Republic of the PhilippinesSUPREME COURT

ManilaEN BANC
G.R. No. L-75697 June 18, 1987
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY
MAYOR and CITY TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled
"An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram
industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and
took effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No.
1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette,
ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was necessary for the complete protection of their rights and
that their "survival and very existence is threatened by the unregulated proliferation of film piracy." The
Intervenors were thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1.

WHEREAS, the proliferation and unregulated circulation of videograms including, among others,
videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced
the operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance
by at least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific,
amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million annually
in government revenues;

2.

WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from
rentals, sales and disposition of videograms, and such earnings have not been subjected to tax,
thereby depriving the Government of approximately P180 Million in taxes each year;

3.

WHEREAS, the unregulated activities of videogram establishments have also affected the viability of
the movie industry, particularly the more than 1,200 movie houses and theaters throughout the
country, and occasioned industry-wide displacement and unemployment due to the shutdown of
numerous moviehouses and theaters;

4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create
an environment conducive to growth and development of all business industries, including the movie
industry which has an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire
financial condition of the movie industry upon which more than 75,000 families and 500,000 workers
depend for their livelihood, but also provide an additional source of revenue for the Government, and at
the same time rationalize the heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear
and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the

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Constitution for the State to support the rearing of the youth for civic efficiency and the development of
moral character and promote their physical, intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant
malpractices which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and
betraying the national economic recovery program, bold emergency measures must be adopted with
dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of
the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred
upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the
title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose
which a statute seeks to achieve. It is not necessary that the title express each and every end that the statute
wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to
the subject matter expressed in the title, or as long as they are not inconsistent with or foreign to the general
subject and title. 2 An act having a single general subject, indicated in the title, may contain any number of
provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign to the
general subject, and may be considered in furtherance of such subject by providing for the method and means
of carrying out the general object." 3 The rule also is that the constitutional requirement as to the title of a bill
should not be so narrowly construed as to cripple or impede the power of legislation. 4 It should be given
practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is without
merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of law to
the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate,
as the case may be, for every sale, lease or disposition of a videogram containing a reproduction of any
motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall
accrue to the province, and the other fifty percent (50%) shall acrrue to the municipality where the tax is
collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the
City/Municipality and the Metropolitan Manila Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the
general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory
Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and
title. As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout the
DECREE. The express purpose of the DECREE to include taxation of the video industry in order to regulate and
rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra.
Those preambles explain the motives of the lawmaker in presenting the measure. The title of the DECREE,
which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the purposes
expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all those
objectives in the title or that the latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in
restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is one so
unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any

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restrictions whatever, except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax,
the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and
oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600 million per annum have not been
subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax,
imposed on retailers for every videogram they make available for public viewing. It is similar to the 30%
amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but
which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the
viewing public. It is a tax that is imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the
video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights,
and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect
the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose
the tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that "inequities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation". 12 Taxation has been made the implement of the state's
police power. 13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former
President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the
President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim
Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any
reason that in his judgment requires immediate action, he may, in order to meet the exigency, issue the
necessary decrees, orders, or letters of instructions, which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies corroding the moral values of the people and betraying
the national economic recovery program necessitated bold emergency measures to be adopted with dispatch.
Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the
exercise of legislative power under the said Amendment still pends resolution in several other cases, we reserve
resolution of the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power.
The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other
agencies and units of the government and deputize, for a fixed and limited period, the heads or personnel of
such agencies and units to perform enforcement functions for the Board" is not a delegation of the power to
legislate but merely a conferment of authority or discretion as to its execution, enforcement, and implementation.
"The true distinction is between the delegation of power to make the law, which necessarily involves a discretion
as to what it shall be, and conferring authority or discretion as to its execution to be exercised under and in
pursuance of the law. The first cannot be done; to the latter, no valid objection can be made." 14 Besides, in the
very language of the decree, the authority of the BOARD to solicit such assistance is for a "fixed and limited
period" with the deputized agencies concerned being "subject to the direction and control of the BOARD." That
the grant of such authority might be the source of graft and corruption would not stigmatize the DECREE as
unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories,
one which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the
law required at the time of the commission of the offense." It is petitioner's position that Section 15 of the
DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after
the effectivity of this Decree within which to register with and secure a permit from the BOARD to
engage in the videogram business and to register with the BOARD all their inventories of videograms,
including videotapes, discs, cassettes or other technical improvements or variations thereof, before they

Page 3 of 35

could be sold, leased, or otherwise disposed of. Thereafter any videogram found in the possession of
any person engaged in the videogram business without the required proof of registration by the
BOARD, shall be prima facie evidence of violation of the Decree, whether the possession of such
videogram be for private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration of
any videogram cannot be presented and thus partakes of the nature of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the passage of a law providing that
the presumption of innocence may be overcome by a contrary presumption founded upon the
experience of human conduct, and enacting what evidence shall be sufficient to overcome such
presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A
TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that
when certain facts have been proved that they shall be prima facie evidence of the existence of the guilt
of the accused and shift the burden of proof provided there be a rational connection between the facts
proved and the ultimate facts presumed so that the inference of the one from proof of the others is not
unreasonable and arbitrary because of lack of connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational connection between the fact
proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides the
fact that the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period
counted from its effectivity and is, therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of
existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent.
While the underlying objective of the DECREE is to protect the moribund movie industry, there is no question
that public welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film
piracy; the erosion of the moral fiber of the viewing public brought about by the availability of unclassified and
unreviewed video tapes containing pornographic films and films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical attendance, not to mention the fact that the activities of video
establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees are
required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On
the contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax
imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREE.
These considerations, however, are primarily and exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the action taken, may be the basis for
declaring a statute invalid. This is as it ought to be. The principle of separation of powers has in the
main wisely allocated the respective authority of each department and confined its jurisdiction to such a
sphere. There would then be intrusion not allowable under the Constitution if on a matter left to the
discretion of a coordinate branch, the judiciary would substitute its own. If there be adherence to the
rule of law, as there ought to be, the last offender should be courts of justice, to which rightly litigants
submit their controversy precisely to maintain unimpaired the supremacy of legal norms and
prescriptions. The attack on the validity of the challenged provision likewise insofar as there may be
objections, even if valid and cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find
no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as
unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed. No costs. SO ORDERED.
Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento and Cortes, JJ., concur.
Footnotes

Page 4 of 35

1 Section 19[1], Article VIII, 1973 Constitution; Section 26[l] Article VI, 1987 Constitution.
2 Sumulong vs. COMELEC, No. 48609, October 10, 1941, 73 Phil. 288; Cordero vs. Hon. Jose Cabatuando, et al., L-14542, Oct.
31, 1962,6 SCRA 418.
3 Public Service Co., Recktenwald, 290 III. 314, 8 ALR 466, 470.
4 Government vs. Hongkong & Shanghai Banking Corporation, No. 44257, November 22, 1938, 66 Phil. 483; Cordero vs.
Cabatuando, et al., supra.
5 Sumulong vs. Commission on Elections, supra.
6 United States vs. Sanchez, 340 U.S. 42, 44, 1950, cited in Bernas, Philippines Constitutional Law, p. 594.
7 People vs. Carlos, L-239, June 30, 1947, 78 Phil. 535.
8 U.S. vs. Sanchez, supra.
9 II Cooley, A Treatise on the Constitutional Limitations, p. 986.
10 ibid., p. 987.
11 Magnano Co. vs. Hamilton, 292, U.S. 40.
12 Lutz vs. Araneta, L-7859, December 22, 1955, 98 Phil. 148, citing Carmichael vs. Southern Coal and Coke Co., 301 U.S. 495,
81 L. Ed. 1245.
13 ibid., citing Great Atl. and Pacific 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.
14 Cincinnati, W & Z.R. Co. vs. Clinton County Comrs (1852) 1 Ohio St. 88.
15 G. R. No. L-40195, May 29, 1987.
16 ibid., citing People vs. Mingoa, supra, See also U.S. vs. Luling No. 11162, August 12, 1916,34 Phil. 725.
17 Solicitor General's Comments, p. 102, Rollo.

18 Morfe vs. Mutuc, L-20387, January 31, 1968, 22 SCRA 424, 450-451.
Republic of the Philippines
SUPREME COURTManilaEN BANC
G.R. No. 88291 June 8, 1993
ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President, HON.
VICENTE JAYME, ETC., ET AL., respondents.
Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum Corporation.Siguion Reyna,
Montecillo & Ongsiako for Caltex.
NOCON, J.:
Just like lightning which does strike the same place twice in some instances, this matter of indirect tax
exemption of the private respondent National Power Corporation (NPC) is brought to this Court a second time.
Unfazed by the Decision We promulgated on May 31, 1991 1 petitioner Ernesto Maceda asks this Court to
reconsider said Decision. Lest We be criticized for denying due process to the petitioner. We have decided to
take a second look at the issues. In the process, a hearing was held on July 9, 1992 where all parties presented
their respective arguments. Etched in this Court's mind are the paradoxical claims by both petitioner and private
respondents that their respective positions are for the benefit of the Filipino people.
I
A Chronological review of the relevant NPC laws, specially with respect to its tax exemption provisions, at the
risk of being repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National Power Corporation, a
public corporation, mainly to develop hydraulic power from all water sources in the Philippines. 2 The sum of
P250,000.00 was appropriated out of the funds in the Philippine Treasury for the purpose of organizing the NPC
and conducting its preliminary work. 3 The main source of funds for the NPC was the flotation of bonds in the
capital markets 4 and these bonds
. . . issued under the authority of this Act shall be exempt from the payment of all taxes by the
Commonwealth of the Philippines, or by any authority, branch, division or political subdivision thereof
and subject to the provisions of the Act of Congress, approved March 24, 1934, otherwise known as the
Tydings McDuffle Law, which facts shall be stated upon the face of said bonds. . . . . 5
On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed for the initial
operations of the NPC and reiterating the provision of the flotation of bonds as soon as the first construction of
any hydraulic power project was to be decided by the NPC Board. 6 The provision on tax exemption in relation to
the issuance of the NPC bonds was neither amended nor deleted.

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On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment of the bond's
principal and interest in "gold coins" but adding that payment could be made in United States dollars. 7 The
provision on tax exemption in relation to the issuance of the NPC bonds was neither amended nor deleted.
On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to guarantee,
absolutely and unconditionally, as primary obligor, the payment of any and all NPC loans. 8 He was also
authorized to contract on behalf of the NPC with the International Bank for Reconstruction and Development
(IBRD) for NPC loans for the accomplishment of NPC's corporate objectives 9 and for the reconstruction and
development of the economy of the country. 10 It was expressly stated that:
Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions and
restrictions of the Republic of the Philippines, its provinces, cities and municipalities. 11
On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to incur other
types of indebtedness, aside from indebtedness incurred by flotation of bonds. 12 As to the pertinent tax
exemption provision, the law stated as follows:
To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all
taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces,
cities and municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD, the President
of the Philippines was authorized to negotiate, contract and guarantee loans with the Export-Import Bank of of
Washigton, D.C., U.S.A., or any other international financial institution. 14 The tax provision for repayment of
these loans, as stated in R.A. No. 357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes.
As enacted, the law states as follows:
To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all
taxes, except real property tax, and from all duties, fees, imposts, charges, and restrictions of the
Republic of the Philippines, its provinces, cities, and municipalities. 15
On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be funded by the
increased indebtedness 16 should bear the National Economic Council's stamp of approval. The tax exemption
provision related to the payment of this total indebtedness was not amended nor deleted.
On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans NPC was authorized
to incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in R.A. No. 357. 17 The tax provision related
to the repayment of these loans was not amended nor deleted.
On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to December 31, 2000.
laws or provisions of laws and executive orders contrary to said R.A. No. 2058 were expressly repealed. 19

18

All

On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation into a stock
corporation with an authorized capital stock of P100,000,000.00 divided into 1,000.000 shares having a par
value of P100.00 each, with said capital stock wholly subscribed to by the Government. 20 No tax exemption was
incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized capital stock to
P250,000,000.00 with the increase to be wholly subscribed by the Government. 21 No tax provision was
incorporated in said Act.
On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to P300,000,000.00,
the increase to be wholly subscribed by the Government. No tax provision was incorporated in said Act. 22
On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as
amended. Declared as primary objectives of the nation were:
Declaration of Policy. Congress hereby declares that (1) the comprehensive development, utilization
and conservation of Philippine water resources for all beneficial uses, including power generation, and
(2) the total electrification of the Philippines through the development of power from all sources to meet

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the needs of industrial development and dispersal and the needs of rural electrification are primary
objectives of the nation which shall be pursued coordinately and supported by all instrumentalities and
agencies of the government, including the financial institutions. 23
Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a) (Authority to incur
Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows:
The bonds issued under the authority of this subsection shall be exempt from the payment of all taxes
by the Republic of the Philippines, or by any authority, branch, division or political subdivision thereof
which facts shall be stated upon the face of said bonds. . . . 24
As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b), states as follows:
The loans, credits and indebtedness contracted under this subsection and the payment of the principal,
interest and other charges thereon, as well as the importation of machinery, equipment, materials and
supplies by the Corporation, paid from the proceeds of any loan, credit or indebtedeness incurred under
this Act, shall also be exempt from all taxes, fees, imposts, other charges and restrictions, including
import restrictions, by the Republic of the Philippines, or any of its agencies and political subdivisions. 25
A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares the non-profit
character and tax exemptions of NPC as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as
excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness
and obligations and in furtherance and effective implementation of the policy enunciated in Section one
of this Act, the Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any court or
administrative proceedings in which it may be a party, restrictions and duties to the Republic of the
Philippines, its provinces, cities, and municipalities and other government agencies and
instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its
provinces, cities, municipalities and other government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of
foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum products used by the Corporation in
the generation, transmission, utilization, and sale of electric power. 26
On November 7, 1972, Presidential Decree No. 40 was issued declaring that the electrification of the
entire country was one of the primary concerns of the country. And in connection with this, it was
specifically stated that:
The setting up of transmission line grids and the construction of associated generation facilities in
Luzon, Mindanao and major islands of the country, including the Visayas, shall be the responsibility of
the National Power Corporation (NPC) as the authorized implementing agency of the State. 27
xxx xxx xxx
It is the ultimate objective of the State for the NPC to own and operate as a single integrated system all
generating facilities supplying electric power to the entire area embraced by any grid set up by the NPC.
28

On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill its role under
aforesaid P.D. No. 40. Its authorized capital stock was raised to P2,000,000,000.00, 29 its total domestic
indebtedness was pegged at a maximum of P3,000,000,000.00 at any one time, 30 and the NPC was authorized
to borrow a total of US$1,000,000,000.00 31 in foreign loans.

Page 7 of 35

The relevant tax exemption provision for these foreign loans states as follows:
The loans, credits and indebtedness contracted under this subsection and the payment of the principal,
interest and other charges thereon, as well as the importation of machinery, equipment, materials,
supplies and services, by the Corporation, paid from the proceeds of any loan, credit or indebtedness
incurred under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts, other
charges and restrictions, including import restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies and political subdivisions. 32
(Emphasis supplied)
Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:
(a) From the payment of all taxes, duties, fees, imposts, charges and restrictions to the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities
including the taxes, duties, fees, imposts and other charges provided for under the Tariff and Customs
Code of the Philippines, Republic Act Numbered Nineteen Hundred Thirty-Seven, as amended, and as
further amended by Presidential Decree No. 34 dated October 27, 1972, and Presidential Decree No.
69, dated November 24, 1972, and costs and service fees in any court or administrative proceedings in
which it may be a party;
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the
Republic of the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation, transmission,
utilization and sale of electric power. 33 (Emphasis supplied)
On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the NPC's sale of electricity to
its different customers. 34 No tax exemption provision was amended, deleted or added.
On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be appropriated annually to
cover the unpaid subscription of the Government in the NPC authorized capital stock, which amount would be
taken from taxes accruing to the General Funds of the Government, proceeds from loans, issuance of bonds,
treasury bills or notes to be issued by the Secretary of Finance for this particular purpose. 35
On May 27, 1976 P.D. No. 938 was issued
(I)n view of the accelerated expansion programs for generation and transmission facilities which
includes nuclear power generation, the present capitalization of National Power Corporation (NPC) and
the ceilings for domestic and foreign borrowings are deemed insufficient; 36
xxx xxx xxx
(I)n the application of the tax exemption provisions of the Revised Charter, the non-profit character of
NPC has not been fully utilized because of restrictive interpretation of the taxing agencies of the
government on said provisions; 37
xxx xxx xxx
(I)n order to effect the accelerated expansion program and attain the declared objective of total
electrification of the country, further amendments of certain sections of Republic Act No. 6395, as
amended by Presidential Decrees Nos. 380, 395 and 758, have become imperative; 38
Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic indebtedness ceiling was
increased to P12,000,000,000.00, 40 the total foreign loan ceiling was raised to US$4,000,000,000.00 41 and
Section 13 of R.A. No. 6395, was amended to read as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as
excess revenues from its operation, for expansion. To enable the Corporation to pay to its indebtedness
and obligations and in furtherance and effective implementation of the policy enunciated in Section one
of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all

Page 8 of 35

forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal
bonds, supersedeas bonds, in any court or administrative proceedings. 42
II
On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882, 1177, 1931 and
Executive Order No. 93 (S'86).
On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to imports as
follows:
WHEREAS, importations by certain government agencies, including government-owned or controlled
corporation, are exempt from the payment of customs duties and compensating tax; and
WHEREAS, in order to reduce foreign exchange spending and to protect domestic industries, it is
necessary to restrict and regulate such tax-free importations.
NOW THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers
vested in me by the Constitution, and do hereby decree and order the following:
Sec. 1. All importations of any government agency, including government-owned or controlled
corporations which are exempt from the payment of customs duties and internal revenue taxes, shall be
subject to the prior approval of an Inter-Agency Committee which shall insure compliance with the
following conditions:
(a) That no such article of local manufacture are available in sufficient quantity and comparable quality
at reasonable prices;
(b) That the articles to be imported are directly and actually needed and will be used exclusively by the
grantee of the exemption for its operations and projects or in the conduct of its functions; and
(c) The shipping documents covering the importation are in the name of the grantee to whom the goods
shall be delivered directly by customs authorities.
xxx xxx xxx
Sec. 3. The Committee shall have the power to regulate and control the tax-free importation of
government agencies in accordance with the conditions set forth in Section 1 hereof and the regulations
to be promulgated to implement the provisions of this Decree. Provided, however, That any government
agency or government-owned or controlled corporation, or any local manufacturer or business firm
adversely affected by any decision or ruling of the Inter-Agency Committee may file an appeal with the
Office of the President within ten days from the date of notice thereof. . . . .
xxx xxx xxx
Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar provisions of all general and
special laws and decrees are hereby amended accordingly.
xxx xxx xxx
On July 30, 1977, P.D. 1177 was issued as it was
. . . declared the policy of the State to formulate and implement a National Budget that is an instrument
of national development, reflective of national objectives, strategies and plans. The budget shall be
supportive of and consistent with the socio-economic development plan and shall be oriented towards
the achievement of explicit objectives and expected results, to ensure that funds are utilized and
operations are conducted effectively, economically and efficiently. The national budget shall be
formulated within a context of a regionalized government structure and of the totality of revenues and
other receipts, expenditures and borrowings of all levels of government-owned or controlled
corporations. The budget shall likewise be prepared within the context of the national long-term plan
and of a long-term budget program. 43

Page 9 of 35

In line with such policy, the law decreed that

All units of government, including government-owned or controlled corporations, shall pay income taxes,
customs duties and other taxes and fees are imposed under revenues laws: provided, that organizations
otherwise exempted by law from the payment of such taxes/duties may ask for a subsidy from the General Fund
in the exact amount of taxes/duties due: provided, further, that a procedure shall be established by the Secretary
of Finance and the Commissioner of the Budget, whereby such subsidies shall automatically be considered as
both revenue and expenditure of the General Fund. 44
The law also declared that
[A]ll laws, decrees, executive orders, rules and regulations or parts thereof which are inconsistent with
the provisions of the Decree are hereby repealed and/or modified accordingly. 45
On July 11, 1984, most likely due to the economic morass the Government found itself in after the Aquino
assassination, P.D. No. 1931 was issued to reiterate that:
WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grant of tax privileges to
any government-owned or controlled corporation and all other units of government; 46
and since there was a
. . . need for government-owned or controlled corporations and all other units of government enjoying
tax privileges to share in the requirements of development, fiscal or otherwise, by paying the duties,
taxes and other charges due from them. 47
it was decreed that:
Sec. 1. The provisions of special on general law to the contrary notwithstanding, all exemptions from the
payment of duties, taxes, fees, imposts and other charges heretofore granted in favor of
government-owned or controlled corporations including their subsidiaries, are hereby withdrawn.
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the recommendation of the
Fiscal Incentives Review Board created under Presidential Decree No. 776, is hereby empowered
to restore, partially or totally, the exemptions withdrawn by Section 1 above, any applicable tax and
duty, taking into account, among others, any or all of the following:
1) The effect on the relative price levels;
2) The relative contribution of the corporation to the revenue generation effort;
3) The nature of the activity in which the corporation is engaged in; or
4) In general the greater national interest to be served.
xxx xxx xxx
Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws, decrees, executive
orders, administrative orders, rules, regulations or parts thereof which are inconsistent with this
Decree are hereby repealed, amended or modified accordingly.
On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential restoration or grant of
tax exemption to other government and private entities without benefit of review by the Fiscal Incentives Review
Board, to wit:
WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11, 1984 and October 14, 1984,
respectively, withdrew the tax and duty exemption privileges, including the preferential tax treatment, of
government and private entities with certain exceptions, in order that the requirements of national economic
development, in terms of fiscals and other resources, may be met more adequately;
xxx xxx xxx
WHEREAS, in addition to those tax and duty exemption privileges were restored by the Fiscal Incentives
Review Board (FIRB), a number of affected entities, government and private, had their tax and duty
exemption privileges restored or granted by Presidential action without benefit or review by the Fiscal
Incentives Review Board (FIRB);

Page 10 of

35

xxx xxx xxx

Since it was decided that:

[A]ssistance to government and private entities may be better provided where necessary by
explicit subsidy and budgetary support rather than tax and duty exemption privileges if only to
improve the fiscal monitoring aspects of government operations.
It was thus ordered that:
Sec. 1. The Provisions of any general or special law to the contrary notwithstanding, all tax and duty
incentives granted to government and private entities are hereby withdrawn, except:
a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective internation agreement to which the Government of the Republic of the
Philippines is a signatory;
c) those enjoyed by enterprises registered with:
(i) the Board of Investment pursuant to Presidential Decree No. 1789, as amended;
(ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66 as amended;
(iii) the Philippine Veterans Investment Development Corporation Industrial Authority pursuant to
Presidential Decree No. 538, was amended.
d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instructions No.
1416;
e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
f) those approved by the President upon the recommendation of the Fiscal Incentives Review Board.
Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as amended, is
hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;
b) revise the scope and coverage of tax and/or duty exemption that may be restored;
c) impose conditions for the restoration of tax and/or duty exemption;
d) prescribe the date of period of effectivity of the restoration of tax and/or duty exemption;
e) formulate and submit to the President for approval, a complete system for the grant of subsidies
to deserving beneficiaries, in lieu of or in combination with the restoration of tax and duty
exemptions or preferential treatment in taxation, indicating the source of funding therefor, eligible
beneficiaries and the terms and conditions for the grant thereof taking into consideration the
international commitment of the Philippines and the necessary precautions such that the grant of
subsidies does not become the basis for countervailing action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall take into
account any or all of the following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation effort;
c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be served.

Page 11 of

35

xxx xxx xxx

Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof inconsistent with this
Executive Order are hereby repealed or modified accordingly.
E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and regulations, to be
issued by the Ministry of Finance. 49 Said rules and regulations were promulgated and published in the Official
Gazette on February 23, 1987. These became effective on the 15th day after promulgation 50 in the Official
Gasetter, 51 which 15th day was March 10, 1987.
III
Now to some definitions. We refer to the very simplistic approach that all would-be lawyers, learn in their
TAXATION I course, which fro convenient reference, is as follows:
Classifications or kinds of Taxes:
According to Persons who pay or who bear the burden:
a. Direct Tax the where the person supposed to pay the tax really pays it. WITHOUT transferring the
burden to someone else.
Examples: Individual income tax, corporate income tax, transfer taxes (estate tax, donor's tax),
residence tax, immigration tax
b. Indirect Tax that where the tax is imposed upon goods BEFORE reaching the consumer who
ultimately pays for it, not as a tax, but as a part of the purchase price.
Examples: the internal revenue indirect taxes (specific tax, percentage taxes, (VAT) and the tariff and
customs indirect taxes (import duties, special import tax and other dues) 52
IV
To simply matter, the issues raised by petitioner in his motion for reconsideration can be reduced to the
following:
(1) What kind of tax exemption privileges did NPC have?
(2) For what periods in time were these privileges being enjoyed?
(3) If there are taxes to be paid, who shall pay for these taxes?
V
Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all forms of
taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D. No. 380, does not
expressly include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has been the lawmaker's intention that the NPC was to
be completely tax exempt from all forms of taxes direct and indirect.
NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its operations upon its
creation by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD for foreign financing, any loans obtained were to be
completely tax exempt.
After the NPC was authorized to borrow from other sources of funds aside issuance of bonds it was again
specifically exempted from all types of taxes "to facilitate payment of its indebtedness." Even when the ceilings

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35

for domestic and foreign borrowings were periodically increased, the tax exemption privileges of the NPC were
maintained.
NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No. 987, as above
stated. The exemption was, however, restored by R.A. No. 6395.
Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions allowed NPC. Its
section 13(d) is the starting point of this bone of contention among the parties. For easy reference, it is
reproduced as follows:
[T]he Corporation is hereby declared exempt:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts and all other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on
all petroleum products used by the Corporation in the generation, transmission, utilization, and sale of
electric power.
P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as follows:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the
Republic of the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation, transmission,
utilization and sale of electric power. (Emphasis supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple paragraph as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as
excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness
and obligations and in furtherance and effective implementation of the policy enunciated in Section one
of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of
ALL FORMS OF taxes, duties, fees, imposts as well as costs and service fees including filing fees,
appeal bonds, supersedeas bonds, in any court or administrative proceedings. (Emphasis supplied)
Petitioner reminds Us that:
[I]t
must
be
borne
in
mind
that
Presidential
Decree
and 938 were issued by one man, acting as such the Executive and Legislative. 53

Nos.

380

xxx xxx xxx

[S]ince both presidential decrees were made by the same person, it would have been very easy for him
to retain the same or similar language used in P.D. No. 380 P.D. No. 938 if his intention were to
preserve the indirect tax exemption of NPC. 54
Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter what his fault were. It
should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its operations and projects;
13(d) : petroleum products used in generation of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,", included 13(a)
under the "as well as" clause and added PNOC subsidiaries as qualified for tax exemptions.
This is the only conclusion one can arrive at if he has read all the NPC laws in the order of enactment or
issuance as narrated above in part I hereof. President Marcos must have considered all the NPC statutes from

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C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and P.D. No. 759, AND came up
very simple Section 13, R.A. No. 6395, as amended by P.D. No. 938.

55

with a

One common theme in all these laws is that the NPC must be enable to pay its indebtedness 56 which, as of P.D.
No. 938, was P12 Billion in total domestic indebtedness, at any one time, and U$4 Billion in total foreign loans at
any one time. The NPC must be and has to be exempt from all forms of taxes if this goal is to be achieved.
By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be remembered that to pay the
government share in its capital stock P.D. No. 758 was issued mandating that P200 Million would be
appropriated annually to cover the said unpaid subscription of the Government in NPC's authorized capital
stock. And significantly one of the sources of this annual appropriation of P200 million is TAX MONEY accruing
to the General Fund of the Government. It does not stand to reason then that former President Marcos would
order P200 Million to be taken partially or totally from tax money to be used to pay the Government subscription
in the NPC, on one hand, and then order the NPC to pay all its indirect taxes, on the other.
The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and (d) into the phrase "All
FORMS OF" is supported by the fact that he did not do the same for the tax exemption provision for the foreign
loans to be incurred.
The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows:
The loans, credits and indebtedness contracted under this subsection and the payment of the principal,
interest and other charges thereon, as well as the importation of machinery, equipment, materials and
supplies by the Corporation, paid from the proceeds of any loan, credit or indebtedness incurred under
this Act, shall also be exempt from all taxes, fees, imposts, other charges and restrictions, including
import restrictions, by the Republic of the Philippines, or any of its agencies and political subdivisions. 57
The same was amended by P.D. No. 380 as follows:
The loans, credits and indebtedness contracted this subsection and the payment of the principal,
interest and other charges thereon, as well as the importation of machinery, equipment, materials,
supplies and services, by the Corporation, paid from the proceeds of any loan, credit or indebtedness
incurred under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts, other
charges and restrictions, including import restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies and political subdivisions. 58
(Emphasis supplied)
P.D. No. 938 did not amend the same 59 and so the tax exemption provision in Section 8 (b), R.A. No. 6395, as
amended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8 (b) had to do only
with loans and machinery imported, paid for from the proceeds of these foreign loans, THERE WAS NO OTHER
SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption stood as is with the express mention
of
"direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to "taxes, fees,
imposts, other charges . . . to be imposed" in the future surely, an indication that the lawmakers wanted the
NPC to be exempt from ALL FORMS of taxes direct and indirect.
It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and indirect
taxes under P.D. No. 938.
VI
Five (5) years on into the now discredited New Society, the Government decided to rationalize government
receipts and expenditures by formulating and implementing a National Budget. 60 The NPC, being a government
owned and controlled corporation had to be shed off its tax exemption status privileges under P.D. No. 1177. It
was, however, allowed to ask for a subsidy from the General Fund in the exact amount of taxes/duties due.
Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation privileges. It allowed,
however, NPC to appeal said repeal with the Office of the President and to avail of tax-free importation privileges
under its Section 1, subject to the prior approval of an Inter-Agency Committed created by virtue of said P.D. No.
882. It is presumed that the NPC, being the special creation of the State, was allowed to continue its tax-free
importations.

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35

This Court notes that petitioner brought to the attention of this Court, the matter of the abolition of NPC's tax
exemption privileges by P.D. No. 1177 61 only in his Common Reply/Comment to private Respondents'
"Opposition" and "Comment" to Motion for Reconsideration, four (4) months AFTER the motion for
Reconsideration had been filed. During oral arguments heard on July 9, 1992, he proceeded to discuss this tax
exemption withdrawal as explained by then Secretary of Justice Vicente Abad Santos in opinion No. 133 (S '77).
62
A careful perusal of petitioner's senate Blue Ribbon Committee Report No. 474, the basis of the petition at bar,
fails to yield any mention of said P.D. No. 1177's effect on NPC's tax exemption privileges. 63 Applying by
analogy Pulido vs. Pablo, 64 the court declares that the matter of P.D. No. 1177 abolishing NPC's tax exemption
privileges was not seasonably invoked 65 by the petitioner.
Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax exemption privileges
as this statute has been reiterated twice in P.D. No. 1931. The express repeal of tax privileges of any
government-owned or controlled corporation (GOCC). NPC included, was reiterated in the fourth whereas
clause of P.D. No. 1931's preamble. The subsidy provided for in Section 23, P.D. No. 1177, being inconsistent
with Section 2, P.D. No. 1931, was deemed repealed as the Fiscal Incentives Revenue Board was tasked with
recommending the partial or total restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.
The records before Us do not indicate whether or not NPC asked for the subsidy contemplated in Section 23,
P.D. No. 1177. Considering, however, that under Section 16 of P.D. No. 1177, NPC had to submit to the Office of
the President its request for the P200 million mandated by P.D. No. 758 to be appropriated annually by the
Government to cover its unpaid subscription to the NPC authorized capital stock and that under Section 22, of
the same P.D. No. NPC had to likewise submit to the Office of the President its internal operating budget for
review due to capital inputs of the government (P.D. No. 758) and to the national government's guarantee of the
domestic and foreign indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177.
There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly found
themselves having to pay taxes. It will be noted that Section 23, P.D. No. 1177, mandated that the Secretary of
Finance and the Commissioner of the Budget had to establish the necessary procedure to accomplish the tax
payment/tax subsidy scheme of the Government. In effect, NPC, did not put any cash to pay any tax as it got
from the General Fund the amounts necessary to pay different revenue collectors for the taxes it had to pay.
In his memorandum filed July 16, 1992, petitioner submits:
[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost all its duty and tax
exemptions, whether direct or indirect. And so there was nothing to be withdrawn or to be restored
under P.D. No. 1931, issued on June 11, 1984. This is evident from sections 1 and 2 of said P.D. No.
1931, which reads:
"Section 1. The provisions of special or general law to the contrary notwithstanding, all exemptions
from the payment of duties, taxes, fees, imports and other charges heretofore granted in favor of
government-owned or controlled corporations including their subsidiaries are hereby withdrawn."
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the recommendation
of the Fiscal Incentives Review Board created under P.D. No. 776, is hereby empowered to restore
partially or totally, the exemptions withdrawn by section 1 above. . . .
Hence, P.D. No. 1931 did not have any effect or did it change NPC's status. Since it had already lost all
its tax exemptions privilege with the issuance of P.D. No. 1177 seven (7) years earlier or on July 30,
1977, there were no tax exemptions to be withdrawn by section 1 which could later be restored by the
Minister of Finance upon the recommendation of the FIRB under Section 2 of P.D. No. 1931.
Consequently, FIRB resolutions No. 10-85, and 1-86, were all illegally and validly issued since FIRB
acted beyond their statutory authority by creating and not merely restoring the tax exempt status of
NPC. The same is true for FIRB Res. No. 17-87 which restored NPC's tax exemption under E.O. No. 93
which likewise abolished all duties and tax exemptions but allowed the President upon recommendation
of the FIRB to restore those abolished.
The Court disagrees.
Applying by analogy the weight of authority that:
When a revised and consolidated act re-enacts in the same or substantially the same terms the
provisions of the act or acts so revised and consolidated, the revision and consolidation shall be taken

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to be a continuation of the former act or acts, although the former act or acts may be expressly repealed
by
the
revised
and
consolidated
act;
and
all
rights
and liabilities under the former act or acts are preserved and may be enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section 23, P.D. No.
1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No. 1931 was deemed to be
a continuation of the first half of Section 23, P.D. No. 1177, although the second half of Section 23, P.D. No. 177,
on the subsidy scheme for former tax exempt GOCCs had been expressly repealed by Section 2 with its
institution of the FIRB recommendation of partial/total restoration of tax exemption privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax exemption
privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy for the taxes it had to
pay. It could, however, under P.D. No. 1931, ask for a total restoration of its tax exemption privileges, which, it
did, and the same were granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as approved by the Minister
of Finance.
Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both legally and
validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax exemption status but
merely restored it. 69
Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now rather infamous
Amendment No. 6 70 as there was no showing that President Marcos' encroachment on legislative prerogatives
was justified under the then prevailing condition that he could legislate "only if the Batasang Pambansa 'failed or
was unable to act inadequately on any matter that in his judgment required immediate action' to meet the
'exigency'. 71
Actually under said Amendment No. 6, then President Marcos could issue decrees not only when the Interim
Batasang Pambansa failed or was unable to act adequately on any matter for any reason that in his (Marcos')
judgment required immediate action, but also when there existed a grave emergency or a threat or thereof. It
must be remembered that said Presidential Decree was issued only around nine (9) months after the Philippines
unilaterally declared a moratorium on its foreign debt payments 72 as a result of the economic crisis triggered by
loss of confidence in the government brought about by the Aquino assassination. The Philippines was then
trying to reschedule its debt payments. 73 One of the big borrowers was the NPC 74 which had a US$ 2.1 billion
white elephant of a Bataan Nuclear Power Plant on its back. 75 From all indications, it must have been this grave
emergency of a debt rescheduling which compelled Marcos to issue P.D. No. 1931, under his Amendment 6
power. 76
The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be passed without
the concurrence of a majority of all the members of the Batasang Pambansa" 77 does not apply as said P.D. No.
1931 was not passed by the Interim Batasang Pambansa but by then President Marcos under His Amendment
No. 6 power.
P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6 authority.
Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President Aquino. Its
section 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The same was granted
under FIRB Resolution No. 17-87 78 dated June 24, 1987 which restored NPC's tax exemption privileges
effective, starting March 10, 1987, the date of effectivity of E.O. No. 93 (S'86).
FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. 79 There is no indication,
however, from the records of the case whether or not similar approvals were given by then President Marcos for
FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe that a "travesty of justice" might
have occurred when the Minister of Finance approved his own recommendation as Chairman of the Fiscal
Incentives Review Board as what happened in Zambales Chromate vs. Court of Appeals 80 when the Secretary
of Agriculture and Natural Resources approved a decision earlier rendered by him when he was the Director of
Mines, 81 and in Anzaldo vs. Clave 82 where Presidential Executive Assistant Clave affirmed, on appeal to
Malacaang, his own decision as Chairman of the Civil Service Commission. 83
Upon deeper analysis, the question arises as to whether one can talk about "due process" being violated when
FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance when the same were
recommended by him in his capacity as Chairman of the Fiscal Incentives Review Board. 84

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In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups and scientist-doctors,
respectively. Thus, there was a need for procedural due process to be followed.
In the case of the tax exemption restoration of NPC, there is no other comparable entity not even a single
public or private corporation whose rights would be violated if NPC's tax exemption privileges were to be
restored. While there might have been a MERALCO before Martial Law, it is of public knowledge that the
MERALCO generating plants were sold to the NPC in line with the State policy that NPC was to be the State
implementing arm for the electrification of the entire country. Besides, MERALCO was limited to Manila and its
environs. And as of 1984, there was no more MERALCO as a producer of electricity which could have
objected to the restoration of NPC's tax exemption privileges.
It should be noted that NPC was not asking to be granted tax exemption privileges for the first time. It was just
asking that its tax exemption privileges be restored. It is for these reasons that, at least in NPC's case, the
recommendation and approval of NPC's tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86,
done by the same person acting in his dual capacities as Chairman of the Fiscal Incentives Review Board and
Minister of Finance, respectively, do not violate procedural due process.
While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino on October 5, 1987,
the view has been expressed that President Aquino, at least with regard to E.O. 93 (S'86), had no authority to
sub-delegate to the FIRB, which was allegedly not a delegate of the legislature, the power delegated to her
thereunder.
A misconception must be cleared up.
When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and Legislative powers.
Thus, there was no power delegated to her, rather it was she who was delegating her power. She delegated it to
the FIRB, which, for purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not subdelegating her power.
And E.O. No. 93 (S'86), as a delegating law, was complete in itself it set forth the policy to be carried out 85
and it fixed the standard to which the delegate had to conform in the performance of his functions, 86 both
qualities having been enunciated by this Court in Pelaez vs. Auditor General. 87
Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from June 11,
1984 up to the present.
VII
The next question that projects itself is who pays the tax?
The answer to the question could be gleamed from the manner by which the Commissaries of the Armed Forces
of the Philippines sell their goods.
By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their defendants but
groceries and other goods free of all taxes and duties if bought from any AFP Commissaries.
In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad valorem and other taxes
on the goods earmarked for AFP Commissaries as an added cost of operation and distribute it over the total
units of goods sold as it would any other cost. Thus, even the ordinary supermarket buyer probably pays for the
specific, ad valorem and other taxes which theses suppliers do not charge the AFP Commissaries. 89
IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies have to absorb the taxes they
add to the bunker fuel oil they sell to NPC.
It should be stated at this juncture that, as early as May 14, 1954, the Secretary of Justice renders an opinion,
wherein he stated and We quote:
xxx xxx xxx

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90

Republic Act No. 358 exempts the National Power Corporation from "all taxes, duties, fees, imposts, charges,
and restrictions of the Republic of the Philippines and its provinces, cities, and municipalities." This exemption
is broad enough to include all taxes, whether direct or indirect, which the National Power Corporation may be
required to pay, such as the specific tax on petroleum products. That it is indirect or is of no amount [should
be of no moment], for it is the corporation that ultimately pays it. The view which refuses to accord the
exemption because the tax is first paid by the seller disregards realities and gives more importance to form
than to substance. Equity and law always exalt substance over from.
xxx xxx xxx
Tax exemptions are undoubtedly to be construed strictly but not so grudgingly as knowledge that many
impositions taxpayers have to pay are in the nature of indirect taxes. To limit the exemption granted the
National Power Corporation to direct taxes notwithstanding the general and broad language of the statue will
be to thwrat the legislative intention in giving exemption from all forms of taxes and impositions without
distinguishing between those that are direct and those that are not. (Emphasis supplied)

In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil to
NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect
taxation, the economic burden of such taxation is expected to be passed on through the channels of commerce
to the user or consumer of the goods sold. Because, however, the NPC has been exempted from both direct and
indirect taxation, the NPC must beheld exempted from absorbing the economic burden of indirect taxation. This
means, on the one hand, that the oil companies which wish to sell to NPC absorb all or part of the economic
burden of the taxes previously paid to BIR, which could they shift to NPC if NPC did not enjoy exemption from
indirect taxes. This means also, on the other hand, that the NPC may refuse to pay the part of the "normal"
purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil companies to
BIR. If NPC nonetheless purchases such oil from the oil companies because to do so may be more
convenient and ultimately less costly for NPC than NPC itself importing and hauling and storing the oil from
overseas NPC is entitled to be reimbursed by the BIR for that part of the buying price of NPC which verifiably
represents the tax already paid by the oil company-vendor to the BIR.
It should be noted at this point in time that the whole issue of who WILL pay these indirect taxes HAS BEEN
RENDERED moot and academic by E.O. No. 195 issued on June 16, 1987 by virtue of which the ad valorem tax
rate on bunker fuel oil was reduced to ZERO (0%) PER CENTUM. Said E.O. no. 195 reads as follows:
EXECUTIVE ORDER NO. 195
AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED BY REVISING THE EXCISE TAX RATES OF CERTAIN PETROLEUM PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code, as amended, is hereby
amended to read as follows:
Par. (b) For products subject to ad valorem tax only:
PRODUCT AD VALOREM TAX RATE
1. . . .
2. . . .
3. . . .
4. Fuel oil, commercially known as bunker oil and on similar fuel oils having more or less the same
generating power 0%
xxx xxx xxx
Sec. 3. This Executive Order shall take effect immediately.
Done in the city of Manila, this 17th day of June, in the year of Our Lord, nineteen hundred and eightyseven. (Emphasis supplied)
The oil companies can now deliver bunker fuel oil to NPC without having to worry about who is going to bear the
economic burden of the ad valorem taxes. What this Court will now dispose of are petitioner's complaints that
some indirect tax money has been illegally refunded by the Bureau of Internal Revenue to the NPC and that
more claims for refunds by the NPC are being processed for payment by the BIR.
A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in favor of the NPC last July 7,
1986 for P58.020.110.79 which were for "erroneously paid specific and ad valorem taxes during the period from
October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to declare this Tax Credit Memo illegal as the PNC did
not have indirect tax exemptions with the enactment of P.D. No. 938. As We have already ruled otherwise, the
only questions left are whether NPC Is entitled to a tax refund for the tax component of the price of the bunker
fuel oil purchased from Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue properly refunded the
amount to NPC.

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After P.D. No. 1931 was issued on June 11, 1984 withdrawing the tax exemptions of all GOCCs NPC
included, it was only on May 8, 1985 when the BIR issues its letter authority to the NPC authorizing it to
withdraw tax-free bunker fuel oil from the oil companies pursuant to FIRB Resolution No. 10-85. 92 Since the tax
exemption restoration was retroactive to June 11, 1984 there was a need. therefore, to recover said amount as
Caltex (PhiIs.) Inc. had already paid the BIR the specific and ad valorem taxes on the bunker oil it sold NPC
during the period above indicated and had billed NPC correspondingly. 93 It should be noted that the NPC, in its
letter-claim dated September 11, 1985 to the Commissioner of the Bureau of Internal Revenue DID NOT
CATEGORICALLY AND UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part of the bunker fuel
oil price it purchased from Caltex (Phils) Inc. 94
The law governing recovery of erroneously or illegally, collected taxes is section 230 of the National Internal
Revenue Code of 1977, as amended which reads as follows:
Sec. 230. Recover of tax erroneously or illegally collected. No suit or proceeding shall be maintained
in any court for the recovery of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without
authority, or of any sum alleged to have been excessive or in any Manner wrongfully collected. until a
claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment;
Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit
any tax, where on the face of the return upon which payment was made, such payment appears clearly,
to have been erroneously paid.
xxx xxx xxx
Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985,
issued the Tax Credit Memo in view of NPC's indirect tax exemption.

95

the Commissioner correctly

Petitioner, however, asks Us to restrain the Commissioner from acting favorably on NPC's claim for
P410.580,000.00 which represents specific and ad valorem taxes paid by the oil companies to the BIR from
June 11, 1984 to the early part of 1986. 96
A careful examination of petitioner's pleadings and annexes attached thereto does not reveal when the alleged
claim for a P410,580,000.00 tax refund was filed. It is only stated In paragraph No. 2 of the Deed of Assignment
97
executed by and between NPC and Caltex (Phils.) Inc., as follows:
That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of Internal Revenue
amounting to P442,887,716.16. P58.020,110.79 of which is due to Assignor's oil purchases from the
Assignee (Caltex [Phils.] Inc.)
Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot restrain the BIR from
refunding said amount because of Our ruling that NPC has both direct and indirect tax exemption privileges.
Neither can We order the BIR to refund said amount to NPC as there is no pending petition for review on
certiorari of a suit for its collection before Us. At any rate, at this point in time, NPC can no longer file any suit to
collect said amount EVEN IF lt has previously filed a claim with the BIR because it is time-barred under Section
230 of the National Internal Revenue Code of 1977. as amended, which states:
In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of
payment of the tax or penalty REGARDLESS of any supervening cause that may arise after
payment. . . . (Emphasis supplied)
The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that payment by NPC for the
amount of P410,580,000.00 had been made on said date. it is clear that more than two (2) years had already
elapsed from said date. At the same time, We should note that there is no legal obstacle to the BIR granting,
even without a suit by NPC, the tax credit or refund claimed by NPC, assuming that NPC's claim had been made
seasonably, and assuming the amounts covered had actually been paid previously by the oil companies to the
BIR.

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WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is hereby DENIED for
lack of merit and the decision of this Court promulgated on May 31, 1991 is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Feliciano, Bidin, Regalado, Romero, Bellosillo and Melo, JJ., concur.Padilla and Quiason, JJ.
took no part.
# Footnotes
1 Penned by Justice Gancayo, concurred in by Justices Narvasa, Melencio-Herrera, Feliciano, Bidin, Medialdea, and Regalado;
separate dissenting opinions by Justices Cruz, Paras, and Sarmiento, with justices Grio-Aquino and Davide joining in the dissent of
Justice Sarmiento while Justice Gutierrez joined in the dissents. Chief Justice Gutierrez joined in the dissents. Chief Justice Fernan
and Justice Padilla took no part.
2 Com. Act No. 120, secs. 1, & 2 (g).
3 Com. Act No. 120, sec. 11.
4 Com. Act No. 120, sec. 2(k).
5 Com. Act No. 120, sec. 4, par. 3.
6 Com. Act No. 344, sec. 1.
7 Com. Act No. 495, sec. 1.
8 Rep. Act No. 357, sec. 3.
9 Rep. Act No. 357, sec. 1.
10 Rep. Act No. 357, sec. 2.
11 Rep. Act No. 357, sec. 8.
12 Rep. Act No. 358, sec. 1.
13 Rep. Act No. 358, sec. 2.
14 Rep. Act No. 813, sec. 1.
15 Rep. Act No. 987, sec. 2.
16 Increased to P500,000,000.00 from P170,500,000.00 in Rep. Act No. 358 (Rep. Act No. 1397, sec. 1).
17 Rep Act No. 2055, secs. 1 and 2.
18 Rep Act No. 2058, sec. 1.
19 Rep Act No. 2058, sec. 2.
20 Rep Act No. 2641, sec. 1.
21 Rep Act No. 3043, sec. 1.
22 Rep Act No. 4897, sec. 1.
23 Rep Act No. 6395, sec. 2.
24 Rep Act No. 6395, sec. 8(a).
25 Rep Act No. 6395, sec. 8(b).
26 Rep Act No. 6395, sec. 13.
27 Pres. Dec. No. 40, par. 2.
28 Pres. Dec. No. 40, par. 5.
29 Pres. Dec. No. 380, sec. 5.
30 Pres. Dec. No. 380, sec. 8.
31 Pres. Dec. No. 380, sec. 9, par. 1.
32 Pres. Dec. No. 380, sec. 9, par. 4.
33 Pres. Dec. No. 380, sec. 10.
34 Pres. Dec. No. 395, par. 1.
35 Pres. Dec. No. 758, sec. 1.
36 Pres. Dec. No. 938, 1st Whereas clause.
37 Pres. Dec. No. 938, 4th Whereas clause.
38 Pres. Dec. No. 938, 6th Whereas clause.
39 Pres. Dec. No. 938, sec. 5.
40 Pres. Dec. No. 938, sec. 6.
41 Pres. Dec. No. 938, sec. 8.
42 Pres. Dec. No. 938, sec. 10.
43 Pres. Dec. No. 1177, sec. 4.
44 Pres. Dec. No. 1177, sec. 23.
45 Pres. Dec. No. 1177, sec. 90.
46 Pres. Dec. No. 1931, Fourth Whereas clause.
47 Pres. Dec. No. 1931, Fifth Whereas clause.
48 Exec. Order No. 93 (S'86). sec. 6.
49 Exec. Order No. 93, sec. 4.
50 Rule V, Rules and Regulations to Implement Exec. Order No. 93.
51 83 O.G. 8, pp. 722-725.
52 PARAS, TAXATION FUNDAMENTALS, 24-25 (1966)
53 Rollo, p. 687; Motion for Reconsideration, p. 12.
54 Rollo, p. 688; Motion for Reconsideration, p. 13.
55 "Statutes are considered to be in pari materia to pertain to the same subject matter when they relate to the same
person or thing, or to the same class of persons of things, or have the same purpose or object. They may be
independent or amendatory in form; they may be complete enactments dealing with a single, limited subject matter or
sections of code or revision; or they may be combination of these. (2 Sutherland Statutory Construction, 2nd Ed., sec.
5202, p. 535)

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xxx xxx xxx

Statutes in pari materia, although some may be special and some general, in the event one of them is ambiguous or
uncertain, are to be construed together, even if the various statutes have not been enacted simultaneously, and do not
refer to each other expressly, and although some of them have been repealed or have expired, or held
unconstitutional, or invalid. (Crawford, Statutory Construction, sec. 231, p. 431.)
xxx xxx xxx
The reasons which support this rule are twofold. In the first place, all the enactments of the same legislature on the general
subject-matter are to be regarded as parts of one uniform system. Later statutes are considered as supplementary or
complementary to the earlier enactments. In the passage of each act, the legislative body must be supposed to have
had in mind and in contemplation the existing legislation on the same subject, and to have shaped its new enactment
with reference thereto. Secondly, the rule derives support from the principle which requires the interpretation of a
statute shall be such, if possible, as to avoid any repugnancy or inconsistency between different enactments of the
same legislature. To achieve this result, it is necessary to consider all previous acts relating to the same matters, and
to construe the act in hand so as to avoid, as far as it may be possible, any conflict between them. Hence for example,
when the legislature has used a word in a statute in one sense and with one meaning, and subsequently uses the
same word in legislating on the same subject matter, it will be understood as using the word in the same sense, unless
there is something in the context or in the nature of things to indicate that it intended a different meaning thereby.
(Black on Interpretation of Laws, 2nd Ed., pp. 232-234) FRANCISCO, STATUTORY CONSTRUCTION, 287-288
(1986).
56 The NPC is the implementing arm of the State in its policy of electrification of the entire country. Its authorized capital
stock and total local and foreign debt ceiling have, therefore, been regularly raised to provide NPC with massive fund
flows to achieve said policy.
57 Rep. Act No. 6395. sec. 8 (b), par. 5.
58 Rep. Act No. 6395, sec. 8 (b), par. 5. was deleted and paragraph 5, sec. 8(b) became paragraph 4, Section 8(b), as
amended by Pres. Dec. 380.
59 "Sec. 8. The first paragraph of Section 8(b) of the same Act is hereby further amended and a new paragraph shall be
inserted between the third and fourth paragraph of said section which shall both read as follows: . . .."
60 See Pres. Dec. No. 1177, sec. 4.
61 Rollo, p. 783.
62 T.S.N., July 9, 1992, pp. 19-21.
63 Rollo, pp. 53-119. In the report submitted to the Senate Blue Ribbon Committee, the discussion centered on NPC's tax
exemption privileges being abolished by Pres. Dec. No. 1931 in paragraphs 11, 37, 81, 83.1 and F.1 Pres. Dec. No.
1177 was mentioned in paragraph C(2) in the Recommendation portion but only by way of its state policy being made
a model for a future bill to be filled by the Senators involved in the investigation.
64 117 SCRA 16 (1980).
65 In this case, Judge Magno Pulido of then CFI of Alaminos, Pangasinan, Branch XIII, promulgated a decision on May 17,
1974 in Criminal Case No. 266-A entitled "People vs. Bantolino." Bantolino filed a complaint against the judge
charging him with ignorance of the law because his sentence was "with subsidiary imprisonment." The case dismissed
after respondent judge therein state that he had corrected "with" to "without" but Bantolino's lawyer, Atty. Pulido,
refused to return his (Atty. Pulido) copy for a corrected copy.
Later, Atty. Pulido filed another charge against Judge Pablo, this time, for falsifying a Court of Appeals' decision (re
Bantolino's appeal with the Com. Act No.) and minutes of court hearings as well as insertions in the record of a false
commitment order. Respondent judge pleaded, among others, res adjudicata.
The Court made a distinction between the two administrative complaints and concluded that there was no res adjudicata.
On the procedural aspect involved, the Court stated:
"Furthermore, the defense of res adjudicata was not seasonably invoked.
"It may be noted that respondent Judge initially raised the defense of res adjudicata only in the motion for reconsideration
dated November 8, 1981. Atty. Pulido filed this complaint on April 6, 1978. Respondent failed to set up the defense of
res adjudicata when he filed his comment dated June 19, 1974 in compliance with the first indorsement dated June 3,
1974 of the then Assistant to the Judicial Consultant, now Deputy Court Administrator Arturo B. Buena. Such failure to
interpose the defense of res adjudicata at the earliest opportunity is fatal as it deemed waived."
66 73 Am Jur 2d 518, sec. 410, citing United States v. Grainger 346 US 235, 97 L Ed 1575, 73 S Ct 1069; State v Bean 159
Me 455, 195 A2d 68; States v. Holland, 202 Or 656, 277 P2d 386.
For example, State vs. Bean was an action by the State ton recover for goods and services rendered an inmate of a state
hospital.
The defendant was committed to the Augusta State Hospital on September 21, 1949 by order of court after he had been
found not guilty of the commission of a crime by reason of insanity.
The defendant was confined when the prevailing laws were R.S. Ch. 27, Sec. 121 which provided that the person so
committed shall be there supported at his own expense, if he has sufficient means; otherwise at the expense of the
State,' and R.S. Ch. 27 Sec. 139 which provided that "The state may recover from the insane, if able, or from persons
legally liable for his support, the reasonable expenses of his support in either insane hospital.' R.S. Ch. 27, Sec 121,
was expressly repealed by P.L. 1961, Ch. 304, Sec 17 while R.S. Ch. 27, Sec. 139 was expressly repealed by P.L.
1961, Ch. 304, Sec. 26.
However, by P.L. 1961, Ch. 304, Secs. 4 and 5, the legislature simultaneously enacted amendments which in the case of
Sec. 4 thereof charged the Department of Mental Health and Corrections with the duty of determining the ability of the
patient to pay for his support and of establishing rates and fees therefor, and in the case of sec. 5, it provided that
"such fees charges shall be a debt of the patient or any person legally liable for his support."
It was only on January 20,1960 that the hospital billed the defendant for his stay from September 21, 1949 in the amount of
$6651.72. Plaintiff filed on October 26, 1962 a case to recover said amount. Defendant disclaimed liability by arguing
that the enactment of P.L. 1961, Ch. 304 was to terminate his liability for board and care furnished prior to its
enactment.

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The State of Maine's Supreme Judicial Court rebuffed the defendant and held that:
"[I]n the instant case P.L. 1961, Ch. 304 was intended to be a revision and condensation of the statutes relating to the
Department of Mental Health and Corrections by which the substance of the right of the State of Maine to
reimbursement for care and support from the criminally insane in accordance with "means" or "ability" to pay remained
undisturbed. We are satisfied that it was the intention of the Legislature that there should be no moment when the right
to such reimbursement did not exist. We think, the governing principle was well stated in 50 Am. Jur. 559, Sec. 555;
"It is a general rule of law that where a statute is repealed and all or some of its provisions are not the same time reenacted, the re-enactment is considered a reaffirmance of the old law, and a neutralization of the repeal, so that the
provisions of the repealed act which are thus re-enacted continue in force without interruption, and all rights and
liabilities incurred thereunder are preserved and may be enforced. Similarly, the rule of construction applicable to acts
which revise and consolidate other acts is, that when the revised and consolidated act re-enacts in the same or
substantially the same terms the provisions of the act or acts so revised and consolidated, the revision and
consolidation shall be taken to be a continuation of the former act or acts, although the former act or acts may be
expressly repealed by the revised and consolidated act; and all rights and liabilities under the former act or acts are
preserved and may be enforced." (State vs. Bean, 195 A2d 68, 71, 72; Emphasis supplied)
67 BE IT RESOLVED, AS IT HEREBY RESOLVED, That:
1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power Corporation under Com.
Act No. No. 120 as amended are restored up to June 30, 1985.
2. Provided, That this restoration does not apply to the following:
a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolutions No. 1-84;
b. commercially-funded importations; and
c. interest income derived from any investment source.
3. Provided further, That in the case of importations funded by international financing agreements, the NPC is hereby
required to furnish the FIRB on a periodic basis the particulars of items received or to be received through such
arrangements, for purposes of tax and duty exemption privileges.
(SGD.) ALFREDO PIO DE RODA, JR.
Acting Minister of Finance
Acting Chairman, FIRB
SUBJECT: National Power Corporation (NPC)"
68 BE IT RESOLVED, AS IT IS HEREBY RESOLVED: That
1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power Corporation (NPC) under
Commonwealth Act No. 120, as amended, are restored; Provided, That importations of fuel oil (crude oil equivalent)
and coal of the herein grantee shall be subject to the basic and additional imports duties; Provided, further, That the
following shall remain fully taxable:
a. Commercially funded importations; and
b. Interest income derived by said grantee from bank deposits and yield or any other monetary benefits from deposits
substitutes, trust funds and other similar arrangements.
2. The NPC as a government corporation is exempt from the real property tax on land and improvements owned by it
provided that the beneficial use of the property is not transferred to another pursuant to the provisions of Sec. 10(a) of
the Real Property Tax Code, as amended.(SGD.) CESAR E.A. VIRATAMinister of FSUBJECT: National Power
Corporation."
69 Note should be taken that FIRB Resolution No. 10-85 covered the period from June 11, 1984 up to June 30, 1985 while FIRB
Resolution No. 1-86 covered the period from July 1, 1985 up to March 10, 1987.
70 "Whenever in the judgment of the President, there exists a grave emergency or a threat or imminence thereof, or whenever the
interim Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason
that in his judgment requires immediate action, he may in order to meet the exigency, issued the necessary decrees, orders, or
letters of instruction, which shall form part of the law of the land."
71 Rollo, p. 652.
72 "The Philippines and International Monetary Fund (IMF) have failed in talks here to finalize an agreement on a $630 million
standby credit badly needed by the Philippines, informed sources close to the talks told Reuters yesterday.
xxx xxx xxx
"Talks on the credit began in October when the Philippines declared a moratorium on repayments on its $26-billion foreign debt and
asked creditor banks to reschedule some of the debt." (Times Journal, June 21, 1984)
73 The Philippines will not default in the payment of its $25-billion foreign debt because it could be branded as an outlaw in the
international community, President Marcos said yesterday." (Times Journal, June 18, 1984)
74 WASHINGTON, D.C. The Philippines and a consortium of international banks have signed in New York an agreement
restructuring $2.9 billion in maturing short and medium terms loans of the Central Bank and six other government corporations.
"The amount restructed represents 90 percent of the public sector loans to be restructured with international banks.
Included in the restructuring were the loans of the Philippine National Bank (PNB), National Investment Development Corp. (NIDC),
Development Bank of the Philippines (DBP), Philippine National Oil Corp. (PNOC), National Power Corporation (NAPOCOR)
and Philippine Airlines (PAL)." (Express, January 12, 1986)
75 "The $2.1-billion BNPP, nestled on a plateau hugging the South China Sea, is planned to generate 620 megawatts for the Luzon
grid. The 'people power' revolt in 1986, however, toppled the plant's proponent, then President Marcos, from power.
"So many technical defects were said to have been discovered in the plant, and this "most prodigious" project of the governmentowned National Power Corp. was mothballed and has remained so up to the present. It is a "white elephant" and the country
continues to pay a huge interests to its builder, Westinghouse, every month." (Manila Bulletin, July 15, 1992)
76 President Marcos issued for decrees yesterday, among them Decree No. 1934 (should be 1939 amending Rep. Act No. 4850
(should be Rep. Act No. 4850 (should be Rep. Act. No. 4860) to allow an increase in the ceiling on direct foreign borrowings of
the government from $5 billion to $10 billion.
"It would allow him to exclude specific categories of external debt from the debt service limitation whenever necessary in connection
with the general rescheduling or refinancing of foreign credits.
"The decree also increases the ceiling on the government's guarantee from the present $2.5 billion to $7.5 billion.
"It authorizes the government's guarantee of external debts of government corporations.
"He also issued:
1. Decree No. 1932 (should be No. 1937) amending the Central Bank Charter to allow it greater flexibility in administering the
monetary, banking and credit system and to give a policy direction in the areas of money, banking and credit.

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2. Decree No 1933 (should be no. 1938) clothing the government with expanded authority to guarantee foreign loans of the Central
Bank.
3. Decree no. 1936 (should be No. 1939) authorizing the Credit Information Bureau, to secure credit information on individuals and
institutions in the possession of government and private entities.
(Manila Bulletin, June 29, 1984)
77 "Section 17(4), Article VIII, 1973 Constitution.
78 "BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products, granted under the terms
and conditions of Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers, objectives and
functions, and for other purposes), as amended, are restored effective March 10, 1987, subject to the following conditions:
1. The restoration of the tax and duty exemption privileges does not apply to the following:
1.1. Importations of fuel oil (crude equivalent) and coal;
1.2. Commercially-funded importations (i.e., importations which include but are not limited to those financed by the NPC's own
internal funds, domestic borrowings from any source whatsoever, borrowings from foreign-based private financial institutions,
etc.); and
1.3. Interest income derived from any source.
2. The NPC shall submit to the FIRB a report of its expansion of relieved program, including details of disposition of relieved tax and
duty payments for such expansion on an annual basis or as often as the FIRB may require it to do so. This report shall be in
addition to the usual FIRB reporting requirements on incentive availment.
(SGD.) ALFREDO PIO DE RODA, JR.
Acting Secretary of Finance
Chairman, FIRB"
79 Rollo, p. 233; Annex "M" of the Petition.
80 94 SCRA 261 (1974).
81 In order that the review of the decision of a subordinate officer might not turn out to be a farce, the reviewing officer must perforce
be other than the officer whose decision is under review; otherwise, there could be no different view or there would be no real
view of the case. The decision of the reviewing officer would be biased view; inevitably, it would be the same view since being
human, he would not admit that he was mistaken in his first view of the case." (Ibid., p. 267)
82 119 SCRA 353 (1982).
83 "Due process of law means fundamental fairness It is not fair to Doctor Anzaldo that Presidential Executive Assistant Clave
should decide whether his own recommendation as Chairman of the Civil Service Commission, as to who between Doctor
Anzaldo and Doctor Venzon should be appointed Science Research Supervisor II, should be adopted by the President of the
Philippines." (Ibid. p. 357).
84 "A Fiscal Incentive Review Board is hereby created for the purpose of determining what subsidies and tax exemptions should be
modified, withdrawn, revoked and suspended, which shall be composed of the following officials:
Chairman Secretary of Finance
Members Secretary of Industry
Director General of the National Economic and Development Authority
Commissioner of Internal Revenue
Commissioner of Customs
"The Board may recommend to the President of the Philippines and for reasons of compatibility with the declared economic
policy, the withdrawal, modification revocation or suspension of the enforceability of any of the above-cited statutory or tax
exemption grants, except those granted by the Constitution. To attain its objectives, the Board may require the assistance
of any appropriate government agency or entity. The Board shall meet once a month, or oftener at the call of Secretary of
Finance." (Sec. 2, Pres. Dec. No. 776)
85 WITHDRAWING ALL TAX AND DUTY INCENTIVES, SUBJECT TO CERTAIN EXCEPTIONS, EXPANDING THE POWERS OF
THE FISCAL INCENTIVES REVIEW BOARD AND FOR OTHER PURPOSES."
86 In the discharge of its authority hereunder the Fiscal Incentives Review Board shall take into account or any of
the following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation effort;
c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be served."
87 15 SCRA 569 (1965).
88 "WHEREAS, pursuant to Proclamation No. 1081, dated September 21, 1972, martial law is in effect throughout the land;
"WHEREAS, in order to extend further assistance to the Veterans of the Philippines in World War II, and their windows and orphans,
as well as to the members of the Armed Forces of the Philippines (who are now carrying the greater part of the burden of
suppressing the activities of groups of men actively engaged in a criminal conspiracy to seize political and state powers in the
Philippines and of eradicating lawlessness, anarchy, disorder and wanton destruction of lives and property) and their
dependents, I ordered the Philippine Veterans Bank to set aside the sum of five million pesos (P5,000,000.00) in Letter of
Instruction No. 31, October 23, 1972, as amended, for the operation and maintenance of commissary and PX facilities for the
aforementioned veterans, their widows and orphans, and the members of the Armed Forces of the Philippines and their
dependents;
"WHEREAS, to better realize the objectives of the aforementioned Leter Instructions and in order to render fuller meaning to said
objectives, it is necessary that certain commodities which are to be sold by the commissary from local producers,
manufacturers or suppliers be free of all taxes, duties and/or charges imposed by the Government;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers in me vested by the
Constitution as Commander-in-Chief of all the Armed Forces of the Philippines, and pursuant to the Letter of Instruction cited
above, do hereby promulgate and decree as part of the law of the land that all purchases from local sources, manufacturers,
suppliers and producers of commodities or items decided by the AFP Exchange and Commissary Service to be sold to persons
entitled to commissary and PX privileges under Letter of Instruction No. 31, dated October 23, 1972, as amended, shall be free
of all taxes, duties and other charges prescribed for similar commodities or items under existing revenue and other laws and
regulations.
The Chief of Staff, AFP, with approval of December, in the year of Our Lord, nineteen hundred and seventy-two." (Emphasis
Supplied)
89 Footnote No. 15 Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20 SCRA 1056, at 1064: "In the long run a
sales tax is probably shifted to the consumer, but during the period when supply is being adjusted to changes in demand it must

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be in part absorbed. In practice the business man will treat the levy as an added cost of operation and distribute it over his sales
as he would any other cost, increasing by more than the amount of tax prices of goods demand for which will be least affected
and leaving other prices unchanged." [47 Harv. Ld. Rev. 860, 869 (1934)].
90 Opinion No. 106, S'54.
91 Rollo, p. 212; Petition, Annex "F".
92 Rollo, p. 124 Petition, Annex "D" of Annex "A".
93 Rollo, p. 156; Petition, Annex "N-1" of Annex "A".
94 Rollo, p. 128; Petition, Annex "G" of Annex "A".
95 Ibid.
96 Rollo, p. 12.
97 Rollo, p. 213, Petition, Annex "G".

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-46720

June 28, 1940

WELLS
FARGO
BANK
&
UNION
TRUST
COMPANY,
THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee.

petitioner-appellant,

vs.

De Witt, Perkins and Ponce Enrile for appellant.Office of the Solicitor-General Ozaeta and Assistant SolicitorGeneral Concepcion for appellee.Ross, Lawrence, Selph and Carrascoso, James Madison Ross and Federico
Agrava as amici curi.
MORAN, J.:
An appeal from a declaratory judgment rendered by the Court of First Instance of Manila.
Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles, California, the place of
her alleged last residence and domicile. Among the properties she left her one-half conjugal share in 70,000
shares of stock in the Benguet Consolidated Mining Company, an anonymous partnership (sociedad anonima),
organized and existing under the laws of the Philippines, with is principal office in the City of Manila. She left a
will which was duly admitted to probate in California where her estate was administered and settled. Petitionerappellant, Wells Fargo Bank & Union Trust Company, was duly appointed trustee of the created by the said will.
The Federal and State of California's inheritance taxes due on said shares have been duly paid. Respondent
Collector of Internal Revenue sought to subject anew the aforesaid shares of stock to the Philippine inheritance
tax, to which petitioner-appellant objected. Wherefore, a petition for a declaratory judgment was filed in the lower
court, with the statement that, "if it should be held by a final declaratory judgment that the transfer of the
aforesaid shares of stock is legally subject to the Philippine inheritance tax, the petitioner will pay such tax,
interest and penalties (saving error in computation) without protest and will not file to recover the same; and the
petitioner believes and t herefore alleges that it should be held that such transfer is not subject to said tax, the
respondent will not proceed to assess and collect the same." The Court of First Instance of Manila rendered
judgment, holding that the transmission by will of the said 35,000 shares of stock is subject to Philippine
inheritance tax. Hence, this appeal by the petitioner.
Petitioner concedes (1) that the Philippine inheritance tax is not a tax property, but upon transmission by
inheritance (Lorenzo vs. Posadas, 35 Off. Gaz., 2393, 2395), and (2) that as to real and tangible personal
property of a non-resident decedent, located in the Philippines, the Philippine inheritance tax may be imposed
upon their transmission by death, for the self-evident reason that, being a property situated in this country, its
transfer is, in some way, defendant, for its effectiveness, upon Philippine laws. It is contended, however, that, as
to intangibles, like the shares of stock in question, their situs is in the domicile of the owner thereof, and,
therefore, their transmission by death necessarily takes place under his domiciliary laws.
Section 1536 of the Administrative Code, as amended, provides that every transmission by virtue of inheritance
of any share issued by any corporation of sociedad anonima organized or constituted in the Philippines, is
subject to the tax therein provided. This provision has already been applied to shares of stock in a domestic
corporation which were owned by a British subject residing and domiciled in Great Britain. (Knowles vs. Yatco,
G. R. No. 42967. See also Gibbs vs. Government of P. I., G. R. No. 35694.) Petitioner, however, invokes the rule
laid down by the United States Supreme Court in four cases (Farmers Loan & Trust Company vs. Minnesota,
280 U.S. 204; 74 Law. ed., 371; Baldwin vs. Missouri, 281 U.S., 586; 74 Law. ed., 1056, Beidler vs. South
Carolina Tax Commission 282 U. S., 1; 75 Law. ed., 131; First National Bank of Boston vs. Maine, 284 U. S.,

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312; 52 S. Ct., 174, 76 Law. ed., 313; 77 A. L. R., 1401), to the effect that an inheritance tax can be imposed
with respect to intangibles only by the State where the decedent was domiciled at the time of his death, and that,
under the due-process clause, the State in which a corporation has been incorporated has no power to impose
such tax if the shares of stock in such corporation are owned by a non-resident decedent. It is to be observed,
however, that in a later case (Burnet vs. Brooks, 288 U. S., 378; 77 Law. ed., 844), the United States Supreme
Court upheld the authority of the Federal Government to impose an inheritance tax on the transmission, by
death of a non-resident, of stock in a domestic (America) corporation, irrespective of the situs of the
corresponding certificates of stock. But it is contended that the doctrine in the foregoing case is not applicable,
because the due-process clause is directed at the State and not at the Federal Government, and that the federal
or national power of the United States is to be determined in relation to other countries and their subjects by
applying the principles of jurisdiction recognized in international relations. Be that as it may, the truth is that the
due-process clause is "directed at the protection of the individual and he is entitled to its immunity as much
against the state as against the national government." (Curry vs. McCanless, 307 U. S., 357, 370; 83 Law. ed.,
1339, 1349.) Indeed, the rule laid down in the four cases relied upon by the appellant was predicated on a
proper regard for the relation of the states of the American Union, which requires that property should be taxed
in only one state and that jurisdiction to tax is restricted accordingly. In other words, the application to the states
of the due-process rule springs from a proper distribution of their powers and spheres of activity as ordained by
the United States Constitution, and such distribution is enforced and protected by not allowing one state to reach
out and tax property in another. And these considerations do not apply to the Philippines. Our status rests upon
a wholly distinct basis and no analogy, however remote, cam be suggested in the relation of one state of the
Union with another or with the United States. The status of the Philippines has been aptly defined as one which,
though a part of the United States in the international sense, is, nevertheless, foreign thereto in a domestic
sense. (Downes vs. Bidwell, 182 U. S., 244, 341.)
At any rate, we see nothing of consequence in drawing any distinct between the operation and effect of the dueprocess clause as it applies to the individual states and to the national government of the United States. The
question here involved is essentially not one of due-process, but of the power of the Philippine Government to
tax. If that power be conceded, the guaranty of due process cannot certainly be invoked to frustrate it, unless the
law involved is challenged, which is not, on considerations repugnant to such guaranty of due process of that of
the equal protection of the laws, as, when the law is alleged to be arbitrary, oppressive or discriminatory.
Originally, the settled law in the United States is that intangibles have only one situs for the purpose of
inheritance tax, and that such situs is in the domicile of the decedent at the time of his death. But this rule has, of
late, been relaxed. The maxim mobilia sequuntur personam, upon which the rule rests, has been described as a
mere "fiction of law having its origin in consideration of general convenience and public policy, and cannot be
applied to limit or control the right of the state to tax property within its jurisdiction" (State Board of Assessors vs.
Comptoir National D'Escompte, 191 U. S., 388, 403, 404), and must "yield to established fact of legal ownership,
actual presence and control elsewhere, and cannot be applied if to do so result in inescapable and patent
injustice." (Safe Deposit & Trust Co. vs. Virginia, 280 U. S., 83, 91-92) There is thus a marked shift from artificial
postulates of law, formulated for reasons of convenience, to the actualities of each case.
An examination of the adjudged cases will disclose that the relaxation of the original rule rests on either of two
fundamental considerations: (1) upon the recognition of the inherent power of each government to tax persons,
properties and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the
principle that as to intangibles, a single location in space is hardly possible, considering the multiple, distinct
relationships which may be entered into with respect thereto. It is on the basis of the first consideration that the
case of Burnet vs. Brooks, supra, was decided by the Federal Supreme Court, sustaining the power of the
Government to impose an inheritance tax upon transmission, by death of a non-resident, of shares of stock in a
domestic (America) corporation, regardless of the situs of their corresponding certificates; and on the basis of
the second consideration, the case of Cury vs. McCanless, supra.
In Burnet vs. Brooks, the court, in disposing of the argument that the imposition of the federal estate tax is
precluded by the due-process clause of the Fifth Amendment, held:
The point, being solely one of jurisdiction to tax, involves none of the other consideration raised by
confiscatory or arbitrary legislation inconsistent with the fundamental conceptions of justice which are
embodied in the due-process clause for the protection of life, liberty, and property of all persons
citizens and friendly aliens alike. Russian Volunteer Fleet vs. United States, 282 U. S., 481, 489; 75 Law
ed., 473, 476; 41 S. Ct., 229; Nicholas vs. Coolidge, 274 U. S., 531; 542, 71 Law ed., 1184, 1192; 47 S.
Ct., 710; 52 A. L. R., 1081; Heiner vs. Donnon, 285 U.S., 312, 326; 76 Law ed., 772, 779; 52 S. Ct.,
358. If in the instant case the Federal Government had jurisdiction to impose the tax, there is manifestly
no ground for assailing it. Knowlton vs. Moore, 178 U.S., 41, 109; 44 Law. ed., 969, 996; 20 S. Ct., 747;
MaGray vs. United States, 195 U.S., 27, 61; 49 Law. ed., 78; 97; 24 S. Ct., 769; 1 Ann. Cas., 561; Flint

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vs. Stone Tracy Co., 220 U.S., 107, 153, 154; 55 Law. ed., 389, 414, 415; 31 S. Ct., 342; Ann. Cas.,
1912B, 1312; Brushaber vs. Union p. R. Co., 240 U.S., 1, 24; 60 Law. ed., 493, 504; 36 S. Ct., 236; L.
R. A., 1917 D; 414, Ann. Cas, 1917B, 713; United States vs. Doremus, 249 U. S., 86, 93; 63 Law. ed.,
439, 496; 39 S. Ct., 214. (Emphasis ours.)
And, in sustaining the power of the Federal Government to tax properties within its borders, wherever its owner
may have been domiciled at the time of his death, the court ruled:
. . . There does not appear, a priori, to be anything contrary to the principles of international law, or
hurtful to the polity of nations, in a State's taxing property physically situated within its borders,
wherever its owner may have been domiciled at the time of his death. . . .
As jurisdiction may exist in more than one government, that is, jurisdiction based on distinct grounds
the citizenship of the owner, his domicile, the source of income, the situs of the property efforts have
been made to preclude multiple taxation through the negotiation of appropriate international
conventions. These endeavors, however, have proceeded upon express or implied recognition, and not
in denial, of the sovereign taxing power as exerted by governments in the exercise of jurisdiction upon
any one of these grounds. . . . (See pages 396-397; 399.)
In Curry vs. McCanless, supra, the court, in deciding the question of whether the States of Alabama and
Tennessee may each constitutionally impose death taxes upon the transfer of an interest in intangibles held in
trust by an Alabama trustee but passing under the will of a beneficiary decedent domiciles in Tennessee,
sustained the power of each State to impose the tax. In arriving at this conclusion, the court made the following
observations:
In cases where the owner of intangibles confines his activity to the place of his domicile it has been
found convenient to substitute a rule for a reason, cf. New York ex rel., Cohn vs. Graves, 300 U.S., 308,
313; 81 Law. ed., 666, 670; 57 S. Ct., 466; 108 A. L. R., 721; First Bank Stock Corp. vs. Minnesota, 301
U. S., 234, 241; 81 Law. ed., 1061, 1065; 57 S. Ct., 677; 113 A. L. R., 228, by saying that his intangibles
are taxed at their situs and not elsewhere, or perhaps less artificially, by invoking the maxim mobilia
sequuntur personam. Blodgett vs. Silberman, 277 U.S., 1; 72 Law. ed., 749; S. Ct., 410, supra; Baldwin
vs. Missouri, 281 U. S., 568; 74 Law. ed., 1056; 50 S. Ct., 436; 72 A. L. R., 1303, supra, which means
only that it is the identify owner at his domicile which gives jurisdiction to tax. But when the taxpayer
extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit
of the laws of another state, in such a way as to bring his person or properly within the reach of the tax
gatherer there, the reason for a single place of taxation no longer obtains, and the rule even workable
substitute for the reasons may exist in any particular case to support the constitutional power of each
state concerned to tax. Whether we regard the right of a state to tax as founded on power over the
object taxed, as declared by Chief Justice Marshall in McCulloch vs. Maryland, 4 Wheat., 316; 4 Law.
ed., 579, supra, through dominion over tangibles or over persons whose relationships are source of
intangibles rights, or on the benefit and protection conferred by the taxing sovereignty, or both, it is
undeniable that the state of domicile is not deprived, by the taxpayer's activities elsewhere, of its
constitutional jurisdiction to tax, and consequently that there are many circumstances in which more
than one state may have jurisdiction to impose a tax and measure it by some or all of the taxpayer's
intangibles. Shares or corporate stock be taxed at the domicile of the shareholder and also at that of the
corporation which the taxing state has created and controls; and income may be taxed both by the state
where it is earned and by the state of the recipient's domicile. protection, benefit, and power over the
subject matter are not confined to either state. . . .(p. 1347-1349.)
. . . We find it impossible to say that taxation of intangibles can be reduced in every case to the mere
mechanical operation of locating at a single place, and there taxing, every legal interest growing out of
all the complex legal relationships which may be entered into between persons. This is the case
because in point of actuality those interests may be too diverse in their relationships to various taxing
jurisdictions to admit of unitary treatment without discarding modes of taxation long accepted and
applied before the Fourteen Amendment was adopted, and still recognized by this Court as valid. (P.
1351.)
We need not belabor the doctrines of the foregoing cases. We believe, and so hold, that the issue here involved
is controlled by those doctrines. In the instant case, the actual situs of the shares of stock is in the Philippines,
the corporation being domiciled therein. And besides, the certificates of stock have remained in this country up
to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary
of the Benguet Consolidated Mining Company, to whom they have been delivered and indorsed in blank. This
indorsement gave Syrena McKee the right to vote the certificates at the general meetings of the stockholders, to

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collect dividends, and dispose of the shares in the manner she may deem fit, without prejudice to her liability to
the owner for violation of instructions. For all practical purposes, then, Syrena McKee had the legal title to the
certificates of stock held in trust for the true owner thereof. In other words, the owner residing in California has
extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of
the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld.
Judgment is affirmed, with costs against petitioner-appellant.
Avancea, C.J., Imperial, Diaz and Concepcion, JJ., concur.
Republic of the Philippines
SUPREME COURTManilaEN BANC
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy
Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal
Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit, 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 5 For petitioner, therefore, there is a transgression of both the equal protection and due
process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from
notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on May
28, 1982. 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 welldefined 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

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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 may 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
are not fixed rules but rather broad standards, there is a need for of such persuasive character as would lead to
such a conclusion. Absent such a showing, the presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds
no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of
property. That would be a clear abuse of power. It then becomes the duty of this Court to say that such an
arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the
Holmes dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction of the state,
or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to
attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the lice power or the power of eminent
domain is to demonstrated that the governmental act assailed, far from being inspired by the attainment of the
common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in
reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or
that all persons must be treated in the same manner, the conditions not being different, both in the privileges
conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is
that equal protection and security shall be given to every person under circumtances which if not Identical are
analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated in
the same fashion, whatever restrictions cast on some in the group equally binding on the rest." 20 That same
formulation applies as well to taxation measures. The equal protection clause is, of course, inspired by the noble
concept of approximating the Ideal of the laws benefits being available to all and the affairs of men being
governed by that serene and impartial uniformity, which is of the very essence of the Idea of law. There is,
however, wisdom, as well as realism in these words of Justice Frankfurter: "The equality at which the 'equal
protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection
of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are
expressions of policy arising out of specific difficulties, address to the attainment of specific ends by the use of
specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in
law as though they were the same." 21 Hence the constant reiteration of the view that classification if rational in
character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice
J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of
taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine
Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the same force and effect in every place
where the subject may be found. " 26 He likewise added: "The rule of uniformity does not call for perfect
uniformity or perfect equality, because this is hardly attainable." 27 The problem of classification did not present
itself in that case. It did not arise until nine years later, when the Supreme Court held: "Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate.

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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.
Footnotes
1 Petitioner must have realized that a suit for declaratory relief must be filed with Regional Trial Courts.
2 Batas Pambansa Blg. 135, Section 21 (1981).
3 The respondents are Ruben B. Ancheta, Acting Commissioner, Bureau of Internal Revenue; Romulo Villa, Deputy Commissioner,
Bureau of Internal Revenue; Tomas Toledo, Deputy Commissioner, Bureau of Internal Revenue; Manuel Alba, Minister of Budget;
Francisco Tantuico, Chairman, Commissioner on Audit; and Cesar E. A. Virata, Minister of Finance.
4 Petition, Parties, par. 1. The challenge is thus aimed at paragraphs (a) and (b) of Section 1 further Amending Section 21 of the
National Internal Revenue Code of 1977. Par. (a) reads: "(a) On taxable compensation income. A tax is hereby imposed upon the
taxable compensation income as determined in Section 28 (a) received during each taxable year from all sources by every individual,
whether a citizen of the Philippines, determined in accordance with the following schedule:
Not over P2,500

0%

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

1%

Over P 5,000 but not over 10,000

P 25 + 3% of excess over P 5,000

Over P 10,000 but not over P 20,000

P 175 + 7 % of excess over P 10,000

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Over P 20,000 but not over P 40,000

P 875 + 11%, of excess over P 20,000

Over P 40.000 but not over P 60,000

P 3,075 + I 15% of excess over P 40,000

Over P 60,000 but not over P100,000

P 6,075 + 19% of excess over P 60,000

Over P100,000 but not over P250,000

P 13,675 + 24% excess over P100,000

Over P250,000 but not over P500,000

P 49,675 + 29% of excess over P250,000

Over P500,000

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

Par. (b) reads: "(b) On taxable net income. A tax is hereby imposed upon the taxable net income as
determined in Section 29 (a) received during each taxable year from all sources by every individual,
whether a citizen of the Philippines, or an alien residing in the Philippines determined in accordance
with the following schedule:
Not over P10,000

5%

Over P 10,000 but not over P 30,000

P 500 + 15% of excess over P 10,000

Over P 30,000 but not over P150,000

P 3,500 + 30% of excess over P 30,000

Over P150,000 but not over P500,000

P 39,500 + 45% of excess over P150,000

Over P500,000

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

5 Ibid Statement, par. 4.

6 Article IV, Section 1 of the Constitution reads: "No person shall be deprived of life, liberty or property without due process of law, nor
shall any person be denied the equal protection of the laws."
7 Article VII, Section 7. par. (1) of the Constitution reads: "The rule of taxation shall be uniform and equitable. The Batasang
Pambansa shall evolve a progressive system of taxation."
8 It was filed by Solicitor General Estelito P. Mendoza. He was assisted by Assistant Solicitor General Eduardo D. Montenegro and
Solicitor Erlinda B, Masakayan.
9 Answer, pars. 1-6.
10 Ibid, par. 6.
11 Agricultural Credit and Cooperative Financing Administration v. Consideration of Unions in Government Corporation and Offices, L21484, November 29, 1969, 30 SCRA 649, 662.
12 Cf, Vera v. Fernandez, L-31364, March 30, 1979, 89 SCRA 199, per Castro, J.
13 Sarasola v. Trinidad, 40 Phil. 252, 262 (1919).
14 McColloch v. Maryland 4 Wheaton 316,
15 306 US 466 ( 938).
16 Ibid, 489
17 Ibid. 490.
18 Cf. Ermita-Malate Hotel and Motel Operator S Association v. Hon. City Mayor, 127 Phil. 306, 315 ( 1967); U.S. v. Salaveria, 39
Phil. 102,111 (1918) and Ebona v. Daet, 85 Phil, 369 (1950). Likewise referred to is O'Gorman and Young v. Hartford Fire
Insurance Co 282 US 251, 328 (1931).
19 Cf. Manila Gas Co. v. Collector of Internal Revenue, 62 Phil. 895 (1936); Wells Fargo Bank and Union Trust Co. v. Collector, 70
Phil. 325 (1940); Republic v. Oasan Vda. de Fernandez, 99 Phil. 934 (1956).
20 The excerpt is from the opinion in J.M. Tuason and Co. v. The Land Tenure Administration, L-21064, February 18, 1970, 31 SCRA
413, 435 and reiterated in Bautista v. Juinio, G.R. No. 50908, January 31, 1984, 127 SCRA 329, 339. The former deals with an
eminent domain proceeding and the latter with a suit contesting the validity of a police power measure.
21 Tigner v. Texas, 310 US 141, 147 (1940).
22 98 Phil. 148 (1955).
23 Ibid, 153.
24 Article VIII, Section 17, par. 1, first sentence of the Constitution
25 69 Phil. 420 (1940).
26 Ibid, 426.
27 Ibid, 424.
28 Eastern Theatrical Co. v. Alfonso, 83 Phil. 852, 862 (1949).
29 Manila Race Horse Trainers Asso. v. De la Fuente, 88 Phil. 60,65 (1951).
30 Uy Matias v. City of Cebu, 93 Phil. 300 (1953).
31 While petitioner cited figures to sustain in his assertion, public respondents refuted with other figures that argue against his
submission. One reason for requiring declaratory relief proceedings to start in regional trial courts is precisely to enable petitioner
to prove his allegation, absent an admission in the answer.

Republic of the Philippines

SUPREME COURTManilaEN BANC
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.

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Ernesto J. Gonzaga for appellant.Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor
General Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes
imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to
our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and
the "eventual loss of its preferential position in the United States market"; wherefore, the national policy was
expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements
thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential
position in the United States market and the imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on
a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in control
of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise

a tax equivalent to the difference between the money value of the rental or consideration collected and
the amount representing 12 per centum of the assessed value of such land.
According to section 6 of the law
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to
be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of
the following purposes or to attain any or all of the following objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial
position of the Philippine sugar in the United States market, and ultimately to insure its continued
existence notwithstanding the loss of that market and the consequent necessity of meeting competition
in the free markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the component elements
thereof the mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in
the field so that all might continue profitably to engage therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the production thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their living and working
conditions: Provided, That the President of the Philippines may, until the adjourment of the next regular
session of the National Assembly, make the necessary disbursements from the fund herein created (1)
for the establishment and operation of sugar experiment station or stations and the undertaking of
researchers (a) to increase the recoveries of the centrifugal sugar factories with the view of reducing
manufacturing costs, (b) to produce and propagate higher yielding varieties of sugar cane more
adaptable to different district conditions in the Philippines, (c) to lower the costs of raising sugar cane,
(d) to improve the buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the
possibility of utilizing the other by-products of the industry, (f) to determine what crop or crops are
suitable for rotation and for the utilization of excess cane lands, and (g) on other problems the solution
of which would help rehabilitate and stabilize the industry, and (2) for the improvement of living and
working conditions in sugar mills and sugar plantations, authorizing him to organize the necessary
agency or agencies to take charge of the expenditure and allocation of said funds to carry out the
purpose hereinbefore enumerated, and, likewise, authorizing the disbursement from the fund herein
created of the necessary amount or amounts needed for salaries, wages, travelling expenses,
equipment, and other sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma,
seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes,
under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is

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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.

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Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.
Republic of the Philippines
SUPREME COURTManilaEN BANC
G.R. No. L-22074

September 6, 1965

THE PHILIPPINE GUARANTY CO., INC., petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, ET AL., respondents.
R E S O L U T I O N*
BENGZON, J.P., J.:
The Philippine Guaranty Company, Inc. moves for the reconsideration of our decision, promulgated on April 30,
1965, holding it liable for the payment of income tax which it should have withheld and remitted to the Bureau of
Internal Revenue in the total sum of P375,345.00.
The grounds raised in the instant motion all spring from movant's view that the Court of Tax Appeals as well as
this Court, found it "innocent of the charges of violating, willfully or negligently, subsection (c) of Section 53 and
Section 54 of the National Internal Revenue Code." Hence, it cannot subsequently be held liable for the
assessment of P375,345.00 based on said sections.
The premise of movants' reasoning cannot be accepted. The Court of Tax Appeals and this Court did not find
that it did not violate Sections 53 (c) and 54 of the Tax Code. On the contrary, movant was found to have
violated Section 53(c) by failing to file the necessary withholding tax return and to pay tax due. Still, finding that
movant's violation was due to a reasonable cause namely, reliance on the advice of its auditors and opinion
of the Commissioner of Internal Revenue no surcharge to the tax was imposed. Section 72 of the Tax Code
provides:
SEC. 72. Surcharges for failure to render returns and for rendering false and fraudulent returns. The
Commissioner of Internal Revenue shall assess all income taxes. In case of willful neglect to file the
return or list within the time prescribed by law or in case a false or fraudulent return or list is willfully
made, the Commissioner of Internal Revenue shall add to the tax or to the deficiency tax, in case any
payment has been made on the basis of such return before the discovery of the falsity or fraud, a
surcharge of fifty per centum of the amount of such tax or deficiency tax. In case of any failure to make
and file a return or list within the time prescribed by law or by the Commissioner or other internalrevenue officer, not due to willful neglect, the Commissioner of Internal Revenue shall add to the tax
twenty-five per centum of its amount, except that, when a return is voluntarily and without notice from
the Commissioner or other officer filed after such time, and it is shown that the failure to file it was due
to a reasonable cause, no such addition shall be made to the tax ... .
It will be noted that the first half of the above-quoted section covers failure to file a return, willingly and/or due to
negligence, in which case the surcharge is, 50%. In the second part of the law it covers failure to make and file a
return "not due to willful neglect," in which case only 25% surcharge should be added. As a further concession to
the taxpayer the above-quoted section provides that if "it is shown that the failure to file it was due to a
reasonable cause, no such addition shall be made to the tax."
It would, therefore, be incorrect for movant to state that it was found "innocent of the charges of violating, willfully
or negligently, sub-section (c) of Section 53 and Section 54. For, precisely, the mere fact that it was exempted
from paying the penalty necessarily implies violation of Section 53(c). Violating Section 53(c) is one thing;
imposing the penalty for such violation under Section 72 ** is another. If it is found that the failure to file is due to
a reasonable cause, then exemption from surcharge sets in but never exemption from payment of the tax due.
Since movant failed to pay the tax due, in the sum of P375,345.00, this Court ordered it to pay the same. Simply
because movant was relieved from paying the surcharge for failure to file the necessary returns, it now wants us
to absolve it from paying even the tax. This, we cannot do. The non-imposition of the 25% surcharge does not
carry with it remission of the tax.

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Movant argues that it could not be expected to withhold the tax, for as early as August 18, 1953 the Board of Tax
Appeals held in the case of Franklin Baker 1 that the reinsurance premiums in question were not subject to
withholding. On top of that, movant maintains, the Commissioner of Internal Revenue, in reply to the query of its
accountants and auditors, issued on September 5, 1953 an opinion subscribing to the ruling in the Franklin
Baker case. As already explained in our decision a mistake committed by Government agents is not binding on
the Government.
Inasmuch as movant insists on this point in its motion for reconsideration, we shall further elaborate on the
same. Section 200 of the Income Tax Regulations expressly grants protection to him only if and when he follows
strictly what has been provided therein.
Section 53 (c) makes the withholding agent personally liable for the income tax withheld under Section 54. It
states:
SEC. 53(c). Return and payment. Every person required to deduct and withhold any tax under this
section shall make return thereof, in duplicate, on or before the fifteenth day of April of each year, and,
on or before the time fixed by law for the payment of the tax, shall pay the amount withheld to the officer
of the Government of the Philippines authorized to receive it. Every such person is made personally
liable for such tax, and is indemnified against the claims and demands of any person for the amount of
any payments made in accordance with the provisions of this section.
The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the
withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the
tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction.
Thus, the withholding agent is constituted the agent of both the Government and the taxpayer. With respect to
the collection and/or withholding of the tax, he is the Government's agent. In regard to the filing of the necessary
income tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The
withholding agent, therefore, is no ordinary government agent especially because under Section 53 (c) he is
held personally liable for the tax he is duty bound to withhold; whereas, the Commissioner of Internal Revenue
and his deputies are not made liable by law.
Movant then further contends that as agent of the Government it was released from liability for the tax after it
was advised by the Commissioner of Internal Revenue that the reinsurance premiums involved were not subject
to withholding. It relies on the provisions of the second paragraph of Section 200 of the Income Tax Regulations
which states:
In case of doubt, a withholding agent may always protect himself by withholding the tax due, and
promptly causing a query to be addressed to the Commissioner of Internal Revenue for the
determination of whether or not the income paid to an individual is not subject to withholding. In case
the Commissioner of Internal Revenue decides that the income paid to an individual is not subject to
withholding the withholding agent may thereupon remit the amount of tax withheld.
The section above-quoted relaxes the application of the stringent provisions of Section 53 of the Tax Code.
Accordingly, it grants exemption from tax liability, and in so doing, it lays down steps to be taken by the
withholding agent, namely: (1) that he withholds the tax due; (2) that he promptly addresses a query to the
Commissioner of Internal Revenue for determination whether or not the income paid to an individual is subject to
withholding; and (3) that the Commissioner of Internal Revenue decides that such income is not subject to
withholding. Strict observance of said steps is required of a withholding agent before he could be released from
liability. Generally, the law frowns upon exemption from taxation, hence, an exempting provision should be
construed strictis simi juris. 2
It may be illuminating to mention here, however, that the Income Tax Regulations was issued by the Secretary of
Finance upon his authority, "to promulgate all needful rules and regulations of the effective enforcement" of the
provisions of the Tax Code.3 The mission, therefore, of Section 200, quoted above, is to implement Section 53 of
the Tax Code for no other purpose than to enforce its provisions effectively. It should also be noted, that Section
53 provided for no exemption from the duty to withhold except in the cases of tax-free covenant bonds
dividends.1awphl.nt
The facts in this case do not support a finding that movant complied with Section 200. For, it has not been
shown that it withheld the amount of tax due before it inquired from the Bureau of Internal Revenue as to the
taxability of the reinsurance premiums involved. As a matter of fact, the Court of Tax Appeals found that "upon

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advice of its accountants and auditors, ... petitioner did not collect and remit to the Commissioner of Internal
Revenue the withholding tax." This finding of fact of the lower court, unchallenged as it is, may not be disturbed. 4
The requirement in Section 200 that the withholding agent should first withhold the tax before addressing a
query to the Commissioner of Internal Revenue is not without meaning for it is in keeping with the general
operation of our tax laws: payment precedes defense. Prior to the creation of the Court of Tax Appeals, the
remedy of a taxpayer was to pay an internal revenue tax first and file a claim for refund later. 5 This remedy has
not been abrogated for the law creating the Court of Tax Appeals merely gives to the taxpayer an additional
remedy. With respect to customs duties the consignee or importer concerned is required to pay them under
protest, before he is allowed to question the legality of the imposition. 6 Likewise, validity of a realty tax cannot be
assailed until after the taxpayer has paid the tax under protest. 7 The legislature, in adopting such measures in
our tax laws, only wanted to be assured that taxes are paid and collected without delay. For taxes are the
lifeblood of government. Also, such measures tend to prevent collusion between the taxpayer and the tax
collector. By questioning a tax's legality without first paying it, a taxpayer, in collusion with Bureau of Internal
Revenue officials, can unduly delay, if not totally evade, the payment of such tax.
Of course, in this case there was absolutely no such collusion. Precisely, the Philippine Guaranty Company, Inc.
was absolved from the payment of the 25% surcharge for non-filing of income tax returns inasmuch as the Tax
Court as well as this Court believes that its omission was due to a reasonable cause.
WHEREFORE, the motion for reconsideration is denied. So ordered.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal and Zaldivar, JJ., concur.

Footnotes
*

Editor's Note: See main decision in 13 SCRA 775.

Not Section 256 of the Tax Code as claimed by movant.
1
Umali, Roman M., Decisions of the Board of Tax Appeals, Vol. 2, pp. 303-307.
2
La Carlota Sugar Central v. Jimenez, L-12436, May 31, 1961.
3
Section 338, National Internal Revenue Code.
4
This case was appealed upon questions of law.
5
Section 306, National Internal Revenue Code.
6
Section 1370, Revised Administrative Code.
7
Section 54, Commonwealth Act 470.
**

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