, with their ad hoc character and limited membership, cannot pass laws for they do not represent the people. The Constitution does not allow the tyranny of the majority. Yet, the respondents will impose the worst kind of tyranny the tyranny of the minority over the majority. Secondly, the Constitution delineated in deft strokes the steps to be followed in making laws. The overriding purpose of these procedural rules is to assure that only bills that successfully survive the searching scrutiny of the proper committees of Congress and the full and unfettered deliberations of both Houses can become laws. For this reason, a bill has to undergo three (3) mandatory separate readings in each House. In the case at bench, the additions and deletions made by the Bicameral Conference Committee did not enjoy the enlightened studies of appropriate committees. It is meet to note that the complexities of modern day legislations have made our committee system a significant part of the legislative process. Thomas Reed called the committee system as "the eye, the ear, the hand, and very often the brain of the house." President Woodrow Wilson of the United States once referred to the government of the United States as "a government by the Chairmen of the Standing Committees of Congress " Neither did these additions and deletions of the Bicameral Conference Committee pass through the coils of collective deliberation of the members of the two Houses acting separately. Due to this shortcircuiting of the constitutional procedure of making laws, confusion shrouds the enactment of R.A. No. 7716. Who inserted the additions and deletions remains a mystery. Why they were inserted is a riddle. To use a Churchillian phrase, lawmaking should not be a riddle wrapped in an enigma. It cannot be, for Article II, section 28 of the Constitution mandates the State to adopt and implement a "policy of full public disclosure of all its transactions involving public interest." The Constitution could not have contemplated a Congress of invisible and unaccountable John and Mary Does. A law whose rationale is a riddle and whose authorship is obscure cannot bind the people. All these notwithstanding, respondents resort to the legal cosmetology that these additions and deletions should govern the people as laws because the Bicameral Conference Committee Report was anyway submitted to and approved by the Senate and the House of Representatives. The submission may have some merit with respect to provisions agreed upon by the Committee in the process of reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In these instances, the conflicting provisions had been previously screened by the proper committees, deliberated upon by both Houses and approved by them. It is, however, a different matter with respect to additions and deletions which were entirely new and which were made not to reconcile inconsistencies between S.B. No. 1630 and H.B. No. 11197. The members of the Bicameral Conference Committee did not have any authority to add new provisions or delete provisions already approved by both Houses as it was not necessary to discharge their limited task of reconciling differences in bills. At that late stage of law making, the Conference Committee cannot add/delete provisions which can become laws without undergoing the study and deliberation of both chambers given to bills on 1st, 2nd, and 3rd readings. Even the Senate and the House cannot enact a law which will not undergo these mandatory three (3) readings required by the Constitution. If the Senate and the House cannot enact such a law, neither can the lesser Bicameral Conference Committee. Moreover, the so-called choice given to the members of both Houses to either approve or disapprove the said additions and deletions is more of an optical illusion. These additions and deletions are not submitted separately for approval. They are tucked to the entire bill. The vote is on the bill as a package, i.e., together with the insertions and deletions. And the vote is either "aye" or "nay," without any further debate and deliberation. Quite often,

legislators vote "yes" because they approve of the bill as a whole although they may object to its amendments by the Conference Committee. This lack of real choice is well observed by Robert Luce: Their power lies chiefly in the fact that reports of conference committees must be accepted without amendment or else rejected in toto. The impulse is to get done with the matter and so the motion to accept has undue advantage, for some members are sure to prefer swallowing unpalatable provisions rather than prolong controversy. This is the more likely if the report comes in the rush of business toward the end of a session, when to seek further conference might result in the loss of the measure altogether. At any time in the session there is some risk of such a result following the rejection of a conference report, for it may not be possible to secure a second conference, or delay may give opposition to the main proposal chance to develop more strength. In a similar vein, Prof. Jack Davies commented that "conference reports are returned to assembly and Senate on a take-it or leave-it-basis, and the bodies are generally placed in the position that to leave-it is a practical impossibility." Thus, he concludes that "conference committee action is the most undemocratic procedure in the legislative process." The respondents also contend that the additions and deletions made by the Bicameral Conference Committee were in accord with legislative customs and usages. The argument does not persuade for it misappreciates the value of customs and usages in the hierarchy of sources of legislative rules of procedure. To be sure, every legislative assembly has the inherent right to promulgate its own internal rules. In our jurisdiction, Article VI, section 16(3) of the Constitution provides that "Each House may determine the rules of its proceedings x x x." But it is hornbook law that the sources of Rules of Procedure are many and hierarchical in character. Mason laid them down as follows: xxx 1. Rules of Procedure are derived from several sources. The principal sources are as follows: a. Constitutional rules. b. Statutory rules or charter provisions. c. Adopted rules. d. Judicial decisions. e. Adopted parliamentary authority. f. Parliamentary law. g. Customs and usages. 2. The rules from the different sources take precedence in the order listed above except that judicial decisions, since they are interpretations of rules from one of the other sources, take the same precedence as the source interpreted. Thus, for example, an interpretation of a constitutional provision takes precedence over a statute.

3. Whenever there is conflict between rules from these sources the rule from the source listed earlier prevails over the rule from the source listed later. Thus, where the Constitution requires three readings of bills, this provision controls over any provision of statute, adopted rules, adopted manual, or of parliamentary law, and a rule of parliamentary law controls over a local usage but must give way to any rule from a higher source of authority. (Emphasis ours) As discussed above, the unauthorized additions and deletions made by the Bicameral Conference Committee violated the procedure fixed by the Constitution in the making of laws. It is reasonless for respondents therefore to justify these insertions as sanctioned by customs and usages. Finally, respondents seek sanctuary in the conclusiveness of an enrolled bill to bar any judicial inquiry on whether Congress observed our constitutional procedure in the passage of R.A. No. 7716. The enrolled bill theory is a historical relic that should not continuously rule us from the fossilized past. It should be immediately emphasized that the enrolled bill theory originated in England where there is no written constitution and where Parliament is supreme. In this jurisdiction, we have a written constitution and the legislature is a body of limited powers. Likewise, it must be pointed out that starting from the decade of the 40s, even American courts have veered away from the rigidity and unrealism of the conclusiveness of an enrolled bill. Prof. Sutherland observed: xxx Where the failure of constitutional compliance in the enactment of statutes is not discoverable from the face of the act itself but may be demonstrated by recourse to the legislative journals, debates, committee reports or papers of the governor, courts have used several conflicting theories with which to dispose of the issue. They have held: (1) that the enrolled bill is conclusive and like the sheriffs return cannot be attacked; (2) that the enrolled bill is prima facie correct and only in case the legislative journal shows affirmative contradiction of the constitutional requirement will the bill be held invalid; (3) that although the enrolled bill is prima facie correct, evidence from the journals, or other extrinsic sources is admissible to strike the bill down; (4) that the legislative journal is conclusive and the enrolled bills is valid only if it accords with the recital in the journal and the constitutional procedure. Various jurisdictions have adopted these alternative approaches in view of strong dissent and dissatisfaction against the philosophical underpinnings of the conclusiveness of an enrolled bill. Prof. Sutherland further observed: x x x. Numerous reasons have been given for this rule. Traditionally, an enrolled bill was "a record" and as such was not subject to attack at common law. Likewise, the rule of conclusiveness was similar to the common law rule of the inviolability of the sheriffs return. Indeed, they had the same origin, that is, the sheriff was an officer of the king and likewise the parliamentary act was a regal act and no official might dispute the kings word. Transposed to our democratic system of government, courts held that as the legislature was an official branch of government the court must indulge every presumption that the legislative act was valid. The doctrine of separation of powers was advanced as a strong reason why the court should treat the acts of a co-ordinate branch of government with the same respect as it treats the action of its own officers; indeed, it was thought that it was entitled to even greater respect, else the court might be in the position of reviewing the work of a supposedly equal branch of government. When these arguments failed, as they frequently did, the doctrine of convenience was advanced, that is, that it was not only an undue burden upon the legislature to preserve its records to meet the attack of persons not affected by the procedure of enactment, but also that it unnecessarily complicated litigation and confused the trial of substantive issues.

Although many of these arguments are persuasive and are indeed the basis for the rule in many states today, they are not invulnerable to attack. The rule most relied on the sheriffs return or sworn official rule did not in civil litigation deprive the injured party of an action, for always he could sue the sheriff upon his official bond. Likewise, although collateral attack was not permitted, direct attack permitted raising the issue of fraud, and at a later date attack in equity was also available; and that the evidence of the sheriff was not of unusual weight was demonstrated by the fact that in an action against the sheriff no presumption of its authenticity prevailed. The argument that the enrolled bill is a "record" and therefore unimpeachable is likewise misleading, for the correction of records is a matter of established judicial procedure. Apparently, the justification is either the historical one that the kings word could not be questioned or the separation of powers principle that one branch of the government must treat as valid the acts of another. Persuasive as these arguments are, the tendency today is to avoid reaching results by artificial presumptions and thus it would seem desirable to insist that the enrolled bill stand or fall on the basis of the relevant evidence which may be submitted for or against it. (Emphasis ours) Thus, as far back as the 1940s, Prof. Sutherland confirmed that "x x x the tendency seems to be toward the abandonment of the conclusive presumption rule and the adoption of the third rule leaving only a prima faciepresumption of validity which may be attacked by any authoritative source of information. Third. I respectfully submit that it is only by strictly following the contours of powers of a Bicameral Conference Committee, as delineated by the rules of the House and the Senate, that we can prevent said Committee from acting as a "third" chamber of Congress. Under the clear rules of both the Senate and House, its power can go no further than settling differences in their bills or joint resolutions. Sections 88 and 89, Rule XIV of theRules of the House of Representatives provide as follows: Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on the amendment to any bill or joint resolution, the differences may be settled by the conference committees of both chambers. In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and support the House Bill. If the differences with the Senate are so substantial that they materially impair the House Bill, the panel shall report such fact to the House for the latters appropriate action. Sec. 89. Conference Committee Reports. - . . . Each report shall contain a detailed, sufficiently explicit statement of the changes in or amendments to the subject measure. ... The Chairman of the House panel may be interpellated on the Conference Committee Report prior to the voting thereon. The House shall vote on the Conference Committee Report in the same manner and procedure as it votes a bill on third and final reading. Section 35, Rule XII of the Rules of the Senate states:

Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision of any bill or joint resolution, the differences shall be settled by a conference committee of both Houses which shall meet within ten (10) days after their composition. The President shall designate the members of the Senate Panel in the conference committee with the approval of the Senate. Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in, or amendments to the subject measure, and shall be signed by a majority of the members of each House panel, voting separately. The House rule brightlines the following: (1) the power of the Conference Committee is limited . . . it is only to settle differences with the Senate; (2) if the differences are substantial, the Committee must report to the House for the latters appropriate action; and (3) the Committee report has to be voted upon in the same manner and procedure as a bill on third and final reading. Similarly, the Senate rule underscores in crimson that (1) the power of the Committee is limited - - - to settle differences with the House; (2) it can make changes or amendmentsonly in the discharge of this limited power to settle differences with the House; and (3) the changes or amendments are merely recommendatory for they still have to be approved by the Senate. Under both rules, it is obvious that a Bicameral Conference Committee is a mere agent of the House or the Senate with limited powers. The House contingent in the Committee cannot, on its own, settle differences which are substantial in character. If it is confronted with substantial differences, it has to go back to the chamber that created it "for the latters appropriate action." In other words, it must take the proper instructions from the chambers that created it. It cannot exercise its unbridled discretion. Where there is no differencebetween the bills, it cannot make any change. Where the difference is substantial, it has to return to the chamber of its origin and ask for appropriate instructions. It ought to be indubitable that it cannot create a new law, i.e., that which has never been discussed in either chamber of Congress. Its parameters of power are not porous, for they are hedged by the clear limitation that its only power is to settle differences in bills and joint resolutions of the two chambers of Congress. Fourth. Prescinding from these premises, I respectfully submit that the following acts of the Bicameral Conference Committee constitute grave abuse of discretion amounting to lack or excess of jurisdiction and should be struck down as unconstitutional nullities, viz: a. Its deletion of the pro poor "no pass on provision" which is common in both Senate Bill No. 1950 and House Bill No. 3705. Sec. 1 of House Bill No. 37059 provides: Section 106 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows: SEC. 106. Value-added Tax on Sale of Goods or Properties. xxx Provided, further, that notwithstanding the provision of the second paragraph of Section 105 of this Code, the Value-added Tax herein levied on the sale of petroleum products under Subparagraph (1) hereof shall be paid and absorbed by the sellers of petroleum products who shall be prohibited from passing on the cost of such tax payments, either

directly or indirectly[,] to any consumer in whatever form or manner, it being the express intent of this act that the Value-added Tax shall be borne and absorbed exclusively by the sellers of petroleum products x x x. Sec. 3 of the same House bill provides: Section 108 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows: Sec. 108. Value-added Tax on Sale of Goods or Properties. Provided, further, that notwithstanding the provision of the second paragraph of Section 105 of this Code, the Value-added Tax imposed under this paragraph shall be paid and absorbed by the subject generation companies who shall be prohibited from passing on the cost of such tax payments, either directly or indirectly[,] to any consumer in whatever form or manner, it being the express intent of this act that the Value-added Tax shall be borne and absorbed exclusively [by] the power-generating companies. In contrast and comparison, Sec. 5 of Senate Bill No. 1950 provides: Value-added Tax on sale of Services and Use or Lease of Properties. x x x Provided, that the VAT on sales of electricity by generation companies, and services of transmission companies and distribution companies, as well as those of franchise grantees of electrical utilities shall not apply to residential end-users: Provided, that the Value-added Tax herein levied shall be absorbed and paid by the generation, transmission and distribution companies concerned. The said companies shall not pass on such tax payments to NAPOCOR or ultimately to the consumers, including but not limited to residential end users, either as costs or in any other form whatsoever, directly or indirectly. x x x. Even the faintest eye contact with the above provisions will reveal that: (a) both the House bill and the Senate bill prohibited the passing on to consumers of the VAT on sales of electricity and (b) the House bill prohibited the passing on to consumers of the VAT on sales of petroleum products while the Senate bill is silent on the prohibition. In the guise of reconciling disagreeing provisions of the House and the Senate bills on the matter, the Bicameral Conference Committee deleted the "no pass on provision" on both the sales of electricity and petroleum products. This action by the Committee is not warranted by the rules of either the Senate or the House. As aforediscussed, the only power of a Bicameral Conference Committee is to reconcile disagreeing provisions in the bills or joint resolutions of the two houses of Congress. The House and the Senate bills bothprohibited the passing on to consumers of the VAT on sales of electricity. The Bicameral ConferenceCommittee cannot override this unequivocal decision of the Senate and the House. Nor is it clear that there is a conflict between the House and Senate versions on the "no pass on provisions" of the VAT on sales of petroleum products. The House version contained a "no pass on provision" but the Senate had none.Elementary logic will tell us that while there may be a difference in the two versions, it does not necessarily mean that there is a disagreement or conflict between the Senate and the House. The silence of the Senate on the issue cannot be interpreted as an outright opposition to the House decision prohibiting the passing on of the VAT to the consumers on sales of petroleum products. Silence can even be conformity, albeit implicit in nature. But granting for the nonce that there is conflict between the two versions, the conflict cannot escape the characterization as a substantial difference.

The seismic consequence of the deletion of the "no pass on provision" of the VAT on sales of petroleum products on the ability of our consumers, especially on the roofless and the shirtless of our society, to survive the onslaught of spiraling prices ought to be beyond quibble. The rules require that the Bicameral Conference Committee should not, on its own, act on this substantial conflict. It has to seek guidance from the chamber that created it. It must receive proper instructions from its principal, for it is the law of nature that no spring can rise higher than its source. The records of both the Senate and the House do not reveal that this step was taken by the members of the Bicameral Conference Committee. They bypassed their principal and ran riot with the exercise of powers that the rules never bestowed on them. b. Even more constitutionally obnoxious are the added restrictions on local governments use of incremental revenue from the VAT in Section 21 of R.A. No. 9337 which were not present in the Senate or House Bills. Section 21 of R.A. No. 9337 provides: Fifty percent of the local government units share from VAT shall be allocated and used exclusively for the following purposes: 1. Fifteen percent (15%) for public elementary and secondary education to finance the construction of buildings, purchases of school furniture and in-service teacher trainings; 2. Ten percent (10%) for health insurance premiums of enrolled indigents as a counterpart contribution of the local government to sustain the universal coverage of the national health insurance program; 3. Fifteen percent (15%) for environmental conservation to fully implement a comprehensive national reforestation program; and 4. Ten percent (10%) for agricultural modernization to finance the construction of farm-tomarket roads and irrigation facilities. Such allocations shall be segregated as separate trust funds by the national treasury and shall be over and above the annual appropriation for similar purposes. These amendments did not harmonize conflicting provisions between the constituent bills of R.A. No. 9337 but are entirely new and extraneous concepts which fall beyond the median thereof. They transgress the limits of the Bicameral Conference Committees authority and must be struck down. I cannot therefore subscribe to the thesis of the majority that "the changes introduced by the Bicameral Conference Committee on disagreeing provisions were meant only to reconcile and harmonize the disagreeing provisions for it did not inject any idea or intent that is wholly foreign to the subject embraced by the original provisions." Fifth. The majority further defends the constitutionality of the above provisions by holding that "all the changes or modifications were germane to subjects of the provisions referred to it for reconciliation." With due respect, it is high time to re-examine the test of germaneness proffered in Tolentino.

The test of germaneness is overly broad and is the fountainhead of mischief for it allows the Bicameral Conference Committee to change provisions in the bills of the House and the Senate when they are not even in disagreement. Worse still, it enables the Committee to introduce amendments which are entirely new and have not previously passed through the coils of scrutiny of the members of both houses. The Constitution did not establish a Bicameral Conference Committee that can act as a "third house" of Congress with super veto power over bills passed by the Senate and the House. We cannot concede that super veto power without wrecking the delicate architecture of legislative power so carefully laid down in our Constitution. The clear intent of our fundamental law is to install a lawmaking structure composed only of two houses whose members wouldthoroughly debate proposed legislations in representation of the will of their respective constituents. The institution of this lawmaking structure is unmistakable from the following provisions: (1) requiring that legislative power shall be vested in a bicameral legislature;10 (2) providing for quorum requirements;11 (3) requiring that appropriation, revenue or tariff bills, bills authorizing increase of public debt, bills of local application, and private bills originate exclusively in the House of Representatives;12 (4) requiring that bills embrace one subject expressed in the title thereof;13 and (5) mandating that bills undergo three readings on separate days in each House prior to passage into law and prohibiting amendments on the last reading thereof.14 A Bicameral Conference Committee with untrammeled powers will destroy this lawmaking structure. At the very least, it will diminish the free and open debate of proposed legislations and facilitate the smuggling of what purports to be laws. On this point, Mr. Robert Luces disconcerting observations are apropos: "Their power lies chiefly in the fact that reports of conference committees must be accepted without amendment or else rejected in toto. The impulse is to get done with the matters and so the motion to accept has undue advantage, for some members are sure to prefer swallowing unpalatable provisions rather than prolong controversy. This is more likely if the report comes in the rush of business toward the end of the session, when to seek further conference might result in the loss of the measure altogether. At any time in the session there is some risk of such a result following the rejection of a conference report, for it may not be possible to secure a second conference, or delay may give opposition to the main proposal chance to develop more strength. xxx xxx xxx Entangled in a network of rule and custom, the Representative who resents and would resist this theft of his rights, finds himself helpless. Rarely can be vote, rarely can he voice his mind, in the matter of any fraction of the bill. Usually he cannot even record himself as protesting against some one feature while accepting the measure as whole. Worst of all, he cannot by argument or suggested change, try to improve what the other branch has done. This means more than the subversion of individual rights. It means to a degree the abandonment of whatever advantage the bicameral system may have. By so much it in effect transfers the lawmaking power to small group of members who work out in private a decision that almost always prevails. What is worse, these men are not chosen in a way to ensure the wisest choice. It has become the practice to name as conferees the ranking members of the committee, so that the accident of seniority determines. Exceptions are made, but in general it is not a question of who are most competent to serve. Chance governs, sometimes giving way to favor, rarely to merit. xxx xxx xxx

Speaking broadly, the system of legislating by conference committee is unscientific and therefore defective.Usually it forfeits the benefit of scrutiny and judgment by all the wisdom available. Uncontrolled, it is inferior to that process by which every amendment is secured independent discussion and vote. . . ."15 It cannot be overemphasized that in a republican form of government, laws can only be enacted by all the duly elected representatives of the people. It cuts against conventional wisdom in democracy to lodge this power in the hands of a few or in the claws of a committee. It is for these reasons that the argument that we should overlook the excesses of the Bicameral Conference Committee because its report is anyway approved by both houses is a futile attempt to square the circle for an unconstitutional act is void and cannot be redeemed by any subsequent ratification. Neither can we shut our eyes to the unconstitutional acts of the Bicameral Conference Committee by holding that the Court cannot interpose its checking powers over mere violations of the internal rules of Congress. In Arroyo, et al. v. de Venecia, et al.,16 we ruled that when the violations affect private rights or impair the Constitution,the Court has all the power, nay, the duty to strike them down. In conclusion, I wish to stress that this is not the first time nor will it be last that arguments will be foisted for the Court to merely wink at assaults on the Constitution on the ground of some national interest, sometimes clear and at other times inchoate. To be sure, it cannot be gainsaid that the country is in the vortex of a financial crisis. The broadsheets scream the disconcerting news that our debt payments for the year 2006 will exceed Pph1 billion daily for interest alone. Experts underscore some factors that will further drive up the debt service expenses such as the devaluation of the peso, credit downgrades and a spike in interest rates.17 But no doomsday scenario will ever justify the thrashing of the Constitution. The Constitution is meant to be our rule both in good times as in bad times. It is the Courts uncompromising obligation to defend the Constitution at all times lest it be condemned as an irrelevant relic. WHEREFORE, I concur with the majority but dissent on the following points: a) I vote to withhold judgment on the constitutionality of the "standby authority" in Sections 4 to 6 of Republic Act No. 9337 as this issue is not ripe for adjudication.; b) I vote to declare unconstitutional the deletion by the Bicameral Conference Committee of the pro poor "no pass on provision" on electricity to residential consumers as it contravened the unequivocal intent of both Houses of Congress; and c) I vote to declare Section 21 of Republic Act No. 9337 as unconstitutional as it contains extraneous provisions not found in its constituent bills. REYNATO S. PUNO Associate Justice

G.R. No. L-29646 November 10, 1978 MAYOR ANTONIO J. VILLEGAS, petitioner, vs. HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents. Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner. Sotero H. Laurel for respondents.

Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six (6) months or fine of not less than P100.00 but not more than P200.00 or both such fine and imprisonment, upon conviction. 5 On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition with the Court of First Instance of Manila, Branch I, denominated as Civil Case No. 72797, praying for the issuance of the writ of preliminary injunction and restraining order to stop the enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance No. 6537 null and void. 6 In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the ordinance declared null and void:

FERNANDEZ, J.: This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent Judge Francisco Arca of the Court of First Instance of Manila, Branch I, in Civil Case No. 72797, the dispositive portion of winch reads. Wherefore, judgment is hereby rendered in favor of the petitioner and against the respondents, declaring Ordinance No. 6 37 of the City of Manila null and void. The preliminary injunction is made permanent. No pronouncement as to cost. SO ORDERED. Manila, Philippines, September 17, 1968. The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22, 1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. 2 City Ordinance No. 6537 is entitled: AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT FROM THE MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3 Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind.

1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity in taxation; 2) As a police power measure, it makes no distinction between useful and non-useful occupations, imposing a fixed P50.00 employment permit, which is out of proportion to the cost of registration and that it fails to prescribe any standard to guide and/or limit the action of the Mayor, thus, violating the fundamental principle on illegal delegation of legislative powers: 3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus, deprived of their rights to life, liberty and property and therefore, violates the due process and equal protection clauses of the Constitution. 7 On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17, 1968 rendered judgment declaring Ordinance No. 6537 null and void and making permanent the writ of preliminary injunction. 8 Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the present petition on March 27, 1969. Petitioner assigned the following as errors allegedly committed by respondent Judge in the latter's decision of September 17,1968: 9 I THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF UNIFORMITY OF TAXATION. II RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST UNDUE DESIGNATION OF LEGISLATIVE POWER. III

RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND EQUAL PROTECTION CLAUSES OF THE CONSTITUTION. Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the ground that it violated the rule on uniformity of taxation because the rule on uniformity of taxation applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police power of the state, it being principally a regulatory measure in nature. The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval or disapproval of applications for employment permits and therefore is regulatory in character the second part which requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation. The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual aliens who are required to pay it. Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial differences having a reasonable relation to the subject of the particular legislation. The same amount of P50.00 is being collected from every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly employee or a highly paid executive Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion. It has been held that where an ordinance of a municipality fails to state any policy or to set up any standard to guide or limit the mayor's action, expresses no purpose to be attained by requiring a permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power to grant or deny the issuance of building permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow or prevent an activity per se lawful. 10 In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a government agency power to determine the allocation of wheat flour among importers, the Supreme Court ruled against the interpretation of uncontrolled power as it vested in the administrative officer an arbitrary discretion to be exercised without a policy, rule, or standard from which it can be measured or controlled. It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse permits of all classes conferred upon the Mayor of Manila by the Revised Charter of Manila is not uncontrolled discretion but legal discretion to be exercised within the limits of the law. Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor in the exercise of the power which has been granted to him by the ordinance.

The ordinance in question violates the due process of law and equal protection rule of the Constitution. Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold or refuse it at will is tantamount to denying him the basic right of the people in the Philippines to engage in a means of livelihood. While it is true that the Philippines as a State is not obliged to admit aliens within its territory, once an alien is admitted, he cannot be deprived of life without due process of law. This guarantee includes the means of livelihood. The shelter of protection under the due process and equal protection clause is given to all persons, both aliens and citizens. 13 The trial court did not commit the errors assigned. WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs. SO ORDERED.

Separate Opinions

TEEHANKEE, J., concurring: I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's judgment declaring Ordinance No. 6537 of the City of Manila null and void for the reason that the employment of aliens within the country is a matter of national policy and regulation, which properly pertain to the national government officials and agencies concerned and not to local governments, such as the City of Manila, which after all are mere creations of the national government. The national policy on the matter has been determined in the statutes enacted by the legislature, viz, the various Philippine nationalization laws which on the whole recognize the right of aliens to obtain gainful employment in the country with the exception of certain specific fields and areas. Such national policies may not be interfered with, thwarted or in any manner negated by any local government or its officials since they are not separate from and independent of the national government. As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129: "The City of Manila is a subordinate body to the Insular (National Government ...). When the Insular (National) Government adopts a policy, a municipality is without legal authority to nullify and set at naught the action of the superior authority." Indeed, "not only must all municipal powers be exercised within the limits of the organic laws, but they must be consistent with the general law and public policy of the particular state ..." (I McQuillin, Municipal Corporations, 2nd sec. 367, P. 1011). With more reason are such national policies binding on local governments when they involve our foreign relations with other countries and their nationals who have been lawfully admitted here, since in such matters the views and decisions of the Chief of State and of the

legislature must prevail over those of subordinate and local governments and officials who have no authority whatever to take official acts to the contrary. G.R. No. L-49336 August 31, 1981 THE PROVINCE OF ABRA, represented by LADISLAO ANCHETA, Provincial Assessor, petitioner, vs. HONORABLE HAROLD M. HERNANDO, in his capacity as Presiding Judge of Branch I, Court of First Instance Abra; THE ROMAN CATHOLIC BISHOP OF BANGUED, INC., represented by Bishop Odilo etspueler and Reverend Felipe Flores, respondents.

Bangued, Inc. It was, however, unable to lessen the force of the objection raised by petitioner Province of Abra, especially the due process aspect. it is to be admitted that his opposition to the petition, pressed with vigor, ostensibly finds a semblance of support from the authorities cited. It is thus impressed with a scholarly aspect. It suffers, however, from the grave infirmity of stating that only a pure question of law is presented when a claim for exemption is made. The petition must be granted. 1. Respondent Judge would not have erred so grievously had he merely compared the provisions of the present Constitution with that appearing in the 1935 Charter on the tax exemption of "lands, buildings, and improvements." There is a marked difference. Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be exempt from taxation." 10 The present Constitution added "charitable institutions, mosques, and non-profit cemeteries" and required that for the exemption of ":lands, buildings, and improvements," they should not only be "exclusively" but also "actually and "directly" used for religious or charitable purposes. 11The Constitution is worded differently. The change should not be ignored. It must be duly taken into consideration. Reliance on past decisions would have sufficed were the words "actually" as well as "directly" not added. There must be proof therefore of the actual and direct use of the lands, buildings, and improvements for religious or charitable purposes to be exempt from taxation. According to Commissioner of Internal Revenue v. Guerrero: 12"From 1906, in Catholic Church v. Hastings to 1966, in Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, it has been the constant and uniform holding that exemption from taxation is not favored and is never presumed, so that if granted it must be strictly construed against the taxpayer. Affirmatively put, the law frowns on exemption from taxation, hence, an exempting provision should be construed strictissimi juris." 13 In Manila Electric Company v. Vera, 14 a 1975 decision, such principle was reiterated, reference being made to Republic Flour Mills, Inc. v. Commissioner of Internal Revenue; 15 Commissioner of Customs v. Philippine Acetylene Co. & CTA; 16 andDavao Light and Power Co., Inc. v. Commissioner of Customs. 17 2. Petitioner Province of Abra is therefore fully justified in invoking the protection of procedural due process. If there is any case where proof is necessary to demonstrate that there is compliance with the constitutional provision that allows an exemption, this is it. Instead, respondent Judge accepted at its face the allegation of private respondent. All that was alleged in the petition for declaratory relief filed by private respondents, after mentioning certain parcels of land owned by it, are that they are used "actually, directly and exclusively" as sources of support of the parish priest and his helpers and also of private respondent Bishop. 18 In the motion to dismiss filed on behalf of petitioner Province of Abra, the objection was based primarily on the lack of jurisdiction, as the validity of a tax assessment may be questioned before the Local Board of Assessment Appeals and not with a court. There was also mention of a lack of a cause of action, but only because, in its view, declaratory relief is not proper, as there had been breach or violation of the right of government to assess and collect taxes on such property. It clearly appears, therefore, that in failing to accord a hearing to petitioner Province of Abra and deciding the case immediately in favor of private respondent, respondent Judge failed to abide by the constitutional command of procedural due process. WHEREFORE, the petition is granted and the resolution of June 19, 1978 is set aside. Respondent Judge, or who ever is acting on his behalf, is ordered to hear the case on the merit. No costs. G.R. No. L-4817 May 26, 1954

FERNANDO, C.J.: On the face of this certiorari and mandamus petition filed by the Province of Abra, 1 it clearly appears that the actuation of respondent Judge Harold M. Hernando of the Court of First Instance of Abra left much to be desired. First, there was a denial of a motion to dismiss 2 an action for declaratory relief by private respondent Roman Catholic Bishop of Bangued desirous of being exempted from a real estate tax followed by a summary judgment 3granting such exemption, without even hearing the side of petitioner. In the rather vigorous language of the Acting Provincial Fiscal, as counsel for petitioner, respondent Judge "virtually ignored the pertinent provisions of the Rules of Court; ... wantonly violated the rights of petitioner to due process, by giving due course to the petition of private respondent for declaratory relief, and thereafter without allowing petitioner to answer and without any hearing, adjudged the case; all in total disregard of basic laws of procedure and basic provisions of due process in the constitution, thereby indicating a failure to grasp and understand the law, which goes into the competence of the Honorable Presiding Judge." 4 It was the submission of counsel that an action for declaratory relief would be proper only before a breach or violation of any statute, executive order or regulation. 5 Moreover, there being a tax assessment made by the Provincial Assessor on the properties of respondent Roman Catholic Bishop, petitioner failed to exhaust the administrative remedies available under Presidential Decree No. 464 before filing such court action. Further, it was pointed out to respondent Judge that he failed to abide by the pertinent provision of such Presidential Decree which provides as follows: "No court shall entertain any suit assailing the validity of a tax assessed under this Code until the taxpayer, shall have paid, under protest, the tax assessed against him nor shall any court declare any tax invalid by reason of irregularities or informalities in the proceedings of the officers charged with the assessment or collection of taxes, or of failure to perform their duties within this time herein specified for their performance unless such irregularities, informalities or failure shall have impaired the substantial rights of the taxpayer; nor shall any court declare any portion of the tax assessed under the provisions of this Code invalid except upon condition that the taxpayer shall pay the just amount of the tax, as determined by the court in the pending proceeding." 6 When asked to comment, respondent Judge began with the allegation that there "is no question that the real properties sought to be taxed by the Province of Abra are properties of the respondent Roman Catholic Bishop of Bangued, Inc." 7 The very next sentence assumed the very point it asked when he categorically stated: "Likewise, there is no dispute that the properties including their procedure are actually, directly and exclusively used by the Roman Catholic Bishop of Bangued, Inc. for religious or charitable purposes." 8 For him then: "The proper remedy of the petitioner is appeal and not this special civil action." 9 A more exhaustive comment was submitted by private respondent Roman Catholic Bishop of

SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants, vs. THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants. Calanog and Alafriz for plaintiffs-appellants. City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendantsappellants. REYES, J.: This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical practitioner, a public accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf and in behalf of other professionals practising in the City of Manila who may desire to join it." Object of the suit is the annulment of Ordinance No. 3398 of the City of Manila together with the provision of the Manila charter authorizing it and the refund of taxes collected under the ordinance but paid under protest. The ordinance in question, which was approved by the municipal board of the City of Manila on July 25, 1950, imposes a municipal occupation tax on persons exercising various professions in the city and penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by imprisonment of not more than six months, or by both such fine and imprisonment in the discretion of the court." Among the professions taxed were those to which plaintiffs belong. The ordinance was enacted pursuant to paragraph (1) of section 18 of the Revised Charter of the City of Manila (as amended by Republic Act No. 409), which empowers the Municipal Board of said city to impose a municipal occupation tax, not to exceed P50 per annum, on persons engaged in the various professions above referred to. Having already paid their occupation tax under section 201 of the National Internal Revenue Code, plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same under protest and then brought the present suit for the purpose already stated. The lower court upheld the validity of the provision of law authorizing the enactment of the ordinance but declared the ordinance itself illegal and void on the ground that the penalty there in provided for non-payment of the tax was not legally authorized. From this decision both parties appealed to this Court, and the only question they have presented for our determination is whether this ruling is correct or not, for though the decision is silent on the refund of taxes paid plaintiffs make no assignment of error on this point. To begin with defendants' appeal, we find that the lower court was in error in saying that the imposition of the penalty provided for in the ordinance was without the authority of law. The last paragraph (kk) of the very section that authorizes the enactment of this tax ordinance (section 18 of the Manila Charter) in express terms also empowers the Municipal Board "to fix penalties for the violation of ordinances which shall not exceed to(sic) two hundred pesos fine or six months" imprisonment, or both such fine and imprisonment, for a single offense." Hence, the pronouncement below that the ordinance in question is illegal and void because it imposes a penalty not authorized by law is clearly without basis. As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it constitute class legislation, are unjust and oppressive, and authorize what amounts to double taxation. In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the professions to which they respectively belong have been singled out for the imposition of this municipal occupation tax; and in any event, the Legislature may, in its discretion, select what occupations shall be taxed, and in the exercise of that discretion it may tax all, or it

may select for taxation certain classes and leave the others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp. 3393-3395.) Plaintiffs' complaint is that while the law has authorized the City of Manila to impose the said tax, it has withheld that authority from other chartered cities, not to mention municipalities. We do not think it is for the courts to judge what particular cities or municipalities should be empowered to impose occupation taxes in addition to those imposed by the National Government. That matter is peculiarly within the domain of the political departments and the courts would do well not to encroach upon it. Moreover, as the seat of the National Government and with a population and volume of trade many times that of any other Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the practice of the professions, so that it is but fair that the professionals in Manila be made to pay a higher occupation tax than their brethren in the provinces. Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination within a class in that while professionals with offices in Manila have to pay the tax, outsiders who have no offices in the city but practice their profession therein are not subject to the tax. Plaintiffs make a distinction that is not found in the ordinance. The ordinance imposes the tax upon every person "exercising" or "pursuing" in the City of Manila naturally any one of the occupations named, but does not say that such person must have his office in Manila. What constitutes exercise or pursuit of a profession in the city is a matter of judicial determination. The argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof. (51 Am. Jur., 341.) In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance No. 3398 of the City of Manila illegal and void and affirmed in so far as it holds the validity of the provision of the Manila charter authorizing it. With costs against plaintiffsappellants. Separate Opinions PARAS, C.J., dissenting: I am constrained to dissent from the decision of the majority upon the ground that the Municipal Board of Manila cannot outlaw what Congress of the Philippines has already authorized. The plaintiffs-appellants two lawyers, a physician, an accountant, a dentist and a pharmacist had already paid the occupation tax under section 201 of the National Internal Revenue Code and are thereby duly licensed to practice their respective professions throughout the Philippines; and yet they had been required to pay another occupation tax under Ordinance No. 3398 for practising in the City of Manila. This is a glaring example of contradiction the license granted by the National Government is in effect withdrawn by the City in case of non-payment of the tax under the ordinance. I fit be argued that the national occupation tax is collected to allow the professional residing in Manila to pursue his calling in other places in the Philippines, it should then be exacted only from professionals practising simultaneously in and outside of Manila. At any rate, we are confronted with the following situation: Whereas the professionals elsewhere pay only one occupation tax, in the City of Manila they have to pay two, although all are on equal footing insofar as opportunities for earning money out of their pursuits are concerned. The statement that practice in Manila is more lucrative than in the provinces, may be true perhaps with reference only to a limited few, but certainly not to the general mass of practitioners in any field. Again, provincial residents who have occasional or isolated practice in Manila may have to pay the city tax. This obvious discrimination or lack of uniformity cannot be brushed aside

or justified by any trite pronouncement that double taxation is legitimate or that legislation may validly affect certain classes. My position is that a professional who has paid the occupation tax under the National Internal Revenue Code should be allowed to practice in Manila even without paying the similar tax imposed by Ordinance No. 3398. The City cannot give what said professional already has. I would not say that this Ordinance, enacted by the Municipal Board pursuant to paragraph 1 of section 18 of the Revised Charter of Manila, as amended by Republic Act No. 409, empowering the Board to impose a municipal occupation tax not to exceed P50 per annum, is invalid; but that only one tax, either under the Internal Revenue Code or under Ordinance No. 3398, should be imposed upon a practitioner in Manila. G.R. No. 132527. July 29, 2005 COCONUT OIL REFINERS ASSOCIATION, INC. represented by its President, JESUS L. ARRANZA, PHILIPPINE ASSOCIATION OF MEAT PROCESSORS, INC. (PAMPI), represented by its Secretary, ROMEO G. HIDALGO, FEDERATION OF FREE FARMERS (FFF), represented by its President, JEREMIAS U. MONTEMAYOR, and BUKLURAN NG MANGGAGAWANG PILIPINO (BMP), represented by its Chairperson, FELIMON C. LAGMAN, Petitioners, vs. HON. RUBEN TORRES, in his capacity as Executive Secretary; BASES CONVERSION AND DEVELOPMENT AUTHORITY, CLARK DEVELOPMENT CORPORATION, SUBIC BAY METROPOLITAN AUTHORITY, 88 MART DUTY FREE, FREEPORT TRADERS, PX CLUB, AMERICAN HARDWARE, ROYAL DUTY FREE SHOPS, INC., DFS SPORTS, ASIA PACIFIC, MCI DUTY FREE DISTRIBUTOR CORP. (formerly MCI RESOURCES, CORP.), PARK & SHOP, DUTY FREE COMMODITIES, L. FURNISHING, SHAMBURGH, SUBIC DFS, ARGAN TRADING CORP., ASIPINE CORP., BEST BUY, INC., PX CLUB, CLARK TRADING, DEMAGUS TRADING CORP., D.F.S. SPORTS UNLIMITED, INC., DUTY FREE FIRST SUPERSTORE, INC., FREEPORT, JC MALL DUTY FREE INC. (formerly 88 Mart [Clark] Duty Free Corp.), LILLY HILL CORP., MARSHALL, PUREGOLD DUTY FREE, INC., ROYAL DFS and ZAXXON PHILIPPINES, INC., Respondents. DECISION AZCUNA, J.: This is a Petition for Prohibition and Injunction seeking to enjoin and prohibit the Executive Branch, through the public respondents Ruben Torres in his capacity as Executive Secretary, the Bases Conversion Development Authority (BCDA), the Clark Development Corporation (CDC) and the Subic Bay Metropolitan Authority (SBMA), from allowing, and the private respondents from continuing with, the operation of tax and duty-free shops located at the Subic Special Economic Zone (SSEZ) and the Clark Special Economic Zone (CSEZ), and to declare the following issuances as unconstitutional, illegal, and void: 1. Section 5 of Executive Order No. 80,1 dated April 3, 1993, regarding the CSEZ. 2. Executive Order No. 97-A, dated June 19, 1993, pertaining to the SSEZ. 3. Section 4 of BCDA Board Resolution No. 93-05-034,2 dated May 18, 1993, pertaining to the CSEZ.

Petitioners contend that the aforecited issuances are unconstitutional and void as they constitute executive lawmaking, and that they are contrary to Republic Act No. 72273 and in violation of the Constitution, particularly Section 1, Article III (equal protection clause), Section 19, Article XII (prohibition of unfair competition and combinations in restraint of trade), and Section 12, Article XII (preferential use of Filipino labor, domestic materials and locally produced goods). The facts are as follows: On March 13, 1992, Republic Act No. 7227 was enacted, providing for, among other things, the sound and balanced conversion of the Clark and Subic military reservations and their extensions into alternative productive uses in the form of special economic zones in order to promote the economic and social development of Central Luzon in particular and the country in general. Among the salient provisions are as follows: SECTION 12. Subic Special Economic Zone. ... The abovementioned zone shall be subject to the following policies: (a) Within the framework and subject to the mandate and limitations of the Constitution and the pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments; (b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuringfree flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital and equipment. However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines;4 (c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Ecoomic Zone shall be remitted to the National Government, one percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a development fund of one percent (1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the development of municipalities outside the City of Olangapo and the Municipality of Subic, and other municipalities contiguous to the base areas. ... SECTION 15. Clark and Other Special Economic Zones. Subject to the concurrence by resolution of the local government units directly affected, the President is hereby authorized to create by executive proclamation a Special Economic Zone covering the lands occupied by the Clark military reservations and its contiguous extensions as embraced, covered and defined by the 1947 Military Bases Agreement between the Philippines and the United States

of America, as amended, located within the territorial jurisdiction of Angeles City, Municipalities of Mabalacat and Porac, Province of Pampanga and the Municipality of Capas, Province of Tarlac, in accordance with the policies as herein provided insofar as applicable to the Clark military reservations. The governing body of the Clark Special Economic Zone shall likewise be established by executive proclamation with such powers and functions exercised by the Export Processing Zone Authority pursuant to Presidential Decree No. 66 as amended. The policies to govern and regulate the Clark Special Economic Zone shall be determined upon consultation with the inhabitants of the local government units directly affected which shall be conducted within six (6) months upon approval of this Act. Similarly, subject to the concurrence by resolution of the local government units directly affected, the President shall create other Special Economic Zones, in the base areas of Wallace Air Station in San Fernando, La Union (excluding areas designated for communications, advance warning and radar requirements of the Philippine Air Force to be determined by the Conversion Authority) and Camp John Hay in the City of Baguio. Upon recommendation of the Conversion Authority, the President is likewise authorized to create Special Economic Zones covering the Municipalities of Morong, Hermosa, Dinalupihan, Castillejos and San Marcelino. On April 3, 1993, President Fidel V. Ramos issued Executive Order No. 80, which declared, among others, that Clark shall have all the applicable incentives granted to the Subic Special Economic and Free Port Zone under Republic Act No. 7227. The pertinent provision assailed therein is as follows: SECTION 5. Investments Climate in the CSEZ. Pursuant to Section 5(m) and Section 15 of RA 7227, the BCDA shall promulgate all necessary policies, rules and regulations governing the CSEZ, including investment incentives, in consultation with the local government units and pertinent government departments for implementation by the CDC. Among others, the CSEZ shall have all the applicable incentives in the Subic Special Economic and Free Port Zone under RA 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investments Code of 1987, the Foreign Investments Act of 1991 and new investments laws which may hereinafter be enacted. The CSEZ Main Zone covering the Clark Air Base proper shall have all the aforecited investment incentives, while the CSEZ Sub-Zone covering the rest of the CSEZ shall have limited incentives. The full incentives in the Clark SEZ Main Zone and the limited incentives in the Clark SEZ Sub-Zone shall be determined by the BCDA. Pursuant to the directive under Executive Order No. 80, the BCDA passed Board Resolution No. 93-05-034 on May 18, 1993, allowing the tax and duty-free sale at retail of consumer goods imported via Clark for consumption outside the CSEZ. The assailed provisions of said resolution read, as follows: Section 4. SPECIFIC INCENTIVES IN THE CSEZ MAIN ZONE. The CSEZ-registered enterprises/businesses shall be entitled to all the incentives available under R.A. No. 7227, E.O. No. 226 and R.A. No. 7042 which shall include, but not limited to, the following: I. As in Subic Economic and Free Port Zone:

A. Customs: ... 4. Tax and duty-free purchase and consumption of goods/articles (duty free shopping) within the CSEZ Main Zone. 5. For individuals, duty-free consumer goods may be brought out of the CSEZ Main Zone into the Philippine Customs territory but not to exceed US$200.00 per month per CDCregistered person, similar to the limits imposed in the Subic SEZ. This privilege shall be enjoyed only once a month. Any excess shall be levied taxes and duties by the Bureau of Customs. On June 10, 1993, the President issued Executive Order No. 97, "Clarifying the Tax and Duty Free Incentive Within the Subic Special Economic Zone Pursuant to R.A. No. 7227." Said issuance in part states, thus: SECTION 1. On Import Taxes and Duties Tax and duty-free importations shall apply only to raw materials, capital goods and equipment brought in by business enterprises into the SSEZ. Except for these items, importations of other goods into the SSEZ, whether by business enterprises or resident individuals, are subject to taxes and duties under relevant Philippine laws. The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other parts of the Philippine territory shall be subject to duties and taxes under relevant Philippine laws. Nine days after, on June 19, 1993, Executive Order No. 97-A was issued, "Further Clarifying the Tax and Duty-Free Privilege Within the Subic Special Economic and Free Port Zone." The relevant provisions read, as follows: SECTION 1. The following guidelines shall govern the tax and duty-free privilege within the Secured Area of the Subic Special Economic and Free Port Zone: 1.1 The Secured Area consisting of the presently fenced-in former Subic Naval Base shall be the only completely tax and duty-free area in the SSEFPZ. Business enterprises and individuals (Filipinos and foreigners) residing within the Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax and duty-free. Consumption items, however, must be consumed within the Secured Area. Removal of raw materials, capital goods, equipment and consumer items out of the Secured Area for sale to nonSSEFPZ registered enterprises shall be subject to the usual taxes and duties, except as may be provided herein. 1.2. Residents of the SSEFPZ living outside the Secured Area can enter the Secured Area and consume any quantity of consumption items in hotels and restaurants within the Secured Area. However, these residents can purchase and bring out of the Secured Area to other parts of the Philippine territory consumer items worth not exceeding US$100 per month per person. Only residents age 15 and over are entitled to this privilege. 1.3. Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any quantity of consumption items in hotels and restaurants within the Secured Area. However, they can purchase and bring out [of] the Secured Area to other parts of the Philippine

territory consumer items worth not exceeding US$200 per year per person. Only Filipinos age 15 and over are entitled to this privilege. Petitioners assail the $100 monthly and $200 yearly tax-free shopping privileges granted by the aforecited provisions respectively to SSEZ residents living outside the Secured Area of the SSEZ and to Filipinos aged 15 and over residing outside the SSEZ. On February 23, 1998, petitioners thus filed the instant petition, seeking the declaration of nullity of the assailed issuances on the following grounds: I. EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF BCDA BOARD RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR] BEING AN EXERCISE OF EXECUTIVE LAWMAKING. II. EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF BCDA BOARD RESOLUTION NO. 93-05-034 ARE UNCONSTITUTIONAL FOR BEING VIOLATIVE OF THE EQUAL PROTECTION CLAUSE AND THE PROHIBITION AGAINST UNFAIR COMPETITION AND PRACTICES IN RESTRAINT OF TRADE. III. EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF BCDA BOARD RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR] BEING VIOLATIVE OF REPUBLIC ACT NO. 7227. IV. THE CONTINUED IMPLEMENTATION OF THE CHALLENGED ISSUANCES IF NOT RESTRAINED WILL CONTINUE TO CAUSE PETITIONERS TO SUFFER GRAVE AND IRREPARABLE INJURY.5 In their Comments, respondents point out procedural issues, alleging lack of petitioners legal standing, the unreasonable delay in the filing of the petition, laches, and the propriety of the remedy of prohibition. Anent the claim on lack of legal standing, respondents argue that petitioners, being mere suppliers of the local retailers operating outside the special economic zones, do not stand to suffer direct injury in the enforcement of the issuances being assailed herein. Assuming this is true, this Court has nevertheless held that in cases of paramount importance where serious constitutional questions are involved, the standing requirements may be relaxed and a suit may be allowed to prosper even where there is no direct injury to the party claiming the right of judicial review.6 In the same vein, with respect to the other alleged procedural flaws, even assuming the existence of such defects, this Court, in the exercise of its discretion, brushes aside these technicalities and takes cognizance of the petition considering the importance to the public of the present case and in keeping with the duty to determine whether the other branches of the government have kept themselves within the limits of the Constitution. 7

Now, on the constitutional arguments raised: As this Court enters upon the task of passing on the validity of an act of a co-equal and coordinate branch of the Government, it bears emphasis that deeply ingrained in our jurisprudence is the time-honored principle that a statute is presumed to be valid.8 This presumption is rooted in the doctrine of separation of powers which enjoins upon the three coordinate departments of the Government a becoming courtesy for each others acts.9 Hence, to doubt is to sustain. The theory is that before the act was done or the law was enacted, earnest studies were made by Congress, or the President, or both, to insure that the Constitution would not be breached.10 This Court, however, may declare a law, or portions thereof, unconstitutional where a petitioner has shown a clear and unequivocal breach of the Constitution, not merely a doubtful or argumentative one.11 In other words, before a statute or a portion thereof may be declared unconstitutional, it must be shown that the statute or issuance violates the Constitution clearly, palpably and plainly, and in such a manner as to leave no doubt or hesitation in the mind of the Court.12 The Issue on Executive Legislation Petitioners claim that the assailed issuances (Executive Order No. 97-A; Section 5 of Executive Order No. 80; and Section 4 of BCDA Board Resolution No. 93-05-034) constitute executive legislation, in violation of the rule on separation of powers. Petitioners argue that the Executive Department, by allowing through the questioned issuances the setting up of tax and duty-free shops and the removal of consumer goods and items from the zones without payment of corresponding duties and taxes, arbitrarily provided additional exemptions to the limitations imposed by Republic Act No. 7227, which limitations petitioners identify as follows: (1) [Republic Act No. 7227] allowed only tax and duty-free importation of raw materials, capital and equipment. (2) It provides that any exportation or removal of goods from the territory of the Subic Special Economic Zone to other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines. Anent the first alleged limitation, petitioners contend that the wording of Republic Act No. 7227 clearly limits the grant of tax incentives to the importation of raw materials, capital and equipment only. Hence, they claim that the assailed issuances constitute executive legislation for invalidly granting tax incentives in the importation of consumer goods such as those being sold in the duty-free shops, in violation of the letter and intent of Republic Act No. 7227. A careful reading of Section 12 of Republic Act No. 7227, which pertains to the SSEZ, would show that it does not restrict the duty-free importation only to "raw materials, capital and equipment." Section 12 of the cited law is partly reproduced, as follows: SECTION 12. Subic Special Economic Zone. ... The abovementioned zone shall be subject to the following policies: ...

(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital and equipment.However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.13 While it is true that Section 12 (b) of Republic Act No. 7227 mentions only raw materials, capital and equipment, this does not necessarily mean that the tax and duty-free buying privilege is limited to these types of articles to the exclusion of consumer goods. It must be remembered that in construing statutes, the proper course is to start out and follow the true intent of the Legislature and to adopt that sense which harmonizes best with the context and promotes in the fullest manner the policy and objects of the Legislature.14 In the present case, there appears to be no logic in following the narrow interpretation petitioners urge. To limit the tax-free importation privilege of enterprises located inside the special economic zone only to raw materials, capital and equipment clearly runs counter to the intention of the Legislature to create a free port where the "free flow ofgoods or capital within, into, and out of the zones" is insured. The phrase "tax and duty-free importations of raw materials, capital and equipment" was merely cited as an example of incentives that may be given to entities operating within the zone. Public respondent SBMA correctly argued that the maxim expressio unius est exclusio alterius, on which petitioners impliedly rely to support their restrictive interpretation, does not apply when words are mentioned by way of example.15 It is obvious from the wording of Republic Act No. 7227, particularly the use of the phrase "such as," that the enumeration only meant to illustrate incentives that the SSEZ is authorized to grant, in line with its being a free port zone. Furthermore, said legal maxim should be applied only as a means of discovering legislative intent which is not otherwise manifest, and should not be permitted to defeat the plainly indicated purpose of the Legislature.16 The records of the Senate containing the discussion of the concept of "special economic zone" in Section 12 (a) of Republic Act No. 7227 show the legislative intent that consumer goods entering the SSEZ which satisfy the needs of the zone and are consumed there are not subject to duties and taxes in accordance with Philippine laws, thus: Senator Guingona. . . . The concept of Special Economic Zone is one that really includes the concept of a free port, but it is broader. While a free port is necessarily included in the Special Economic Zone, the reverse is not true that a free port would include a special economic zone. Special Economic Zone, Mr. President, would include not only the incoming and outgoing of vessels, duty-free and tax-free, but it would involve also tourism, servicing, financing and all the appurtenances of an investment center. So, that is the concept, Mr. President. It is broader. It includes the free port concept and would cater to the greater needs of Olangapo City, Subic Bay and the surrounding municipalities. Senator Enrile. May I know then if a factory located within the jurisdiction of Morong, Bataan that was originally a part of the Subic Naval reservation, be entitled to a free port treatment or just a special economic zone treatment?

Senator Guingona. As far as the goods required for manufacture is concerned, Mr. President, it would have privileges of duty-free and tax-free. But in addition, the Special Economic Zone could embrace the needs of tourism, could embrace the needs of servicing, could embrace the needs of financing and other investment aspects. Senator Enrile. When a hotel is constructed, Mr. President, in this geographical unit which we call a special economic zone, will the goods entering to be consumed by the customers or guests of the hotel be subject to duties? Senator Guingona. That is the concept that we are crafting, Mr. President. Senator Enrile. No. I am asking whether those goods will be duty-free, because it is constructed within a free port. Senator Guingona. For as long as it services the needs of the Special Economic Zone, yes. Senator Enrile. For as long as the goods remain within the zone, whether we call it an economic zone or a free port, for as long as we say in this law that all goods entering this particular territory will be duty-free and tax-free, for as long as they remain there, consumed there or reexported or destroyed in that place, then they are not subject to the duties and taxes in accordance with the laws of the Philippines? Senator Guingona. Yes.17 Petitioners rely on Committee Report No. 1206 submitted by the Ad Hoc Oversight Committee on Bases Conversion on June 26, 1995. Petitioners put emphasis on the reports finding that the setting up of duty-free stores never figured in the minds of the authors of Republic Act No. 7227 in attracting foreign investors to the former military baselands. They maintain that said law aimed to attract manufacturing and service enterprises that will employ the dislocated former military base workers, but not investors who would buy consumer goods from duty-free stores. The Court is not persuaded. Indeed, it is well-established that opinions expressed in the debates and proceedings of the Legislature, steps taken in the enactment of a law, or the history of the passage of the law through the Legislature, may be resorted to as aids in the interpretation of a statute with a doubtful meaning.18 Petitioners posture, however, overlooks the fact that the 1995 Committee Report they are referring to came into being well after the enactment of Republic Act No. 7227 in 1993. Hence, as pointed out by respondent Executive Secretary Torres, the aforementioned report cannot be said to form part of Republic Act No. 7227s legislative history. Section 12 of Republic Act No. 7227, provides in part, thus: SEC. 12. Subic Special Economic Zone. -- . . . The abovementioned zone shall be subject to the following policies: (a) Within the framework and subject to the mandate and limitations of the Constitution and the pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments. 19

The aforecited policy was mentioned as a basis for the issuance of Executive Order No. 97-A, thus: WHEREAS, Republic Act No. 7227 provides that within the framework and subject to the mandate and limitations of the Constitution and the pertinent provisions of the Local Government Code, the Subic Special Economic and Free Port Zone (SSEFPZ) shall be developed into a self-sustaining industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments; and WHEREAS, a special tax and duty-free privilege within a Secured Area in the SSEFPZ subject, to existing laws has been determined necessary to attract local and foreign visitors to the zone. Executive Order No. 97-A provides guidelines to govern the "tax and duty-free privileges within the Secured Area of the Subic Special Economic and Free Port Zone." Paragraph 1.6 thereof states that "(t)he sale of tax and duty-free consumer items in the Secured Area shall only be allowed in duly authorized duty-free shops." The Court finds that the setting up of such commercial establishments which are the only ones duly authorized to sell consumer items tax and duty-free is still well within the policy enunciated in Section 12 of Republic Act No. 7227 that ". . .the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments." (Emphasis supplied.) However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of Executive Order No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in a limited amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section 12 of Republic Act No. 7227. Said Section clearly provides that "exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines." On the other hand, insofar as the CSEZ is concerned, the case for an invalid exercise of executive legislation is tenable. In John Hay Peoples Alternative Coalition, et al. v. Victor Lim, et al.,20 this Court resolved an issue, very much like the one herein, concerning the legality of the tax exemption benefits given to the John Hay Economic Zone under Presidential Proclamation No. 420, Series of 1994, "CREATING AND DESIGNATING A PORTION OF THE AREA COVERED BY THE FORMER CAMP JOHN AS THE JOHN HAY SPECIAL ECONOMIC ZONE PURSUANT TO REPUBLIC ACT NO. 7227." In that case, among the arguments raised was that the granting of tax exemptions to John Hay was an invalid and illegal exercise by the President of the powers granted only to the Legislature. Petitioners therein argued that Republic Act No. 7227 expressly granted tax exemption only to Subic and not to the other economic zones yet to be established. Thus, the grant of tax exemption to John Hay by Presidential Proclamation contravenes the constitutional mandate that "[n]o law granting any tax exemption shall be passed without the concurrence of a majority of all the members of Congress."21

This Court sustained the argument and ruled that the incentives under Republic Act No. 7227 are exclusive only to the SSEZ. The President, therefore, had no authority to extend their application to John Hay. To quote from the Decision: More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless limited by a provision of a state constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes. The challenged grant of tax exemption would circumvent the Constitutions imposition that a law granting any tax exemption must have the concurrence of a majority of all the members of Congress. In the same vein, the other kinds of privileges extended to the John Hay SEZ are by tradition and usage for Congress to legislate upon. Contrary to public respondents suggestions, the claimed statutory exemption of the John Hay SEZ from taxation should be manifest and unmistakable from the language of the law on which it is based; it must be expressly granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot be implied as it must be categorically and unmistakably expressed. If it were the intent of the legislature to grant to John Hay SEZ the same tax exemption and incentives given to the Subic SEZ, it would have so expressly provided in R.A. No. 7227.22 In the present case, while Section 12 of Republic Act No. 7227 expressly provides for the grant of incentives to the SSEZ, it fails to make any similar grant in favor of other economic zones, including the CSEZ. Tax and duty-free incentives being in the nature of tax exemptions, the basis thereof should be categorically and unmistakably expressed from the language of the statute. Consequently, in the absence of any express grant of tax and dutyfree privileges to the CSEZ in Republic Act No. 7227, there would be no legal basis to uphold the questioned portions of two issuances: Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No. 93-05-034, which both pertain to the CSEZ. Petitioners also contend that the questioned issuances constitute executive legislation for allowing the removal of consumer goods and items from the zones without payment of corresponding duties and taxes in violation of Republic Act No. 7227 as Section 12 thereof provides for the taxation of goods that are exported or removed from the SSEZ to other parts of the Philippine territory. On September 26, 1997, Executive Order No. 444 was issued, curtailing the duty-free shopping privileges in the SSEZ and the CSEZ "to prevent abuse of duty-free privilege and to protect local industries from unfair competition." The pertinent provisions of said issuance state, as follows: SECTION 3. Special Shopping Privileges Granted During the Year-round Centennial Anniversary Celebration in 1998. Upon effectivity of this Order and up to the Centennial Year 1998, in addition to the permanent residents, locators and employees of the fenced-in areas of the Subic Special Economic and Freeport Zone and the Clark Special Economic Zone who are allowed unlimited duty free purchases, provided these are consumed within said fenced-in areas of the Zones, the residents of the municipalities adjacent to Subic and Clark as respectively provided in R.A. 7227 (1992) and E.O. 97-A s. 1993 shall continue to be allowed One Hundred US Dollars (US$100) monthly shopping privilege until 31 December 1998. Domestic tourists visiting Subic and Clark shall be allowed a shopping privilege of

US$25 for consumable goods which shall be consumed only in the fenced-in area during their visit therein. SECTION 4. Grant of Duty Free Shopping Privileges Limited Only To Individuals Allowed by Law. Starting 1 January 1999, only the following persons shall continue to be eligible to shop in duty free shops/outlets with their corresponding purchase limits: a. Tourists and Filipinos traveling to or returning from foreign destinations under E.O. 97-A s. 1993 One Thousand US Dollars (US$1,000) but not to exceed Ten Thousand US Dollars (US$10,000) in any given year; b. Overseas Filipino Workers (OFWs) and Balikbayans defined under R.A. 6768 dated 3 November 1989 Two Thousand US Dollars (US$2,000); c. Residents, eighteen (18) years old and above, of the fenced-in areas of the freeports under R.A. 7227 (1992) and E.O. 97-A s. 1993 Unlimited purchase as long as these are for consumption within these freeports. The term "Residents" mentioned in item c above shall refer to individuals who, by virtue of domicile or employment, reside on permanent basis within the freeport area. The term excludes (1) non-residents who have entered into short- or long-term property lease inside the freeport, (2) outsiders engaged in doing business within the freeport, and (3) members of private clubs (e.g., yacht and golf clubs) based or located within the freeport. In this regard, duty free privileges granted to any of the above individuals (e.g., unlimited shopping privilege, tax-free importation of cars, etc.) are hereby revoked.23 A perusal of the above provisions indicates that effective January 1, 1999, the grant of dutyfree shopping privileges to domestic tourists and to residents living adjacent to SSEZ and the CSEZ had been revoked. Residents of the fenced-in area of the free port are still allowed unlimited purchase of consumer goods, "as long as these are for consumption within these freeports." Hence, the only individuals allowed by law to shop in the duty-free outlets and remove consumer goods out of the free ports tax-free are tourists and Filipinos traveling to or returning from foreign destinations, and Overseas Filipino Workers and Balikbayans as defined under Republic Act No. 6768.24 Subsequently, on October 20, 2000, Executive Order No. 303 was issued, amending Executive Order No. 444. Pursuant to the limited duration of the privileges granted under the preceding issuance, Section 2 of Executive Order No. 303 declared that "[a]ll special shopping privileges as granted under Section 3 of Executive Order 444, s. 1997, are hereby deemed terminated. The grant of duty free shopping privileges shall be restricted to qualified individuals as provided by law." It bears noting at this point that the shopping privileges currently being enjoyed by Overseas Filipino Workers, Balikbayans, and tourists traveling to and from foreign destinations, draw authority not from the issuances being assailed herein, but from Executive Order No. 4625 and Republic Act No. 6768, both enacted prior to the promulgation of Republic Act No. 7227. From the foregoing, it appears that petitioners objection to the allowance of tax-free removal of goods from the special economic zones as previously authorized by the questioned issuances has become moot and academic.

In any event, Republic Act No. 7227, specifically Section 12 (b) thereof, clearly provides that "exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines." Thus, the removal of goods from the SSEZ to other parts of the Philippine territory without payment of said customs duties and taxes is not authorized by the Act. Consequently, the following italicized provisions found in the second sentences of paragraphs 1.2 and 1.3, Section 1 of Executive Order No. 97-A are null and void: 1.2 Residents of the SSEFPZ living outside the Secured Area can enter and consume any quantity of consumption items in hotels and restaurants within the Secured Area. However, these residents can purchase and bring out of the Secured Area to other parts of the Philippine territory consumer items worth not exceeding US $100 per month per person. Only residents age 15 and over are entitled to this privilege. 1.3 Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any quantity of consumption items in hotels and restaurants within the Secured Area. However, they can purchase and bring out of the Secured Area to other parts of the Philippine territory consumer items worth not exceeding US $200 per year per person. Only Filipinos age 15 and over are entitled to this privilege.26 A similar provision found in paragraph 5, Section 4(A) of BCDA Board Resolution No. 93-05034 is also null and void. Said Resolution applied the incentives given to the SSEZ under Republic Act No. 7227 to the CSEZ, which, as aforestated, is without legal basis. Having concluded earlier that the CSEZ is excluded from the tax and duty-free incentives provided under Republic Act No. 7227, this Court will resolve the remaining arguments only with regard to the operations of the SSEZ. Thus, the assailed issuance that will be discussed is solely Executive Order No. 97-A, since it is the only one among the three questioned issuances which pertains to the SSEZ. Equal Protection of the Laws Petitioners argue that the assailed issuance (Executive Order No. 97-A) is violative of their right to equal protection of the laws, as enshrined in Section 1, Article III of the Constitution. To support this argument, they assert that private respondents operating inside the SSEZ are not different from the retail establishments located outside, the products sold being essentially the same. The only distinction, they claim, lies in the products variety and source, and the fact that private respondents import their items tax-free, to the prejudice of the retailers and manufacturers located outside the zone. Petitioners contention cannot be sustained. It is an established principle of constitutional law that the guaranty of the equal protection of the laws is not violated by a legislation based on a reasonable classification.27Classification, to be valid, must (1) rest on substantial distinction, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class.28 Applying the foregoing test to the present case, this Court finds no violation of the right to equal protection of the laws. First, contrary to petitioners claim, substantial distinctions lie between the establishments inside and outside the zone, justifying the difference in their treatment. In Tiu v. Court of Appeals,29 the constitutionality of Executive Order No. 97-A was challenged for being violative of the equal protection clause. In that case, petitioners claimed that Executive Order No. 97-A was discriminatory in confining the application of

Republic Act No. 7227 within a secured area of the SSEZ, to the exclusion of those outside but are, nevertheless, still within the economic zone. Upholding the constitutionality of Executive Order No. 97-A, this Court therein found substantial differences between the retailers inside and outside the secured area, thereby justifying a valid and reasonable classification: Certainly, there are substantial differences between the big investors who are being lured to establish and operate their industries in the so-called "secured area" and the present business operators outside the area. On the one hand, we are talking of billion-peso investments and thousands of new jobs. On the other hand, definitely none of such magnitude. In the first, the economic impact will be national; in the second, only local. Even more important, at this time the business activities outside the "secured area" are not likely to have any impact in achieving the purpose of the law, which is to turn the former military base to productive use for the benefit of the Philippine economy. There is, then, hardly any reasonable basis to extend to them the benefits and incentives accorded in R.A. 7227. Additionally, as the Court of Appeals pointed out, it will be easier to manage and monitor the activities within the "secured area," which is already fenced off, to prevent "fraudulent importation of merchandise" or smuggling. It is well-settled that the equal-protection guarantee does not require territorial uniformity of laws. As long as there are actual and material differences between territories, there is no violation of the constitutional clause. And of course, anyone, including the petitioners, possessing the requisite investment capital can always avail of the same benefits by channeling his or her resources or business operations into the fenced-off free port zone.30 The Court in Tiu found real and substantial distinctions between residents within the secured area and those living within the economic zone but outside the fenced-off area. Similarly, real and substantial differences exist between the establishments herein involved. A significant distinction between the two groups is that enterprises outside the zones maintain their businesses within Philippine customs territory, while private respondents and the other duly-registered zone enterprises operate within the so-called "separate customs territory." To grant the same tax incentives given to enterprises within the zones to businesses operating outside the zones, as petitioners insist, would clearly defeat the statutes intent to carve a territory out of the military reservations in Subic Bay where free flow of goods and capital is maintained. The classification is germane to the purpose of Republic Act No. 7227. As held in Tiu, the real concern of Republic Act No. 7227 is to convert the lands formerly occupied by the US military bases into economic or industrial areas. In furtherance of such objective, Congress deemed it necessary to extend economic incentives to the establishments within the zone to attract and encourage foreign and local investors. This is the very rationale behind Republic Act No. 7227 and other similar special economic zone laws which grant a complete package of tax incentives and other benefits. The classification, moreover, is not limited to the existing conditions when the law was promulgated, but to future conditions as well, inasmuch as the law envisioned the former military reservation to ultimately develop into a self-sustaining investment center. And, lastly, the classification applies equally to all retailers found within the "secured area." As ruled in Tiu, the individuals and businesses within the "secured area," being in like circumstances or contributing directly to the achievement of the end purpose of the law, are not categorized further. They are all similarly treated, both in privileges granted and in obligations required.

With all the four requisites for a reasonable classification present, there is no ground to invalidate Executive Order No. 97-A for being violative of the equal protection clause. Prohibition against Unfair Competition and Practices in Restraint of Trade Petitioners next argue that the grant of special tax exemptions and privileges gave the private respondents undue advantage over local enterprises which do not operate inside the SSEZ, thereby creating unfair competition in violation of the constitutional prohibition against unfair competition and practices in restraint of trade. The argument is without merit. Just how the assailed issuance is violative of the prohibition against unfair competition and practices in restraint of trade is not clearly explained in the petition. Republic Act No. 7227, and consequently Executive Order No. 97-A, cannot be said to be distinctively arbitrary against the welfare of businesses outside the zones. The mere fact that incentives and privileges are granted to certain enterprises to the exclusion of others does not render the issuance unconstitutional for espousing unfair competition. Said constitutional prohibition cannot hinder the Legislature from using tax incentives as a tool to pursue its policies. Suffice it to say that Congress had justifiable reasons in granting incentives to the private respondents, in accordance with Republic Act No. 7227s policy of developing the SSEZ into a self-sustaining entity that will generate employment and attract foreign and local investment. If petitioners had wanted to avoid any alleged unfavorable consequences on their profits, they should upgrade their standards of quality so as to effectively compete in the market. In the alternative, if petitioners really wanted the preferential treatment accorded to the private respondents, they could have opted to register with SSEZ in order to operate within the special economic zone. Preferential Use of Filipino Labor, Domestic Materials and Locally Produced Goods Lastly, petitioners claim that the questioned issuance (Executive Order No. 97-A) openly violated the State policy of promoting the preferential use of Filipino labor, domestic materials and locally produced goods and adopting measures to help make them competitive. Again, the argument lacks merit. This Court notes that petitioners failed to substantiate their sweeping conclusion that the issuance has violated the State policy of giving preference to Filipino goods and labor. The mere fact that said issuance authorizes the importation and trade of foreign goods does not suffice to declare it unconstitutional on this ground. Petitioners cite Manila Prince Hotel v. GSIS31 which, however, does not apply. That case dealt with the policy enunciated under the second paragraph of Section 10, Article XII of the Constitution,32 applicable to the grant of rights, privileges, and concessions "covering the national economy and patrimony," which is different from the policy invoked in this petition, specifically that of giving preference to Filipino materials and labor found under Section 12 of the same Article of the Constitution. (Emphasis supplied). In Taada v. Angara,33 this Court elaborated on the meaning of Section 12, Article XII of the Constitution in this wise:

[W]hile the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the same time, it recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair. In other words, the Constitution did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Philippine economy. While the Constitution does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair.34 This Court notes that the Executive Department, with its subsequent issuance of Executive Order Nos. 444 and 303, has provided certain measures to prevent unfair competition. In particular, Executive Order Nos. 444 and 303 have restricted the special shopping privileges to certain individuals.35 Executive Order No. 303 has limited the range of items that may be sold in the duty-free outlets,36 and imposed sanctions to curb abuses of duty-free privileges.37 With these measures, this Court finds no reason to strike down Executive Order No. 97-A for allegedly being prejudicial to Filipino labor, domestic materials and locally produced goods. WHEREFORE, the petition is PARTLY GRANTED. Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No. 93-05-034 are hereby declared NULL and VOID and are accordingly declared of no legal force and effect. Respondents are hereby enjoined from implementing the aforesaid void provisions. All portions of Executive Order No. 97-A are valid and effective, except the second sentences in paragraphs 1.2 and 1.3 of said Executive Order, which are hereby declared INVALID. No costs. SO ORDERED.

On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of First Instance of Leyte, with service of a copy upon the Solicitor General, a complaint 3 against the City of Ormoc as well as its Treasurer, Municipal Board and Mayor, alleging that the afore-stated ordinance is unconstitutional for being violative of the equal protection clause (Sec. 1[1], Art. III, Constitution) and the rule of uniformity of taxation (Sec. 22[1]), Art. VI, Constitution), aside from being an export tax forbidden under Section 2287 of the Revised Administrative Code. It further alleged that the tax is neither a production nor a license tax which Ormoc City under Section 15-kk of its charter and under Section 2 of Republic Act 2264, otherwise known as the Local Autonomy Act, is authorized to impose; and that the tax amounts to a customs duty, fee or charge in violation of paragraph 1 of Section 2 of Republic Act 2264 because the tax is on both the sale and export of sugar. Answering, the defendants asserted that the tax ordinance was within defendant city's power to enact under the Local Autonomy Act and that the same did not violate the afore-cited constitutional limitations. After pre-trial and submission of the case on memoranda, the Court of First Instance, on August 6, 1964, rendered a decision that upheld the constitutionality of the ordinance and declared the taxing power of defendant chartered city broadened by the Local Autonomy Act to include all other forms of taxes, licenses or fees not excluded in its charter. Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar Company, Inc. Appellant alleges the same statutory and constitutional violations in the aforesaid taxing ordinance mentioned earlier. Section 1 of the ordinance states: "There shall be paid to the City Treasurer on any and all productions of centrifugal sugar milled at the Ormoc Sugar Company, Incorporated, in Ormoc City, a municipal tax equivalent to one per centum (1%) per export sale to the United States of America and other foreign countries." Though referred to as a tax on the export of centrifugal sugar produced at Ormoc Sugar Company, Inc. For production of sugar alone is not taxable; the only time the tax applies is when the sugar produced is exported. Appellant questions the authority of the defendant Municipal Board to levy such an export tax, in view of Section 2287 of the Revised Administrative Code which denies from municipal councils the power to impose an export tax. Section 2287 in part states: "It shall not be in the power of the municipal council to impose a tax in any form whatever, upon goods and merchandise carried into the municipality, or out of the same, and any attempt to impose an import or export tax upon such goods in the guise of an unreasonable charge for wharfage use of bridges or otherwise, shall be void." Subsequently, however, Section 2 of Republic Act 2264 effective June 19, 1959, gave chartered cities, municipalities and municipal districts authority to levy for public purposes just and uniform taxes, licenses or fees. Anent the inconsistency between Section 2287 of the Revised Administrative Code and Section 2 of Republic Act 2264, this Court, in Nin Bay Mining Co. v. Municipality of Roxas 4 held the former to have been repealed by the latter. And expressing Our awareness of the transcendental effects that municipal export or import taxes or licenses will have on the national economy, due to Section 2 of Republic Act 2264, We stated that there was no other alternative until Congress acts to provide remedial measures to forestall any unfavorable results. The point remains to be determined, however, whether constitutional limits on the power of taxation, specifically the equal protection clause and rule of uniformity of taxation, were infringed. The Constitution in the bill of rights provides: ". . . nor shall any person be denied the equal protection of the laws." (Sec. 1 [1], Art. III) In Felwa vs. Salas, 5 We ruled that the

G.R. No. L-23794

February 17, 1968

ORMOC SUGAR COMPANY, INC., plaintiff-appellant, vs. THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC CITY, HON. ESTEBAN C. CONEJOS as Mayor of Ormoc City and ORMOC CITY, defendantsappellees. Ponce Enrile, Siguion Reyna, Montecillo & Belo and Teehankee, Carreon & Taada for plaintiff-appellant. Ramon O. de Veyra for defendants-appellees. BENGZON, J.P., J.: On January 29, 1964, the Municipal Board of Ormoc City passed 1 Ordinance No. 4, Series of 1964, imposing "on any and all productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per export sale to the United States of America and other foreign countries." 2 Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. on March 20, 1964 for P7,087.50 and on April 20, 1964 for P5,000, or a total of P12,087.50.

equal protection clause applies only to persons or things identically situated and does not bar a reasonable classification of the subject of legislation, and a classification is reasonable where (1) it is based on substantial distinctions which make real differences; (2) these are germane to the purpose of the law; (3) the classification applies not only to present conditions but also to future conditions which are substantially identical to those of the present; (4) the classification applies only to those who belong to the same class. A perusal of the requisites instantly shows that the questioned ordinance does not meet them, for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none other. At the time of the taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is true, was the only sugar central in the city of Ormoc. Still, the classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff, for the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to Ormoc City Sugar Company, Inc. as the entity to be levied upon. Appellant, however, is not entitled to interest; on the refund because the taxes were not arbitrarily collected (Collector of Internal Revenue v. Binalbagan). 6 At the time of collection, the ordinance provided a sufficient basis to preclude arbitrariness, the same being then presumed constitutional until declared otherwise. WHEREFORE, the decision appealed from is hereby reversed, the challenged ordinance is declared unconstitutional and the defendants-appellees are hereby ordered to refund the P12,087.50 plaintiff-appellant paid under protest. No costs. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.1wph1.t

In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles and/or gospel portions thereof (except during the Japanese occupation) throughout the Philippines and translating the same into several Philippine dialects. On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff that it was conducting the business of general merchandise since November, 1945, without providing itself with the necessary Mayor's permit and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three days, the corresponding permit and license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 (Annex A). Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit and pay under protest the sum of P5,891.45, if suit was to be taken in court regarding the same (Annex B). To avoid the closing of its business as well as further fines and penalties in the premises on October 24, 1953, plaintiff paid to the defendant under protest the said permit and license fees in the aforementioned amount, giving at the same time notice to the City Treasurer that suit would be taken in court to question the legality of the ordinances under which, the said fees were being collected (Annex C), which was done on the same date by filing the complaint that gave rise to this action. In its complaint plaintiff prays that judgment be rendered declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be ordered to refund to the plaintiff the sum of P5,891.45 paid under protest, together with legal interest thereon, and the costs, plaintiff further praying for such other relief and remedy as the court may deem just equitable. Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the Municipal Board of the City of Manila by virtue of the power granted to it by section 2444, subsection (m-2) of the Revised Administrative Code, superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No. 409, known as the Revised Charter of the City of Manila, and praying that the complaint be dismissed, with costs against plaintiff. This answer was replied by the plaintiff reiterating the unconstitutionality of the often-repeated ordinances. Before trial the parties submitted the following stipulation of facts:

G.R. No. L-9637

April 30, 1957

COME NOW the parties in the above-entitled case, thru their undersigned attorneys and respectfully submit the following stipulation of facts: 1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral, Manila, Bibles, New Testaments, bible portions and bible concordance in English and other foreign languages imported by it from the United States as well as Bibles, New Testaments and bible portions in the local dialects imported and/or purchased locally; that from the fourth quarter of 1945 to the first quarter of 1953 inclusive the sales made by the plaintiff were as follows:

AMERICAN BIBLE SOCIETY, plaintiff-appellant, vs. CITY OF MANILA, defendant-appellee. City Fiscal Eugenio Angeles and Juan Nabong for appellant. Assistant City Fiscal Arsenio Naawa for appellee. FELIX, J.: Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the Philippines through its Philippine agency established in Manila in November, 1898, with its principal office at 636 Isaac Peral in said City. The defendant appellee is a municipal corporation with powers that are to be exercised in conformity with the provisions of Republic Act No. 409, known as the Revised Charter of the City of Manila.

Quarter 4th quarter 1945 1st quarter 1946 2nd quarter 1946 3rd quarter 1946

Amount of Sales P1,244.21 2,206.85 1,950.38 2,235.99

4th quarter 1946 1st quarter 1947 2nd quarter 1947 3rd quarter 1947 4th quarter 1947 1st quarter 1948 2nd quarter 1948 3rd quarter 1948 4th quarter 1948 1st quarter 1949 2nd quarter 1949 3rd quarter 1949 4th quarter 1949 1st quarter 1950 2nd quarter 1950 3rd quarter 1950 4th quarter 1950 1st quarter 1951 2nd quarter 1951 3rd quarter 1951 4th quarter 1951 1st quarter 1952 2nd quarter 1952 3rd quarter 1952 4th quarter 1952 1st quarter 1953

3,256.04 13,241.07 15,774.55 14,654.13 12,590.94 11,143.90 14,715.26 38,333.83 16,179.90 23,975.10 17,802.08 16,640.79 15,961.38 18,562.46 21,816.32 25,004.55 45,287.92 37,841.21 29,103.98 20,181.10 22,968.91 23,002.65 17,626.96 17,921.01 24,180.72 29,516.21

2. That the parties hereby reserve the right to present evidence of other facts not herein stipulated. WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties may present further evidence on their behalf. (Record on Appeal, pp. 1516). When the case was set for hearing, plaintiff proved, among other things, that it has been in existence in the Philippines since 1899, and that its parent society is in New York, United States of America; that its, contiguous real properties located at Isaac Peral are exempt from real estate taxes; and that it was never required to pay any municipal license fee or tax before the war, nor does the American Bible Society in the United States pay any license fee or sales tax for the sale of bible therein. Plaintiff further tried to establish that it never made any profit from the sale of its bibles, which are disposed of for as low as one third of the cost, and that in order to maintain its operating cost it obtains substantial remittances from its New York office and voluntary contributions and gifts from certain churches, both in the United States and in the Philippines, which are interested in its missionary work. Regarding plaintiff's contention of lack of profit in the sale of bibles, defendant retorts that the admissions of plaintiff-appellant's lone witness who testified on cross-examination that bibles bearing the price of 70 cents each from plaintiff-appellant's New York office are sold here by plaintiff-appellant at P1.30 each; those bearing the price of $4.50 each are sold here at P10 each; those bearing the price of $7 each are sold here at P15 each; and those bearing the price of $11 each are sold here at P22 each, clearly show that plaintiff's contention that it never makes any profit from the sale of its bible, is evidently untenable. After hearing the Court rendered judgment, the last part of which is as follows: As may be seen from the repealed section (m-2) of the Revised Administrative Code and the repealing portions (o) of section 18 of Republic Act No. 409, although they seemingly differ in the way the legislative intent is expressed, yet their meaning is practically the same for the purpose of taxing the merchandise mentioned in said legal provisions, and that the taxes to be levied by said ordinances is in the nature of percentage graduated taxes (Sec. 3 of Ordinance No. 3000, as amended, and Sec. 1, Group 2, of Ordinance No. 2529, as amended by Ordinance No. 3364). IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so holds that this case should be dismissed, as it is hereby dismissed, for lack of merits, with costs against the plaintiff. Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the case to Us for the reason that the errors assigned to the lower Court involved only questions of law. Appellant contends that the lower Court erred: 1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not unconstitutional; 2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under which Ordinances Nos. 2592 and 3000 were promulgated, was not repealed by Section 18 of Republic Act No. 409;

3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in order to be valid under the new Charter of the City of Manila, must first be approved by the President of the Philippines; and 4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial proportions, it cannot escape from the operation of said municipal ordinances under the cloak of religious privilege. The issues. As may be seen from the proceeding statement of the case, the issues involved in the present controversy may be reduced to the following: (1) whether or not the ordinances of the City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and valid; and (2) whether the provisions of said ordinances are applicable or not to the case at bar. Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides that: (7) No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof, and the free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religion test shall be required for the exercise of civil or political rights. Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529 and 3000, as respectively amended, are unconstitutional and illegal in so far as its society is concerned, because they provide for religious censorship and restrain the free exercise and enjoyment of its religious profession, to wit: the distribution and sale of bibles and other religious literature to the people of the Philippines. Before entering into a discussion of the constitutional aspect of the case, We shall first consider the provisions of the questioned ordinances in relation to their application to the sale of bibles, etc. by appellant. The records, show that by letter of May 29, 1953 (Annex A), the City Treasurer required plaintiff to secure a Mayor's permit in connection with the society's alleged business of distributing and selling bibles, etc. and to pay permit dues in the sum of P35 for the period covered in this litigation, plus the sum of P35 for compromise on account of plaintiff's failure to secure the permit required by Ordinance No. 3000 of the City of Manila, as amended. This Ordinance is of general application and not particularly directed against institutions like the plaintiff, and it does not contain any provisions whatever prescribing religious censorship nor restraining the free exercise and enjoyment of any religious profession. Section 1 of Ordinance No. 3000 reads as follows: SEC. 1. PERMITS NECESSARY. It shall be unlawful for any person or entity to conduct or engage in any of the businesses, trades, or occupations enumerated in Section 3 of this Ordinance or other businesses, trades, or occupations for which a permit is required for the proper supervision and enforcement of existing laws and ordinances governing the sanitation, security, and welfare of the public and the health of the employees engaged in the business specified in said section 3 hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY TREASURER. The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in Section 3 of the Ordinance, and the record does not show that a permit is required therefor under existing laws and ordinances for the proper supervision and enforcement of their provisions governing the sanitation, security and welfare of the public

and the health of the employees engaged in the business of the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which reads as follows: 79. All other businesses, trades or occupations not mentioned in this Ordinance, except those upon which the City is not empowered to license or to tax P5.00 Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said business, trade or occupation. As to the license fees that the Treasurer of the City of Manila required the society to pay from the 4th quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of P50 as compromise, Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028 prescribes the following: SEC. 1. FEES. Subject to the provisions of section 578 of the Revised Ordinances of the City of Manila, as amended, there shall be paid to the City Treasurer for engaging in any of the businesses or occupations below enumerated, quarterly, license fees based on gross sales or receipts realized during the preceding quarter in accordance with the rates herein prescribed: PROVIDED, HOWEVER, That a person engaged in any businesses or occupation for the first time shall pay the initial license fee based on the probable gross sales or receipts for the first quarter beginning from the date of the opening of the business as indicated herein for the corresponding business or occupation. xxx xxx xxx

GROUP 2. Retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax, such as (1) retail dealers in general merchandise; (2) retail dealers exclusively engaged in the sale of . . . books, including stationery. xxx xxx xxx

As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No. 2529, as amended, are not imposed directly upon any religious institution but upon those engaged in any of the business or occupations therein enumerated, such as retail "dealers in general merchandise" which, it is alleged, cover the business or occupation of selling bibles, books, etc. Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m2) of said legal body, as amended by Act No. 3659, approved on December 8, 1929, empowers the Municipal Board of the City of Manila: (M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both, and (b) retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax. For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in general merchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles . . . (e) books, including stationery, paper and office supplies, . . .: PROVIDED, HOWEVER, That the combined total tax of any debtor or manufacturer, or both, enumerated under these subsections (m-1) and (m-2),

whether dealing in one or all of the articles mentioned herein, SHALL NOT BE IN EXCESS OF FIVE HUNDRED PESOS PER ANNUM. and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were enacted in virtue of the power that said Act No. 3669 conferred upon the City of Manila. Appellant, however, contends that said ordinances are longer in force and effect as the law under which they were promulgated has been expressly repealed by Section 102 of Republic Act No. 409 passed on June 18, 1949, known as the Revised Manila Charter. Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly repealed the provisions of Chapter 60 of the Revised Administrative Code but in the opinion of the trial Judge, although Section 2444 (m-2) of the former Manila Charter and section 18 (o) of the new seemingly differ in the way the legislative intent was expressed, yet their meaning is practically the same for the purpose of taxing the merchandise mentioned in both legal provisions and, consequently, Ordinances Nos. 2529 and 3000, as amended, are to be considered as still in full force and effect uninterruptedly up to the present. Often the legislature, instead of simply amending the pre-existing statute, will repeal the old statute in its entirety and by the same enactment re-enact all or certain portions of the preexisting law. Of course, the problem created by this sort of legislative action involves mainly the effect of the repeal upon rights and liabilities which accrued under the original statute. Are those rights and liabilities destroyed or preserved? The authorities are divided as to the effect of simultaneous repeals and re-enactments. Some adhere to the view that the rights and liabilities accrued under the repealed act are destroyed, since the statutes from which they sprang are actually terminated, even though for only a very short period of time. Others, and they seem to be in the majority, refuse to accept this view of the situation, and consequently maintain that all rights an liabilities which have accrued under the original statute are preserved and may be enforced, since the re-enactment neutralizes the repeal, therefore, continuing the law in force without interruption. (Crawford-Statutory Construction, Sec. 322). Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider concept of taxation and is different from the provisions of Section 2444(m-2) that the former cannot be considered as a substantial re-enactment of the provisions of the latter. We have quoted above the provisions of section 2444(m-2) of the Revised Administrative Code and We shall now copy hereunder the provisions of Section 18, subdivision (o) of Republic Act No. 409, which reads as follows: (o) To tax and fix the license fee on dealers in general merchandise, including importers and indentors, except those dealers who may be expressly subject to the payment of some other municipal tax under the provisions of this section. Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail dealers. For purposes of the tax on retail dealers, general merchandise shall be classified into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each class but where commodities of different classes are sold in the same establishment, it shall not be compulsory for the owner to secure more than one license if he pays the higher or highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the license tax as such, as may be provided by ordinance.

For purposes of this section, the term "General merchandise" shall include poultry and livestock, agricultural products, fish and other allied products. The only essential difference that We find between these two provisions that may have any bearing on the case at bar, is that, while subsection (m-2) prescribes that the combined total tax of any dealer or manufacturer, or both, enumerated under subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned therein,shall not be in excess of P500 per annum, the corresponding section 18, subsection (o) of Republic Act No. 409, does not contain any limitation as to the amount of tax or license fee that the retail dealer has to pay per annum. Hence, and in accordance with the weight of the authorities above referred to that maintain that "all rights and liabilities which have accrued under the original statute are preserved and may be enforced, since the reenactment neutralizes the repeal, therefore continuing the law in force without interruption", We hold that the questioned ordinances of the City of Manila are still in force and effect. Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by the President of the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which reads as follows: (ii) To tax, license and regulate any business, trade or occupation being conducted within the City of Manila,not otherwise enumerated in the preceding subsections, including percentage taxes based on gross sales or receipts, subject to the approval of the PRESIDENT, except amusement taxes. but this requirement of the President's approval was not contained in section 2444 of the former Charter of the City of Manila under which Ordinance No. 2529 was promulgated. Anyway, as stated by appellee's counsel, the business of "retail dealers in general merchandise" is expressly enumerated in subsection (o), section 18 of Republic Act No. 409; hence, an ordinance prescribing a municipal tax on said business does not have to be approved by the President to be effective, as it is not among those referred to in said subsection (ii). Moreover, the questioned ordinances are still in force, having been promulgated by the Municipal Board of the City of Manila under the authority granted to it by law. The question that now remains to be determined is whether said ordinances are inapplicable, invalid or unconstitutional if applied to the alleged business of distribution and sale of bibles to the people of the Philippines by a religious corporation like the American Bible Society, plaintiff herein. With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028, appellant contends that it is unconstitutional and illegal because it restrains the free exercise and enjoyment of the religious profession and worship of appellant. Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the freedom of religious profession and worship. "Religion has been spoken of as a profession of faith to an active power that binds and elevates man to its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has reference to one's views of his relations to His Creator and to the obligations they impose of reverence to His being and character, and obedience to His Will (Davis vs. Beason, 133 U.S., 342). The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any restraints of such right can only be justified like other restraints of freedom of expression on the grounds that there is a clear and present danger of any substantive evil which the State has the right to prevent". (Taada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license fee

herein involved is imposed upon appellant for its distribution and sale of bibles and other religious literature: In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a license be obtained before a person could canvass or solicit orders for goods, paintings, pictures, wares or merchandise cannot be made to apply to members of Jehovah's Witnesses who went about from door to door distributing literature and soliciting people to "purchase" certain religious books and pamphlets, all published by the Watch Tower Bible & Tract Society. The "price" of the books was twenty-five cents each, the "price" of the pamphlets five cents each. It was shown that in making the solicitations there was a request for additional "contribution" of twentyfive cents each for the books and five cents each for the pamphlets. Lesser sum were accepted, however, and books were even donated in case interested persons were without funds. On the above facts the Supreme Court held that it could not be said that petitioners were engaged in commercial rather than a religious venture. Their activities could not be described as embraced in the occupation of selling books and pamphlets. Then the Court continued: "We do not mean to say that religious groups and the press are free from all financial burdens of government. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed. 660, 668, 56 S. Ct. 444. We have here something quite different, for example, from a tax on the income of one who engages in religious activities or a tax on property used or employed in connection with activities. It is one thing to impose a tax on the income or property of a preacher. It is quite another to exact a tax from him for the privilege of delivering a sermon. The tax imposed by the City of Jeannette is a flat license tax, payment of which is a condition of the exercise of these constitutional privileges. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. . . . Those who can tax the exercise of this religious practice can make its exercise so costly as to deprive it of the resources necessary for its maintenance. Those who can tax the privilege of engaging in this form of missionary evangelism can close all its doors to all those who do not have a full purse. Spreading religious beliefs in this ancient and honorable manner would thus be denied the needy. . . . It is contended however that the fact that the license tax can suppress or control this activity is unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license tax a flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The power to impose a license tax on the exercise of these freedom is indeed as potent as the power of censorship which this Court has repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure to defray the expenses of policing the activities in question. It is in no way apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of press and religion and inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent vice and evil of this flat license tax." Nor could dissemination of religious information be conditioned upon the approval of an official or manager even if the town were owned by a corporation as held in the case of Marsh vs. State of Alabama (326 U.S. 501), or by the United States itself as held in the case of Tucker vs. Texas (326 U.S. 517). In the former case the Supreme Court expressed the opinion that the right to enjoy freedom of the press and religion occupies a preferred position as against the constitutional right of property owners.

"When we balance the constitutional rights of owners of property against those of the people to enjoy freedom of press and religion, as we must here, we remain mindful of the fact that the latter occupy a preferred position. . . . In our view the circumstance that the property rights to the premises where the deprivation of property here involved, took place, were held by others than the public, is not sufficient to justify the State's permitting a corporation to govern a community of citizens so as to restrict their fundamental liberties and the enforcement of such restraint by the application of a State statute." (Taada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 304-306). Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, provides: SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. The following organizations shall not be taxed under this Title in respect to income received by them as such (e) Corporations or associations organized and operated exclusively for religious, charitable, . . . or educational purposes, . . .: Provided, however, That the income of whatever kind and character from any of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition made of such income, shall be liable to the tax imposed under this Code; Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this tax and says that such exemption clearly indicates that the act of distributing and selling bibles, etc. is purely religious and does not fall under the above legal provisions. It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in some instances a little bit higher than the actual cost of the same but this cannot mean that appellant was engaged in the business or occupation of selling said "merchandise" for profit. For this reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs. With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit before any person can engage in any of the businesses, trades or occupations enumerated therein, We do not find that it imposes any charge upon the enjoyment of a right granted by the Constitution, nor tax the exercise of religious practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427, this point was elucidated as follows: An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or otherwise, circulars, handbooks, advertising, or literature of any kind, whether said articles are being delivered free, or whether same are being sold within the city limits of the City of Griffin, without first obtaining written permission from the city manager of the City of Griffin, shall be deemed a nuisance and punishable as an offense against the City of Griffin, does not deprive defendant of his constitutional right of the free exercise and enjoyment of religious profession and worship, even though it prohibits him from introducing and carrying out a scheme or purpose which he sees fit to claim as a part of his religious system. It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not applicable to plaintiff-appellant and defendant-appellee is powerless to

license or tax the business of plaintiff Society involved herein for, as stated before, it would impair plaintiff's right to the free exercise and enjoyment of its religious profession and worship, as well as its rights of dissemination of religious beliefs, We find that Ordinance No. 3000, as amended is also inapplicable to said business, trade or occupation of the plaintiff. Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from it. Without pronouncement as to costs. It is so ordered. G.R. No. L-60126 September 25, 1985 CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents. Quasha, De Guzman Makalintal & Barot for petitioner. AQUINO, J.: This is about the liability of petitioner Cagayan Electric Power & Light Co., Inc. for income tax amounting to P75,149.73 for the more than seven-month period of the year 1969 in addition to franchise tax. The petitioner is the holder of a legislative franchise, Republic Act No. 3247, under which its payment of 3% tax on its gross earnings from the sale of electric current is "in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted" (Sec. 3). On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by making liable for income tax all corporate taxpayers not specifically exempt under paragraph (c) (1) of said section and section 27 of the Tax Code notwithstanding the "provisions of existing special or general laws to the contrary". Thus, franchise companies were subjected to income tax in addition to franchise tax. However, in petitioner's case, its franchise was amended by Republic Act No. 6020, effective August 4, 1969, by authorizing the petitioner to furnish electricity to the municipalities of Villanueva and Jasaan, Misamis Oriental in addition to Cagayan de Oro City and the municipalities of Tagoloan and Opol. The amendment reenacted the tax exemption in its original charter or neutralized the modification made by Republic Act No. 5431 more than a year before. By reason of the amendment to section 24 of the Tax Code, the Commissioner of Internal Revenue in a demand letter dated February 15, 1973 required the petitioner to pay deficiency income taxes for 1968-to 1971. The petitioner contested the assessments. The Commissioner cancelled the assessments for 1970 and 1971 but insisted on those for 1968 and 1969. The petitioner filed a petition for review with the Tax Court, which on February 26, 1982 held the petitioner liable only for the income tax for the period from January 1 to August 3, 1969 or before the passage of Republic Act No. 6020 which reiterated its tax exemption. The petitioner appealed to this Court.

It contends that the Tax Court erred (1) in not holding that the franchise tax paid by the petitioner is a commutative tax which already includes the income tax; (2) in holding that Republic Act No. 5431 as amended, altered or repealed petitioner's franchise; (3) in holding that petitioner's franchise is a contract which can be impaired by an implied repeal and (4) in not holding that section 24(d) of the Tax Code should be construed strictly against the Government. We hold that Congress could impair petitioner's legislative franchise by making it liable for income tax from which heretofore it was exempted by virtue of the exemption provided for in section 3 of its franchise. The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires (Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV, 1973 Constitution), Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject to the provisions of the Constitution and to the terms and conditions established in Act No. 3636 whose section 12 provides that the franchise is subject to amendment, alteration or repeal by Congress. Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income tax all corporate taxpayers not expressly exempted therein and in section 27 of the Code, had the effect of withdrawing petitioner's exemption from income tax. The Tax Court acted correctly in holding that the exemption was restored by the subsequent enactment on August 4, 1969 of Republic Act No. 6020 which reenacted the said tax exemption. Hence, the petitioner is liable only for the income tax for the period from January 1 to August 3, 1969 when its tax exemption was modified by Republic Act No. 5431. It is relevant to note that franchise companies, like the Philippine Long Distance Telephone Company, have been paying income tax in addition to the franchise tax. However, it cannot be denied that the said 1969 assessment appears to be highly controversial. The Commissioner at the outset was not certain as to petitioner's income tax liability. It had reason not to pay income tax because of the tax exemption in its franchise. For this reason, it should be liable only for tax proper and should not be held liable for the surcharge and interest. (Advertising Associates, Inc. vs. Commissioner of Internal Revenue and Court of Tax Appeals, G. R. No. 59758, December 26, 1984,133 SCRA 765; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue, 125 Phil. 1024; C.M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71 SCRA 511.) WHEREFORE, the judgment of the Tax Court is affirmed with the modification that the petitioner is liable only for the tax proper and that it should not pay the delinquency penalties. No costs. SO ORDERED. G.R. No. L-39086 June 15, 1988 ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs.

HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE,respondents.

the highest bid of P6,000.00 which was duly accepted. The certificate of sale was correspondingly issued to him. On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a motion to dismiss the complaint.

PARAS, J.: This is a petition for review on certiorari of the decision * of the defunct Court of First Instance of Abra, Branch I, dated June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented by Pedro V. Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of Bangued, Abra and Paterno Millare, defendants," the decretal portion of which reads: IN VIEW OF ALL THE FOREGOING, the Court hereby declares: That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the Provincial Treasurer of said province against the lot and building of the Abra Valley Junior College, Inc., represented by Director Pedro Borgonia located at Bangued, Abra, is valid; That since the school is not exempt from paying taxes, it should therefore pay all back taxes in the amount of P5,140.31 and back taxes and penalties from the promulgation of this decision; That the amount deposited by the plaintaff him the sum of P60,000.00 before the trial, be confiscated to apply for the payment of the back taxes and for the redemption of the property in question, if the amount is less than P6,000.00, the remainder must be returned to the Director of Pedro Borgonia, who represents the plaintiff herein; That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the trial must be returned to said Municipal Treasurer of Bangued, Abra; And finally the case is hereby ordered dismissed with costs against the plaintiff. SO ORDERED. (Rollo, pp. 22-23) Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot and building covered by Original Certificate of Title No. Q-83 duly registered in the name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served upon the petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of said college lot and building, which sale was held on the same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra, offered

On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972. On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp. 106-108). On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial and municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, petitioner, through Director Borgonia, deposited with the trial court the sum of P6,000.00 evidenced by PNB Check No. 904369. On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. Said Stipulations reads: STIPULATION OF FACTS COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into the following agreed stipulation of facts: 1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is admitted; but the particular person of Mr. Armin M. Cariaga is to be substituted, however, by anyone who is actually holding the position of Provincial Treasurer of the Province of Abra; 2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings thereon located in Bangued, Abra under Original Certificate of Title No. 0-83; 3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused to be served upon the Abra Valley Junior College, Inc. a Notice of Seizure on the property of said school under Original Certificate of Title No. 0-83 for the satisfaction of real property taxes thereon, amounting to P5,140.31; the Notice of Seizure being the one attached to the complaint as Exhibit A; 4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at public auction for the satisfaction of the unpaid real property taxes thereon and the same was sold to defendant Paterno Millare who offered the highest bid of P6,000.00 and a Certificate of Sale in his favor was issued by the defendant Municipal Treasurer.

5. That all other matters not particularly and specially covered by this stipulation of facts will be the subject of evidence by the parties. WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this stipulation of facts on the point agreed upon by the parties. Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is recognized by the government and is offering Primary, High School and College Courses, and has a school population of more than one thousand students all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and about 120 meters from the Court of First Instance building; (c) that the elementary pupils are housed in a two-storey building across the street; (d) that the high school and college students are housed in the main building; (e) that the Director with his family is in the second floor of the main building; and (f) that the annual gross income of the school reaches more than one hundred thousand pesos. From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether or not the lot and building in question are used exclusively for educational purposes. (Rollo, p. 20) The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein they opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school building and school lot used for educational purposes of the Abra Valley College, Inc., are exempted from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49). Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school for residential purposes. He thus ruled for the government and rendered the assailed decision. After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its appeal (Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant petition for review on certiorari with prayer for preliminary injunction before this Court, which petition was filed on August 17, 1974 (Rollo, p.2). In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo, p. 58). Respondents were required to answer said petition (Rollo, p. 74). Petitioner raised the following assignments of error: I THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER. II

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE BUILDING. III THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES. IV THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2) The main issue in this case is the proper interpretation of the phrase "used exclusively for educational purposes." Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use thereof, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and sale of subject college lot and building, which are contrary thereto as well as to the provision of Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal basis and therefore void. On the other hand, private respondents maintain that the college lot and building in question which were subjected to seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for commercial purposes because the ground floor of the college building is being used and rented by a commercial establishment, the Northern Marketing Corporation (See photograph attached as Annex "8" (Comment; Rollo, p. 90]). Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption from realty taxes for "Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes ... Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409, otherwise known as the Assessment Law, provides: The following are exempted from real property tax under the Assessment Law: xxx xxx xxx (c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, scientific or educational purposes.

xxx xxx xxx In this regard petitioner argues that the primary use of the school lot and building is the basic and controlling guide, norm and standard to determine tax exemption, and not the mere incidental use thereof. As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court ruled that while it may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still these do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for religious, charitable and educational purposes, and as such, it is entitled to be exempted from taxation. In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified that the term "used exclusively" considers incidental use also. Thus, the exemption from payment of land tax in favor of the convent includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes incidental use in religious functions. The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes, such as in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such as "Athletic fields" including "a firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430). The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]). It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purpose educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.

It will be noted however that the aforementioned lease appears to have been raised for the first time in this Court. That the matter was not taken up in the to court is really apparent in the decision of respondent Judge. No mention thereof was made in the stipulation of facts, not even in the description of the school building by the trial judge, both embodied in the decision nor as one of the issues to resolve in order to determine whether or not said properly may be exempted from payment of real estate taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even after it was raised in this Court. Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal. Nonetheless, as an exception to the rule, this Court has held that although a factual issue is not squarely raised below, still in the interest of substantial justice, this Court is not prevented from considering a pivotal factual matter. "The Supreme Court is clothed with ample authority to review palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]). Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved. PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner. SO ORDERED. G.R. No. L-27588 December 31, 1927 THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA, as representative of the Roman Catholic Apostolic Church, plaintiff-appellant, vs. THE PROVINCIAL BOARD OF ILOCOS NORTE, ET AL., defendants-appellants. Vicente Llanes and Proceso Coloma for plaintiff-appellant. Provincial Fiscal Santos for defendant-appellants.

AVANCEA, J.: The plaintiff, the Roman Catholic Apostolic Church, represented by the Bishop of Nueva Segovia, possesses and is the owner of a parcel of land in the municipality of San Nicolas, Ilocos Norte, all four sides of which face on public streets. On the south side is a part of the churchyard, the convent and an adjacent lot used for a vegetable garden, containing an area off 1,624 square meters, in which there is a stable and a well for the use of the convent. In the center is the remainder of the churchyard and the church. On the north is an old cemetery with two of its walls still standing, and a portion where formerly stood a tower, the base of which still be seen, containing a total area of 8,955 square meters.

As required by the defendants, on July 3, 1925 the plaintiff paid, under protest, the land tax on the lot adjoining the convent and the lot which formerly was the cemetery with the portion where the tower stood. The plaintiff filed this action for the recovery of the sum paid by to the defendants by way of land tax, alleging that the collection of this tax is illegal. The lower court absolved the defendants from the complaint in regard to the lot adjoining convent and declared that the tax collected on the lot, which formerly was the cemetery and on the portion where the lower stood, was illegal. Both parties appealed from this judgment. The exemption in favor of the convent in the payment of the land tax (sec. 344 [c] Administrative Code) refers to the home of the parties who presides over the church and who has to take care of himself in order to discharge his duties. In therefore must, in the sense, include not only the land actually occupied by the church, but also the adjacent ground destined to the ordinary incidental uses of man. Except in large cities where the density of the population and the development of commerce require the use of larger tracts of land for buildings, a vegetable garden belongs to a house and, in the case of a convent, it use is limited to the necessities of the priest, which comes under the exemption.lawphi1.net In regard to the lot which formerly was the cemetery, while it is no longer used as such, neither is it used for commercial purposes and, according to the evidence, is now being used as a lodging house by the people who participate in religious festivities, which constitutes an incidental use in religious functions, which also comes within the exemption. The judgment appealed from is reversed in all it parts and it is held that both lots are exempt from land tax and the defendants are ordered to refund to plaintiff whatever was paid as such tax, without any special pronouncement as to costs. So ordered. Johnson, Street, Villamor, Ostrand, Johns and Villa-Real, JJ., concur.

G.R. No. L-19445

August 31, 1965

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BISHOP OF THE MISSIONARY DISTRICT OF THE PHILIPPINE ISLANDS OF THE PROTESTANT EPISCOPAL CHURCH IN THE U.S.A. and THE COURT OF TAX APPEALS, respondents. REGALA, J.: This is an appeal taken from the Commissioner of Internal Revenue from a decision of the Court of Tax Appeals ordering him to refund to the Bishop of the Missionary District of the Philippines Islands of the Protestant Episcopal in the U.S.A. the sum of P118,847 which the latter had paid by way of compensating tax. Respondent Bishop of the Missionary District of the Philippines Islands of the Protestant, Episcopal Church in the U.S.A. is a corporation sole duly registered with the Securities and Exchange Commission. He is in charge of the administration of the temporalities and the management of the estates and properties in the Philippines of the Domestic and Foreign Missionary Society of the Protestant Episcopal Church in the United States (hereinafter referred to as Missionary Society). On the other hand, the Missionary District of the Philippine Islands of the Protestant Episcopal Church the U.S.A. (hereinafter referred to as Missionary District) is a duly incorporated and established religious society. It owns and operates the St. Luke's Hospital in Quezon City, the Brent Hospital in Zamboanga City and the St. Stephen's High School in Manila. On different dates in 1957, 1958 and 1959, the Missionary District in the Philippines received from the Missionary Society in the United States various shipments of materials, supplies, equipment and other articles intended for use in the construction and operation of the new St. Luke's Hospital in Quezon City and the Brent Hospital and St. Stephen's High School. The Missionary District also received from a certain William Minnis of Canada a stove for the use of the Brent Hospital. On these shipments, the Commissioner of Internal Revenue levied and collected the total amount of P118,847 as compensating tax. The Bishop of the Missionary District filed claims for refund of the amount he had paid on the ground that under Republic Act No. 1916, the materials and articles received by him were exempt from the payment of compensating tax. As the two-year period for recovery of tax was about to expire, the Bishop of the Missionary District filed a petition for review in the Court of Tax Appeals, without awaiting action on his claim for refund. Subsequently, he also filed two supplemental petitions for review covering other shipments received by him and on which he had paid compensating taxes. On August 21, 1959, the petitioner, the Commissioner of Internal Revenue denied respondent's claim for refund on the ground that St. Luke's Hospital was not a charitable institution and, therefore, was not exempt under the law. This is also the position he maintained in his answer to the first supplemental petition for review in the Tax Court.

Separate Opinions

MALCOLM, J., dissenting: The Assessment Law exempts from taxation "Cemeteries or burial grounds . . . and all lands, buildings, and improvements use exclusively for religious . . . purposes, but this exemption shall not extend to property held for investment, or which produces income, even though the income be devoted to some one or more of the purposes above specified." (Administrative Code, sec. 344; Act No. 2749, sec. 1.) That is the applicable law. The facts may be taken as found by the judge of First Instance, who made his findings more certain by an ocular inspection of the property under consideration. The testimony and the inspection disclosed that the lot Known as "huerta" was not devoted to religious purposes, and that the old cemetery had long since leased to be used as such and had been planted to corn. Those are the facts. The test to be applied to the combined law and facts must be the actual use of the property. The property legally exempt from the payment of taxes must be devoted to some purpose specified in the law. A "huerta" not needed or used exclusively for religious purposes is not thus exempt. A cemetery or burial ground no longer a cemetery or a burial ground is not thus exempt. Accordingly, I prefer to vote for the affirmance of Judge Mariano's decision.

After trial, the Tax Court rendered a decision holding the shipments exempt from taxation ordering the petitioner to refund to the respondent the amount of P118,847. It denied a motion for reconsideration of its decision, prompting petitioner to interpose this appeal. Petitioner makes the following assignment of errors: 1. The shipments cannot be considered donations because the Missionary District is merely a branch of the Missionary Society. The two hold identical interests. 2. The Tax Court's holding that the real donors are the people who contributed money to the Missionary Society in America is based on the uncorroborated testimony of Robert Meyer, Treasurer of the Missionary District in the Philippines, who did not have personal knowledge of the alleged contribution. The alleged contributors were not even identified. 3. The St. Luke's Hospital is not a charitable institution and, therefore, is not exempt from taxation because its admits pay patients. The Secretary of Finance states in his Dept. Order No. 18 that hospitals admitting pay patients and charity patients are not charitable institutions. This order was issued pursuant to the power given him by the last proviso of Republic Act No. 1916 which provides: SECTION 1. The provisions of existing laws to the contrary notwithstanding, all donations in any form and all articles imported into the Philippines, consigned to a duly incorporated or established international civic organization, religious or charitable society or institution for civic, religious or charitable purposes shall be exempt from the payment of all taxes and duties upon proof satisfactory to the Commissioner of Customs and/or Collector of Internal Revenue that such donations in any form and articles so imported are donations for its use or for free distribution and not for barter, sale or hire: Provided, however, That in case such are subsequently conveyed or transferred to other parties for a consideration, taxes and duties shall be collected thereon at double the rate provided under existing laws payable by the transferor: Provided, further, That rules and regulation, shall be promulgated by the Department of Finance for the implementation of this Act. This Court has already held that the following requisites must concur in order that a taxpayer may claim exemption under the law (1) the imported articles must have been donated; (2) the donee must be a duly incorporated or established international civic organization, religious or charitable society, or institution for civic religious or charitable purposes; and (3) the articles so imported must have been donated for the use of the organization, society or institution or for free distribution and not for barter, sale or hire. (Commissioner v. Church of Jesus Christ "New Jerusalem," G.R. No. L-15772, Oct. 31, 1961) In this appeal, the petitioner contends that the importations in question cannot be considered "donations" because the Missionary Society, which made the shipments, and the Missionary District in the Philippines are not different persons but rather are one and the same, the latter being a mere branch of the former. It should be enough to point out that by stipulation of the parties, the respondent Bishop is admitted to be a corporation sole duly registered with the Securities and Exchange Commission and that the Missionary District is a "duly incorporated and established religious society." They are, therefore, entities separate and distinct from the Missionary Society whose address is at 281 Fourth South, New York 10, N.Y., U.S.A. The fact that the

Missionary District, of which respondent is the Bishop, is a branch of the Missionary Society is of no moment. For that matter, so is the Roman Catholic Church in the Philippines a branch of the Universal Roman Catholic Apostolic Church, but it is a branch only in religious matters, in matters of faith and dogma. In other respects, it is independent. (Roman Catholic Apostolic Administrator v. Land Registration Commissioner, G.R. No. L-8451, December 20, 1957) The Tax Court's finding that the materials and supplies were purchased by the Missionary Society with money obtained from contributions from other people who should be considered the real donors is also assailed as being based on the uncorroborated testimony of Robert Meyer, Treasurer of the Missionary District, who it is said, did not have personal knowledge of the matter testified to by him. This is not so. As respondent points out, the various deeds of donation state in paragraph 3 that the "Missionary Society is a non-profit organization and derives its support from voluntary contributions." Petitioner's other point is that St. Luke's Hospital is not a charitable institution considering that it admits paying patients. Indeed, it was on this ground that petitioner denied respondent's claim for refund. It is argued that pursuant to the last proviso of Republic Act No. 1916, the Secretary of Finance issued Department Order No. 18 on October 20, 1958, stating that Hospitals that admit pay patients and charity patients ... are not charitable institutions for purposes of Republic Act No 1916. Again, it should be enough to point out that the admission of pay patients does not detract from the charitable character of a hospital, if, as in the case of St. Luke's Hospital, its funds are devoted exclusively to the Maintenance of the institution (Cf., e.g., Herrera v. Quezon City Board of Assessment Appeals, G.R. No. 15270, September 30, 1961). The Secretary of Finance cannot limit or otherwise qualify the enjoyment of this exemption granted under Republic Act No. 1916 in implementing the law. WHEREFORE, the decision appealed from is hereby affirmed with costs. G.R. No. 124043 October 14, 1998 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC., respondents.

PANGANIBAN, J.: Is the income derived from rentals of real property owned by the Young Men's Christian Association of the Philippines, Inc. (YMCA) established as "a welfare, educational and charitable non-profit corporation" subject to income tax under the National Internal Revenue Code (NIRC) and the Constitution? The Case

This is the main question raised before us in this petition for review on certiorari challenging two Resolutions issued by the Court of Appeals 1 on September 28, 1995 2 and February 29, 1996 3 in CA-GR SP No. 32007. Both Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing the YMCA to claim tax exemption on the latter's income from the lease of its real property. The Facts The facts are undisputed. 4 Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to private respondent, in the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA. Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals (CTA) on March 14, 1989. In due course, the CTA issued this ruling in favor of the YMCA: . . . [T]he leasing of [private respondent's] facilities to small shop owners, to restaurant and canteen operators and the operation of the parking lot are reasonably incidental to and reasonably necessary for the accomplishment of the objectives of the [private respondents]. It appears from the testimonies of the witnesses for the [private respondent] particularly Mr. James C. Delote, former accountant of YMCA, that these facilities were leased to members and that they have to service the needs of its members and their guests. The rentals were minimal as for example, the barbershop was only charged P300 per month. He also testified that there was actually no lot devoted for parking space but the parking was done at the sides of the building. The parking was primarily for members with stickers on the windshields of their cars and they charged P.50 for non-members. The rentals and parking fees were just enough to cover the costs of operation and maintenance only. The earning[s] from these rentals and parking charges including those from lodging and other charges for the use of the recreational facilities constitute [the] bulk of its income which [is] channeled to support its many activities and attainment of its objectives. As pointed out earlier, the membership dues are very insufficient to support its program. We find it reasonably necessary therefore for [private respondent] to make [the] most out [of] its existing facilities to earn some income. It would have been different if under the circumstances, [private respondent] will purchase a lot and convert it to a parking lot to cater to the needs of the general public for a fee, or construct a building and lease it out to the highest bidder or at the market rate for commercial purposes, or should it invest its funds in the buy and sell of properties, real or personal. Under these circumstances, we could conclude that the activities are already profit oriented, not incidental and reasonably necessary to the pursuit of the objectives of the association and therefore, will fall under the last

paragraph of Section 27 of the Tax Code and any income derived therefrom shall be taxable. Considering our findings that [private respondent] was not engaged in the business of operating or contracting [a] parking lot, we find no legal basis also for the imposition of [a] deficiency fixed tax and [a] contractor's tax in the amount[s] of P353.15 and P3,129.73, respectively. xxx xxx xxx WHEREFORE, in view of all the foregoing, the following assessments are hereby dismissed for lack of merit: 1980 Deficiency Fixed Tax P353,15; 1980 Deficiency Contractor's Tax P3,129.23; 1980 Deficiency Income Tax P372,578.20. While the following assessments are hereby sustained: 1980 Deficiency Expanded Withholding Tax P1,798.93; 1980 Deficiency Withholding Tax on Wages P33,058.82 plus 10% surcharge and 20% interest per annum from July 2, 1984 until fully paid but not to exceed three (3) years pursuant to Section 51(e)(2) & (3) of the National Internal Revenue Code effective as of 1984. 5 Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals (CA). In its Decision of February 16, 1994, the CA 6 initially decided in favor of the CIR and disposed of the appeal in the following manner: Following the ruling in the afore-cited cases of Province of Abra vs. Hernando and Abra Valley College Inc. vs. Aquino, the ruling of the respondent Court of Tax Appeals that "the leasing of petitioner's (herein respondent's) facilities to small shop owners, to restaurant and canteen operators and the operation of the parking lot are reasonably incidental to and reasonably necessary for the accomplishment of the objectives of the petitioners, and the income derived therefrom are tax exempt, must be reversed. WHEREFORE, the appealed decision is hereby REVERSED in so far as it dismissed the assessment for: 1980 Deficiency Income Tax P 353.15 1980 Deficiency Contractor's Tax P 3,129.23, & 1980 Deficiency Income Tax P 372,578.20

but the same is AFFIRMED in all other respect.

II In affirming the conclusion of Respondent Court of Tax Appeals that the income of private respondent from rentals of small shops and parking fees [is] exempt from taxation. 11 This Court's Ruling The petition is meritorious. First Issue: Factual Findings of the CTA Private respondent contends that the February 16, 1994 CA Decision reversed the factual findings of the CTA. On the other hand, petitioner argues that the CA merely reversed the "ruling of the CTA that the leasing of private respondent's facilities to small shop owners, to restaurant and canteen operators and the operation of parking lots are reasonably incidental to and reasonably necessary for the accomplishment of the objectives of the private respondent and that the income derived therefrom are tax exempt." 12 Petitioner insists that what the appellate court reversed was the legal conclusion, not the factual finding, of the CTA. 13 The commissioner has a point. Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by substantial evidence, will be disturbed on appeal unless it is shown that the said court committed gross error in the appreciation of facts.14 In the present case, this Court finds that the February 16, 1994 Decision of the CA did not deviate from this rule. The latter merely applied the law to the facts as found by the CTA and ruled on the issue raised by the CIR: "Whether or not the collection or earnings of rental income from the lease of certain premises and income earned from parking fees shall fall under the last paragraph of Section 27 of the National Internal Revenue Code of 1977, as amended." 15 Clearly, the CA did not alter any fact or evidence. It merely resolved the aforementioned issue, as indeed it was expected to. That it did so in a manner different from that of the CTA did not necessarily imply a reversal of factual findings. The distinction between a question of law and a question of fact is clear-cut. It has been held that "[t]here is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of alleged facts." 16 In the present case, the CA did not doubt, much less change, the facts narrated by the CTA. It merely applied the law to the facts. That its interpretation or conclusion is different from that of the CTA is not irregular or abnormal. Second Issue: Is the Rental Income of the YMCA Taxable? We now come to the crucial issue: Is the rental income of the YMCA from its real estate subject to tax? At the outset, we set forth the relevant provision of the NIRC: Sec. 27. Exemptions from tax on corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such

Aggrieved, the YMCA asked for reconsideration based on the following grounds: I The findings of facts of the Public Respondent Court of Tax Appeals being supported by substantial evidence [are] final and conclusive. II The conclusions of law of [p]ublic [r]espondent exempting [p]rivate [r]espondent from the income on rentals of small shops and parking fees [are] in accord with the applicable law and jurisprudence. 8 Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed itself and promulgated on September 28, 1995 its first assailed Resolution which, in part, reads: The Court cannot depart from the CTA's findings of fact, as they are supported by evidence beyond what is considered as substantial. xxx xxx xxx The second ground raised is that the respondent CTA did not err in saying that the rental from small shops and parking fees do not result in the loss of the exemption. Not even the petitioner would hazard the suggestion that YMCA is designed for profit. Consequently, the little income from small shops and parking fees help[s] to keep its head above the water, so to speak, and allow it to continue with its laudable work. The Court, therefore, finds the second ground of the motion to be meritorious and in accord with law and jurisprudence. WHEREFORE, the motion for reconsideration is GRANTED; the respondent CTA's decision is AFFIRMED in toto. 9 The internal revenue commissioner's own Motion for Reconsideration was denied by Respondent Court in its second assailed Resolution of February 29, 1996. Hence, this petition for review under Rule 45 of the Rules of Court. 10 The Issues Before us, petitioner imputes to the Court of Appeals the following errors: I In holding that it had departed from the findings of fact of Respondent Court of Tax Appeals when it rendered its Decision dated February 16, 1994; and

xxx xxx xxx (g) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; (h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member; xxx xxx xxx Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under this Code. (as amended by Pres. Decree No. 1457) Petitioner argues that while the income received by the organizations enumerated in Section 27 (now Section 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect to income received by them as such," the exemption does not apply to income derived ". . . from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income . . . ." Petitioner adds that "rental income derived by a tax-exempt organization from the lease of its properties, real or personal, [is] not, therefore, exempt from income taxation, even if such income [is] exclusively used for the accomplishment of its objectives." 17 We agree with the commissioner. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions. 18 Furthermore, a claim of statutory exemption from taxation should be manifest. and unmistakable from the language of the law on which it is based. Thus, the claimed exemption "must expressly be granted in a statute stated in a language too clear to be mistaken." 19 In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real property,20 the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. It is axiomatic that where the language of the law is clear and unambiguous, its express terms must be applied. 21Parenthetically, a consideration of the question of construction must not even begin, particularly when such question is on whether to apply a strict construction or a liberal one on statutes that grant tax exemptions to "religious, charitable and educational propert[ies] or institutions." 22 The last paragraph of Section 27, the YMCA argues, should be "subject to the qualification that the income from the properties must arise from activities 'conducted for profit' before it may be considered taxable." 23 This argument is erroneous. As previously stated, a reading of said paragraph ineludibly shows that the income from any property of exempt

organizations, as well as that arising from any activity it conducts for profit, is taxable. The phrase "any of their activities conducted for profit" does not qualify the word "properties." This makes from the property of the organization taxable, regardless of how that income is used whether for profit or for lofty non-profit purposes. Verba legis non est recedendum. Hence, Respondent Court of Appeals committed reversible error when it allowed, on reconsideration, the tax exemption claimed by YMCA on income it derived from renting out its real property, on the solitary but unconvincing ground that the said income is not collected for profit but is merely incidental to its operation. The law does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it is used or disposed of. Where the law does not distinguish, neither should we. Constitutional Provisions On Taxation Invoking not only the NIRC but also the fundamental law, private respondent submits that Article VI, Section 28 of par. 3 of the 1987 Constitution, 24 exempts "charitable institutions" from the payment not only of property taxes but also of income tax from any source. 25 In support of its novel theory, it compares the use of the words "charitable institutions," "actually" and "directly" in the 1973 and the 1987 Constitutions, on the one hand; and in Article VI, Section 22, par. 3 of the 1935 Constitution, on the other hand. 26 Private respondent enunciates three points. First, the present provision is divisible into two categories: (1) "[c]haritable institutions, churches and parsonages or convents appurtenant thereto, mosques and non-profit cemeteries," the incomes of which are, from whatever source, all tax-exempt; 27 and (2) "[a]ll lands, buildings and improvements actually and directly used for religious, charitable or educational purposes," which are exempt only from property taxes. 28 Second, Lladoc v. Commissioner of Internal Revenue, 29 which limited the exemption only to the payment of property taxes, referred to the provision of the 1935 Constitution and not to its counterparts in the 1973 and the 1987 Constitutions. 30 Third, the phrase "actually, directly and exclusively used for religious, charitable or educational purposes" refers not only to "all lands, buildings and improvements," but also to the abovequoted first category which includes charitable institutions like the private respondent. 31 The Court is not persuaded. The debates, interpellations and expressions of opinion of the framers of the Constitution reveal their intent which, in turn, may have guided the people in ratifying the Charter. 32 Such intent must be effectuated. Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is now a member of this Court, stressed during the Concom debates that ". . . what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution and also a member of the Concom, adhered to the same view that the exemption created by said provision pertained only to property taxes.34 In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax exemption covers property taxes only." 35 Indeed, the income tax exemption claimed by private respondent finds no basis in Article VI, Section 26, par. 3 of the Constitution. Private respondent also invokes Article XIV, Section 4, par. 3 of the Character, 36 claiming that the YMCA "is a non-stock, non-profit educational institution whose revenues and assets

are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income." 37 We reiterate that private respondent is exempt from the payment of property tax, but not income tax on the rentals from its property. The bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax. As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted the exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes. However, the Court notes that not a scintilla of evidence was submitted by private respondent to prove that it met the said requisites. Is the YMCA an educational institution within the purview of Article XIV, Section 4, par. 3 of the Constitution? We rule that it is not. The term "educational institution" or "institution of learning" has acquired a well-known technical meaning, of which the members of the Constitutional Commission are deemed cognizant. 38 Under the Education Act of 1982, such term refers to schools. 39 The school system is synonymous with formal education, 40 which "refers to the hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to the higher levels." 41 The Court has examined the "Amended Articles of Incorporation" and "By-Laws" 43of the YMCA, but found nothing in them that even hints that it is a school or an educational institution. 44 Furthermore, under the Education Act of 1982, even non-formal education is understood to be school-based and "private auspices such as foundations and civic-spirited organizations" are ruled out. 45 It is settled that the term "educational institution," when used in laws granting tax exemptions, refers to a ". . . school seminary, college or educational establishment . . . ." 46 Therefore, the private respondent cannot be deemed one of the educational institutions covered by the constitutional provision under consideration. . . . Words used in the Constitution are to be taken in their ordinary acceptation. While in its broadest and best sense education embraces all forms and phases of instruction, improvement and development of mind and body, and as well of religious and moral sentiments, yet in the common understanding and application it means a place where systematic instruction in any or all of the useful branches of learning is given by methods common to schools and institutions of learning. That we conceive to be the true intent and scope of the term [educational institutions,] as used in the Constitution. 47 Moreover, without conceding that Private Respondent YMCA is an educational institution, the Court also notes that the former did not submit proof of the proportionate amount of the subject income that was actually, directly and exclusively used for educational purposes. Article XIII, Section 5 of the YMCA by-laws, which formed part of the evidence submitted, is patently insufficient, since the same merely signified that "[t]he net income derived from the rentals of the commercial buildings shall be apportioned to the Federation and Member Associations as the National Board may decide." 48 In sum, we find no basis for granting the YMCA exemption from income tax under the constitutional provision invoked. Cases Cited by Private Respondent Inapplicable

The cases 49 relied on by private respondent do not support its cause. YMCA of Manila v. Collector of Internal Revenue 50 and Abra Valley College, Inc. v. Aquino 51 are not applicable, because the controversy in both cases involved exemption from the payment of property tax, not income tax. Hospital de San Juan de Dios, Inc. v. Pasay City 52 is not in point either, because it involves a claim for exemption from the payment of regulatory fees, specifically electrical inspection fees, imposed by an ordinance of Pasay City an issue not at all related to that involved in a claimed exemption from the payment of income taxes imposed on property leases. In Jesus Sacred Heart College v. Com. of Internal Revenue, 53 the party therein, which claimed an exemption from the payment of income tax, was an educational institution which submitted substantial evidence that the income subject of the controversy had been devoted or used solely for educational purposes. On the other hand, the private respondent in the present case has not given any proof that it is an educational institution, or that part of its rent income is actually, directly and exclusively used for educational purposes. Epilogue In deliberating on this petition, the Court expresses its sympathy with private respondent. It appreciates the nobility of its cause. However, the Court's power and function are limited merely to applying the law fairly and objectively. It cannot change the law or bend it to suit its sympathies and appreciations. Otherwise, it would be overspilling its role and invading the realm of legislation. We concede that private respondent deserves the help and the encouragement of the government. It needs laws that can facilitate, and not frustrate, its humanitarian tasks. But the Court regrets that, given its limited constitutional authority, it cannot rule on the wisdom or propriety of legislation. That prerogative belongs to the political departments of government. Indeed, some of the members of the Court may even believe in the wisdom and prudence of granting more tax exemptions to private respondent. But such belief, however well-meaning and sincere, cannot bestow upon the Court the power to change or amend the law. WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated September 28, 1995 and February 29, 1996 are hereby REVERSED and SET ASIDE. The Decision of the Court of Appeals dated February 16, 1995 is REINSTATED, insofar as it ruled that the income derived by petitioner from rentals of its real property is subject to income tax. No pronouncement as to costs. SO ORDERED. Separate Opinions

BELLOSILLO, J., dissenting; I vote to deny the petition. The basic rule is that the factual findings of the Court of Tax Appeals when supported by substantial evidence will not be disturbed on appeal unless it is shown that the court committed grave error in the appreciation of facts. 1 In the instant case, there is no dispute as to the validity of the findings of the Court of Tax Appeals that private respondent Young Men's Christian Association (YMCA) is an association organized and operated exclusively for the promotion of social welfare and other non-profitable purposes, particularly the physical and character development of the youth. 2 The enduring objectives of respondent YMCA as reflected in its Constitution and By-laws are:

(a) To develop well-balanced Christian personality, mission in life, usefulness of individuals, and the promotion of unity among Christians and understanding among peoples of all faiths, to the end that the Brotherhood of Man under the Fatherhood of God may be fostered in an atmosphere of mutual respect and understanding; (b) To promote on equal basis the physical, mental, and spiritual welfare of the youth, with emphasis on reverence for God, social discipline, responsibility for the common good, respect for human dignity, and the observance of the Golden Rule; (c) To encourage members of the Young Men's Christian Associations in the Philippines to participate loyally in the life of their respective churches; to bring these churches closer together; and to participate in the effort to realize the church Universal; (d) To strengthen and coordinate the work of the Young Men's Christian Associations in the Philippines and to foster the extension of the Youth Men's Christian Associations to new areas; (e) To help its Member Associations develop and adopt their programs to the needs of the youth; (f) To assist the Member Associations in developing and maintaining a high standard of management, operation and practice; and (g) To undertake and sponsor national and international programs and activities in pursuance of its purposes and objectives. 3 Pursuant to these objectives, YMCA has continuously organized and undertaken throughout the country various programs for the youth through actual workshops, seminars, training, sports and summer camps, conferences on the cultivation of Christian moral values, drug addiction, out-of-school youth, those with handicap and physical defects and youth alcoholism. To fulfill these multifarious projects and attain the laudable objectives of YMCA, fund raising has become an indispensable and integral part of the activities of the Association. YMCA derives its funds from various sources such as membership dues, charges on the use of facilities like bowling and billiards, lodging, interest income, parking fees, restaurant and canteen. Since the membership dues are very minimal, the Association derives funds from rentals of small shops, restaurant, canteen and parking fees. For the taxable year ending December 1980, YMCA earned gross rental income of P676,829.00 and P44,259.00 from parking fees which became the subject of the questioned assessment by petitioner. The majority of this Court upheld the findings of the Court of Tax Appeals that the leasing of petitioner's facilities to small shop owners and to restaurant and canteen operators in addition to the operation of a parking lot are reasonably necessary for and incidental to the accomplishment of the objectives of YMCA. 4 In fact, these facilities are leased to members in order to service their needs and those of their guests. The rentals are minimal, such as, the rent of P300.00 for the barbershop. With regard to parking space, there is no lot actually devoted therefor and the parking is done only along the sides of the building. The parking is primarily for members with car stickers but to non-members, parking fee is P0.50 only. The rentals and parking fees are just enough to cover the operation and maintenance costs of these facilities. The earnings which YMCA derives from these rentals and parking fees,

together with the charges for lodging and use of recreational facilities, constitute the bulk or majority of its income used to support its programs and activities. In its decision of 16 February 1994, the Court of Appeals thus committed grave error in departing from the findings of the Court of Tax Appeals by declaring that the leasing of YMCA's facilities to shop owners and restaurant operators and the operation of a parking lot are used for commercial purposes or for profit, which fact takes YMCA outside the coverage of tax exemption. In later granting the motion for reconsideration filed by respondent YMCA, the Court of Appeals correctly reversed its earlier decision and upheld the findings of the Court of Tax Appeals by ruling that YMCA is not designed for profit and the little income it derives from rentals and parking fees helps maintain its noble existence for the fulfillment of its goals for the Christian development of the youth. Respondent YMCA is undoubtedly exempt from corporate income tax under the provisions of Sec. 27, pars. (g) and (h), of the National Internal Revenue Code, to wit: Sec. 27. Exemptions from tax on corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such . . . (g) civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; (h) club organized and operated exclusively for pleasure, recreation and other non-profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member . . . . Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax imposed under this Code. The majority of the Court accepted petitioner's view that while the income of organizations enumerated in Sec. 27 are exempt from income tax, such exemption does not however extend to their income of whatever kind or character from any of their properties real or personal regardless of the disposition made of such income; that based on the wording of the law which is plain and simple and does not need any interpretation, any income of a tax exempt entity from any of its properties is a taxable income; hence, the rental income derived by a tax exempt organization from the lease of its properties is not therefore exempt from income taxation even if such income is exclusively used for the accomplishment of its objectives. Income derived from its property by a tax exempt organization is not absolutely taxable. Taken in solitude, a word or phrase such as, in this case, "the income of whatever kind and character . . . from any of their properties" might easily convey a meaning quite different from the one actually intended and evident when a word or phrase is considered with those with which it is associated. 5 It is a rule in statutory construction that every part of the statute must be interpreted with reference to the context, that every part of the statute must be considered together with the other parts and kept subservient to the general intent of the whole enactment. 6 A close reading of the last paragraph of Sec. 27 of the National Internal Revenue Code, in relation to the whole section on tax exemption of the organizations enumerated therein, shows that the phrase "conducted for profit" in the last paragraph of Sec. 27 qualifies, limits and describes "the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities" in order to make such income taxable. It is the exception to Sec. 27 pars. (g) and (h) providing for the tax exemptions of the income of said organizations. Hence, if such income from property or any other property is not conducted for profit, then it is not taxable.

Even taken alone and understood according to its plain, simple and literal meaning, the word "income" which is derived from property, real or personal, provided in the last paragraph of Sec. 27 means the amount of money coming to a person or corporation within a specified time as profit from investment; the return in money from one's business or capital invested. 7 Income from property also means gains and profits derived from the sale or other disposition of capital assets; the money which any person or corporation periodically receives either as profits from business, or as returns from investments 8 The word "income" as used in tax statutes is to be taken in its ordinary sense as gain or profit. 9 Clearly, therefore, income derived from property whether real or personal connotes profit from business or from investment of the same. If we are to apply the ordinary meaning of income from property as profit to the language of the last paragraph of Sec. 27 of the NIRC, then only those profits arising from business and investment involving property are taxable. In the instant case, there is no question that in leasing its facilities to small shop owners and in operating parking spaces, YMCA does not engage in any profit-making business. Both the Court of Tax Appeals, and the Court of Appeals in its resolution of 25 September 1995, categorically found that these activities conducted on YMCA's property were aimed not only at fulfilling the needs and requirements of its members as part of YMCA's youth program but, more importantly, at raising funds to finance the multifarious projects of the Association. As the Court has ruled in one case, the fact that an educational institution charges tuition fees and other fees for the different services it renders to the students does not in itself make the school a profit-making enterprise that would place it beyond the purview of the law exempting it from taxation. The mere realization of profits out of its operation does not automatically result in the loss of an educational institution's exemption from income tax as long as no part of its profits inures to the benefit of any stockholder or individual. 10 In order to claim exemption from income tax, a corporation or association must show that it is organized and operated exclusively for religious, charitable, scientific, athletic, cultural or educational purposes or for the rehabilitation of veterans, and that no part of its income inures to the benefit of any private stockholder or individual. 11 The main evidence of the purpose of a corporation should be its articles of incorporation and by-laws, for such purpose is required by statute to be stated in the articles of incorporation, and the by-laws outline the administrative organization of the corporation which, in turn, is supposed to insure or facilitate the accomplishment of said purpose. 12 The foregoing principle applies to income derived by tax exempt corporations from their property. The criterion or test in order to make such income taxable is when it arises from purely profit-making business. Otherwise, when the income derived from use of property is reasonable and incidental to the charitable, benevolent, educational or religious purpose for which the corporation or association is created, such income should be tax-exempt. In Hospital de San Juan de Dios, Inc. v. Pasay City
13

the Hospital may not be regarded as engaged in "business" by reason of said sale of medicines to its paying patients . . . (W)e held that the UST Hospital was not established for profit-making purposes, despite the fact that it had 140 paying beds, because the same were maintained only to partly finance the expenses of the free wards containing 203 beds for charity patients. In YMCA of Manila v. Collector of Internal Revenue,
14

this Court explained

It is claimed however that the institution is run as a business in that it keeps a lodging and boarding house. It may be admitted that there are 64 persons occupying rooms in the main building as lodgers or roomers and that they take their meals at the restaurant below. These facts however are far from constituting a business in the ordinary acceptation of the word. In the first place, no profit is realized by the association in any sense. In the second place it is undoubted, as it is undisputed, that the purpose of the association is not primarily to obtain the money which comes from the lodgers and boarders. The real purpose is to keep the membership continually within the sphere of influence of the institution; and thereby to prevent, as far as possible, the opportunities which vice presents to young men in foreign countries who lack home or other similar influences. The majority, if not all, of the income of the organizations covered by the exemption provided in Sec. 27, pars. (g) and (h), of the NIRC are derived from their properties, real or personal. If we are to interpret the last paragraph of Sec. 27 to the effect that all income of whatever kind from the properties of said organization, real or personal, are taxable, even if not conducted for profit, then Sec. 27, pars. (g) and (h), would be rendered ineffective and nugatory. As this Court elucidated in Jesus Sacred Heart College v. Collector of Internal Revenue, 15 every responsible organization must be so run as to at least insure its existence by operating within the limits of its own resources, especially its regular income. It should always strive whenever possible to have a surplus. If the benefits of the exemption would be limited to institutions which do not hope or propose to have such surplus, then the exemption would apply only to schools which are on the verge of bankruptcy. Unlike the United States where a substantial number of institutions of learning are dependent upon voluntary contributions and still enjoy economic stability, such as Harvard, the trust fund of which has been steadily increasing with the years, there are and there have always been very few educational enterprises in the Philippines which are supported by donations, and these organizations usually have a very precarious existence. 16 Finally, the non-taxability of all income and properties of educational institutions finds enduring support in Art. XIV, Sec. 4, par. 3, of the 1987 Constitution (3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. In YMCA of Manila v. Collector of Internal Revenue 17 this Court categorically held and found YMCA to be an educational institution exclusively devoted to educational and charitable purposes and not operated for profit. The purposes of the Association as set forth in its charter and constitution are "to develop the Christian character and usefulness of its members, to improve the spiritual, intellectual, social and physical condition of young men and to acquire, hold, mortgage and dispose of the necessary lands, buildings and personal property for the use of said corporation exclusively for religious, charitable and educational

we held

In this connection, it should be noted that respondent therein is a corporation organized for "charitable, educational and religious purposes"; that no part of its net income inures to the benefit of any private individual; that it is exempt from paying income tax; that it operates a hospital in which MEDICAL assistance is given to destitute persons free of charge; that it maintains a pharmacy department within the premises of said hospital, to supply drugs and medicines only to charity and paying patients confined therein; and that only the paying patients are required to pay the medicines supplied to them, for which they are charged the cost of the medicines, plus an additional 10% thereof, to partly offset the cost of medicines supplied free of charge to charity patients. Under these facts we are of the opinion and so hold that

purposes, and not for investment or profit." YMCA has an educational department, the aim of which is to furnish, at much less than cost, instructions on subjects that will greatly increase the mental efficiency and wage-earning capacity of young men, prepare them in special lines of business and offer them special lines of study. We ruled therein that YMCA cannot be said to be an institution used exclusively for religious purposes or an institution devoted exclusively for charitable purposes or an institution devoted exclusively to educational purposes, but it can be truthfully said that it is an institution used exclusively for all three purposes and that, as such, it is entitled to be exempted from taxation. Separate Opinions BELLOSILLO, J., dissenting; I vote to deny the petition. The basic rule is that the factual findings of the Court of Tax Appeals when supported by substantial evidence will not be disturbed on appeal unless it is shown that the court committed grave error in the appreciation of facts. 1 In the instant case, there is no dispute as to the validity of the findings of the Court of Tax Appeals that private respondent Young Men's Christian Association (YMCA) is an association organized and operated exclusively for the promotion of social welfare and other non-profitable purposes, particularly the physical and character development of the youth. 2 The enduring objectives of respondent YMCA as reflected in its Constitution and By-laws are: (a) To develop well-balanced Christian personality, mission in life, usefulness of individuals, and the promotion of unity among Christians and understanding among peoples of all faiths, to the end that the Brotherhood of Man under the Fatherhood of God may be fostered in an atmosphere of mutual respect and understanding; (b) To promote on equal basis the physical, mental, and spiritual welfare of the youth, with emphasis on reverence for God, social discipline, responsibility for the common good, respect for human dignity, and the observance of the Golden Rule; (c) To encourage members of the Young Men's Christian Associations in the Philippines to participate loyally in the life of their respective churches; to bring these churches closer together; and to participate in the effort to realize the church Universal; (d) To strengthen and coordinate the work of the Young Men's Christian Associations in the Philippines and to foster the extension of the Youth Men's Christian Associations to new areas; (e) To help its Member Associations develop and adopt their programs to the needs of the youth; (f) To assist the Member Associations in developing and maintaining a high standard of management, operation and practice; and (g) To undertake and sponsor national and international programs and activities in pursuance of its purposes and objectives. 3 Pursuant to these objectives, YMCA has continuously organized and undertaken throughout the country various programs for the youth through actual workshops, seminars, training,

sports and summer camps, conferences on the cultivation of Christian moral values, drug addiction, out-of-school youth, those with handicap and physical defects and youth alcoholism. To fulfill these multifarious projects and attain the laudable objectives of YMCA, fund raising has become an indispensable and integral part of the activities of the Association. YMCA derives its funds from various sources such as membership dues, charges on the use of facilities like bowling and billiards, lodging, interest income, parking fees, restaurant and canteen. Since the membership dues are very minimal, the Association derives funds from rentals of small shops, restaurant, canteen and parking fees. For the taxable year ending December 1980, YMCA earned gross rental income of P676,829.00 and P44,259.00 from parking fees which became the subject of the questioned assessment by petitioner. The majority of this Court upheld the findings of the Court of Tax Appeals that the leasing of petitioner's facilities to small shop owners and to restaurant and canteen operators in addition to the operation of a parking lot are reasonably necessary for and incidental to the accomplishment of the objectives of YMCA. 4 In fact, these facilities are leased to members in order to service their needs and those of their guests. The rentals are minimal, such as, the rent of P300.00 for the barbershop. With regard to parking space, there is no lot actually devoted therefor and the parking is done only along the sides of the building. The parking is primarily for members with car stickers but to non-members, parking fee is P0.50 only. The rentals and parking fees are just enough to cover the operation and maintenance costs of these facilities. The earnings which YMCA derives from these rentals and parking fees, together with the charges for lodging and use of recreational facilities, constitute the bulk or majority of its income used to support its programs and activities. In its decision of 16 February 1994, the Court of Appeals thus committed grave error in departing from the findings of the Court of Tax Appeals by declaring that the leasing of YMCA's facilities to shop owners and restaurant operators and the operation of a parking lot are used for commercial purposes or for profit, which fact takes YMCA outside the coverage of tax exemption. In later granting the motion for reconsideration filed by respondent YMCA, the Court of Appeals correctly reversed its earlier decision and upheld the findings of the Court of Tax Appeals by ruling that YMCA is not designed for profit and the little income it derives from rentals and parking fees helps maintain its noble existence for the fulfillment of its goals for the Christian development of the youth. Respondent YMCA is undoubtedly exempt from corporate income tax under the provisions of Sec. 27, pars. (g) and (h), of the National Internal Revenue Code, to wit: Sec. 27. Exemptions from tax on corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such . . . (g) civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; (h) club organized and operated exclusively for pleasure, recreation and other non-profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member . . . . Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax imposed under this Code. The majority of the Court accepted petitioner's view that while the income of organizations enumerated in Sec. 27 are exempt from income tax, such exemption does not however extend to their income of whatever kind or character from any of their properties real or personal regardless of the disposition made of such income; that based on the wording of the law which is plain and simple and does not need any interpretation, any income of a tax

exempt entity from any of its properties is a taxable income; hence, the rental income derived by a tax exempt organization from the lease of its properties is not therefore exempt from income taxation even if such income is exclusively used for the accomplishment of its objectives. Income derived from its property by a tax exempt organization is not absolutely taxable. Taken in solitude, a word or phrase such as, in this case, "the income of whatever kind and character . . . from any of their properties" might easily convey a meaning quite different from the one actually intended and evident when a word or phrase is considered with those with which it is associated. 5 It is a rule in statutory construction that every part of the statute must be interpreted with reference to the context, that every part of the statute must be considered together with the other parts and kept subservient to the general intent of the whole enactment. 6 A close reading of the last paragraph of Sec. 27 of the National Internal Revenue Code, in relation to the whole section on tax exemption of the organizations enumerated therein, shows that the phrase "conducted for profit" in the last paragraph of Sec. 27 qualifies, limits and describes "the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities" in order to make such income taxable. It is the exception to Sec. 27 pars. (g) and (h) providing for the tax exemptions of the income of said organizations. Hence, if such income from property or any other property is not conducted for profit, then it is not taxable. Even taken alone and understood according to its plain, simple and literal meaning, the word "income" which is derived from property, real or personal, provided in the last paragraph of Sec. 27 means the amount of money coming to a person or corporation within a specified time as profit from investment; the return in money from one's business or capital invested. 7 Income from property also means gains and profits derived from the sale or other disposition of capital assets; the money which any person or corporation periodically receives either as profits from business, or as returns from investments 8 The word "income" as used in tax statutes is to be taken in its ordinary sense as gain or profit. 9 Clearly, therefore, income derived from property whether real or personal connotes profit from business or from investment of the same. If we are to apply the ordinary meaning of income from property as profit to the language of the last paragraph of Sec. 27 of the NIRC, then only those profits arising from business and investment involving property are taxable. In the instant case, there is no question that in leasing its facilities to small shop owners and in operating parking spaces, YMCA does not engage in any profit-making business. Both the Court of Tax Appeals, and the Court of Appeals in its resolution of 25 September 1995, categorically found that these activities conducted on YMCA's property were aimed not only at fulfilling the needs and requirements of its members as part of YMCA's youth program but, more importantly, at raising funds to finance the multifarious projects of the Association. As the Court has ruled in one case, the fact that an educational institution charges tuition fees and other fees for the different services it renders to the students does not in itself make the school a profit-making enterprise that would place it beyond the purview of the law exempting it from taxation. The mere realization of profits out of its operation does not automatically result in the loss of an educational institution's exemption from income tax as long as no part of its profits inures to the benefit of any stockholder or individual. 10 In order to claim exemption from income tax, a corporation or association must show that it is organized and operated exclusively for religious, charitable, scientific, athletic, cultural or educational purposes or for the rehabilitation of veterans, and that no part of its income inures to the benefit of any private stockholder or individual. 11 The main evidence of the purpose of a corporation should be its articles of incorporation and by-laws, for such purpose is required by statute to be stated in the articles of incorporation, and the by-laws outline the administrative organization of the corporation which, in turn, is supposed to insure or facilitate the accomplishment of said purpose. 12

The foregoing principle applies to income derived by tax exempt corporations from their property. The criterion or test in order to make such income taxable is when it arises from purely profit-making business. Otherwise, when the income derived from use of property is reasonable and incidental to the charitable, benevolent, educational or religious purpose for which the corporation or association is created, such income should be tax-exempt. In Hospital de San Juan de Dios, Inc. v. Pasay City
13

we held

In this connection, it should be noted that respondent therein is a corporation organized for "charitable, educational and religious purposes"; that no part of its net income inures to the benefit of any private individual; that it is exempt from paying income tax; that it operates a hospital in which MEDICAL assistance is given to destitute persons free of charge; that it maintains a pharmacy department within the premises of said hospital, to supply drugs and medicines only to charity and paying patients confined therein; and that only the paying patients are required to pay the medicines supplied to them, for which they are charged the cost of the medicines, plus an additional 10% thereof, to partly offset the cost of medicines supplied free of charge to charity patients. Under these facts we are of the opinion and so hold that the Hospital may not be regarded as engaged in "business" by reason of said sale of medicines to its paying patients . . . (W)e held that the UST Hospital was not established for profit-making purposes, despite the fact that it had 140 paying beds, because the same were maintained only to partly finance the expenses of the free wards containing 203 beds for charity patients. In YMCA of Manila v. Collector of Internal Revenue,
14

this Court explained

It is claimed however that the institution is run as a business in that it keeps a lodging and boarding house. It may be admitted that there are 64 persons occupying rooms in the main building as lodgers or roomers and that they take their meals at the restaurant below. These facts however are far from constituting a business in the ordinary acceptation of the word. In the first place, no profit is realized by the association in any sense. In the second place it is undoubted, as it is undisputed, that the purpose of the association is not primarily to obtain the money which comes from the lodgers and boarders. The real purpose is to keep the membership continually within the sphere of influence of the institution; and thereby to prevent, as far as possible, the opportunities which vice presents to young men in foreign countries who lack home or other similar influences. The majority, if not all, of the income of the organizations covered by the exemption provided in Sec. 27, pars. (g) and (h), of the NIRC are derived from their properties, real or personal. If we are to interpret the last paragraph of Sec. 27 to the effect that all income of whatever kind from the properties of said organization, real or personal, are taxable, even if not conducted for profit, then Sec. 27, pars. (g) and (h), would be rendered ineffective and nugatory. As this Court elucidated in Jesus Sacred Heart College v. Collector of Internal Revenue, 15 every responsible organization must be so run as to at least insure its existence by operating within the limits of its own resources, especially its regular income. It should always strive whenever possible to have a surplus. If the benefits of the exemption would be limited to institutions which do not hope or propose to have such surplus, then the exemption would apply only to schools which are on the verge of bankruptcy. Unlike the United States where a substantial number of institutions of learning are dependent upon voluntary contributions and still enjoy economic stability, such as Harvard, the trust fund of

which has been steadily increasing with the years, there are and there have always been very few educational enterprises in the Philippines which are supported by donations, and these organizations usually have a very precarious existence. 16 Finally, the non-taxability of all income and properties of educational institutions finds enduring support in Art. XIV, Sec. 4, par. 3, of the 1987 Constitution (3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. In YMCA of Manila v. Collector of Internal Revenue 17 this Court categorically held and found YMCA to be an educational institution exclusively devoted to educational and charitable purposes and not operated for profit. The purposes of the Association as set forth in its charter and constitution are "to develop the Christian character and usefulness of its members, to improve the spiritual, intellectual, social and physical condition of young men and to acquire, hold, mortgage and dispose of the necessary lands, buildings and personal property for the use of said corporation exclusively for religious, charitable and educational purposes, and not for investment or profit." YMCA has an educational department, the aim of which is to furnish, at much less than cost, instructions on subjects that will greatly increase the mental efficiency and wage-earning capacity of young men, prepare them in special lines of business and offer them special lines of study. We ruled therein that YMCA cannot be said to be an institution used exclusively for religious purposes or an institution devoted exclusively for charitable purposes or an institution devoted exclusively to educational purposes, but it can be truthfully said that it is an institution used exclusively for all three purposes and that, as such, it is entitled to be exempted from taxation.

of Davao. Smart avers that its telecenter in Davao City is exempt from payment of franchise tax to the City. On July 19, 2002, the RTC rendered a Decision denying the petition. Smart filed a motion for reconsideration, which was denied by the trial court in an Order dated September 26, 2002. Smart filed an appeal before this Court, but the same was denied in a decision dated September 16, 2008. Hence, the instant motion for reconsideration raising the following grounds: (1) the "in lieu of all taxes" clause in Smarts franchise, Republic Act No. 7294 (RA 7294), covers local taxes; the rule of strict construction against tax exemptions is not applicable; (2) the "in lieu of all taxes" clause is not rendered ineffective by the Expanded VAT Law; (3) Section 23 of Republic Act No. 79254 (RA 7925) includes a tax exemption; and (4) the imposition of a local franchise tax on Smart would violate the constitutional prohibition against impairment of the obligation of contracts. Section 9 of RA 7294 and Section 23 of RA 7925 are once again put in issue. Section 9 of Smarts legislative franchise contains the contentious "in lieu of all taxes" clause. The Section reads: Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate buildings and personal property, exclusive of this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto. xxx5

G.R. No. 155491

July 21, 2009

SMART COMMUNICATIONS, INC., Petitioner, vs. THE CITY OF DAVAO, represented herein by its Mayor Hon. RODRIGO DUTERTE, and the SANGGUNIANG PANLUNSOD OF DAVAO CITY, Respondents. RESOLUTION NACHURA, J.: Before the Court is a Motion for Reconsideration1 filed by Smart Communications, Inc. (Smart) of the Decision2 of the Court dated September 16, 2008, denying its appeal of the Decision and Order of the Regional Trial Court (RTC) of Davao City, dated July 19, 2002 and September 26, 2002, respectively. Briefly, the factual antecedents are as follows: On February 18, 2002, Smart filed a special civil action for declaratory relief3 for the ascertainment of its rights and obligations under the Tax Code of the City of Davao, which imposes a franchise tax on businesses enjoying a franchise within the territorial jurisdiction

Section 23 of RA 7925, otherwise known as the most favored treatment clause or equality clause, contains the word "exemption," viz.: SEC. 23. Equality of Treatment in the Telecommunications Industry Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of the service authorized by the franchise.6 A review of the recent decisions of the Court on the matter of exemptions from local franchise tax and the interpretation of the word "exemption" found in Section 23 of RA 7925 is imperative in order to resolve this issue once and for all. In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan,7 Digitel used as an argument the "in lieu of all taxes" clauses/provisos found in the legislative franchises of Globe,8 Smart and Bell,9 vis--visSection 23 of RA 7925, in order to claim exemption from the payment of local franchise tax. Digitel claimed, just like the petitioner in this case, that it was exempt from the payment of any other taxes except the national franchise and income taxes. Digitel alleged that Smart was exempted from the payment of local franchise tax.

However, it failed to substantiate its allegation, and, thus, the Court denied Digitels claim for exemption from provincial franchise tax. Cited was the ruling of the Court in PLDT v. City of Davao,10 wherein the Court, speaking through Mr. Justice Vicente V. Mendoza, held that in approving Section 23 of RA No. 7925, Congress did not intend it to operate as a blanket tax exemption to all telecommunications entities. Section 23 cannot be considered as having amended PLDTs franchise so as to entitle it to exemption from the imposition of local franchise taxes. The Court further held that tax exemptions are highly disfavored and that a tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even in the instances when it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. The Court also clarified the meaning of the word "exemption" in Section 23 of RA 7925: that the word "exemption" as used in the statute refers or pertains merely to an exemption from regulatory or reporting requirements of the Department of Transportation and Communication or the National Transmission Corporation and not to an exemption from the grantees tax liability. In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna,11 PLDT was a holder of a legislative franchise under Act No. 3436, as amended. On August 24, 1991, the terms and conditions of its franchise were consolidated under Republic Act No. 7082, Section 12 of which embodies the so-called "in-lieu-of-all taxes" clause. Under the said Section, PLDT shall pay a franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise tax shall be "in lieu of all taxes." The issue that the Court had to resolve was whether PLDT was liable to pay franchise tax to the Province of Laguna in view of the "in lieu of all taxes" clause in its franchise and Section 23 of RA 7925.lawph!l Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts are resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, the Court held that Section 23 of RA 7925 could not be considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of local franchise taxes. In ruling against the claim of PLDT, the Court cited the previous decisions in PLDT v. City of Davao12 and PLDT v. City of Bacolod,13 in denying the claim for exemption from the payment of local franchise tax. In sum, the aforecited jurisprudence suggests that aside from the national franchise tax, the franchisee is still liable to pay the local franchise tax, unless it is expressly and unequivocally exempted from the payment thereof under its legislative franchise. The "in lieu of all taxes" clause in a legislative franchise should categorically state that the exemption applies to both local and national taxes; otherwise, the exemption claimed should be strictly construed against the taxpayer and liberally in favor of the taxing authority. Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove or abolish the payment of local franchise tax. It merely replaced the national franchise tax that was previously paid by telecommunications franchise holders and in its stead imposed a ten percent (10%) VAT in accordance with Section 108 of the Tax Code. VAT replaced the national franchise tax, but it did not prohibit nor abolish the imposition of local franchise tax by cities or municipaties. The power to tax by local government units emanates from Section 5, Article X of the Constitution which empowers them to create their own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide. The imposition of local franchise tax is not inconsistent with the advent of the VAT,

which renders functus officio the franchise tax paid to the national government. VAT inures to the benefit of the national government, while a local franchise tax is a revenue of the local government unit. WHEREFORE, the motion for reconsideration is DENIED, and this denial is final. SO ORDERED.