ESSO STANDARD EASTERN, INC vs.

COMMISSIONER OF INTERNAL REVENUE

G.R. Nos. L-28508-9, July 7, 1989

FACTS: In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from its gross income for 1959, as part of itso r d i n a r y
and necessary business expenses, the amount it had spent for drilling and exploration of its
p e t r o l e u m concessions. This claim was disallowed by the Commissioner of Internal Revenue (CIR) on the ground that the
expensesshould be capitalized and might be written off as a loss only when a "dry hole" should result. Esso then filed an
amendedreturn where it asked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells.Also
claim ed as ordinary and necessary e xpenses in the sam e return was the am ount of P340,822.04,
rep resentin gmargin fees it had paid to the Central Bank on its profit remittances to its New York head office.On August 5, 1964, the
CIR granted a tax credit of P221,033.00 only, disallowing the claimed deduction for themargin fees paid on the ground that the margin
fees paid to the Central Bank could not be considered taxes or allowed asdeductible business expenses.Esso appealed to the Court
of Tax Appeals (CTA) for the refund of the margin fees it had earlier paid contendingthat the m argin fees were deductible
from gross incom e either as a tax or as an ordinary and necessary business expense. However, Esso’s appeal was
denied.

ISSUE: (1) Whether or not the margin fees are taxes.(2) Whether or not the margin fees are necessary and ordinary business
expenses.

RULING: (1) No. A tax is levied to provide revenue for government operations, while the proceeds of the margin fee areapplied to
strengthen our country's international reserves. The margin fee was imposed by the State in the exercise of itspolice power and not
the power of taxation.(2) No. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate and helpful
inthe development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is normal in relation to thebusiness
of the ta xpa ye r and the su rro undi ng circum stances. Since the m argin fees in question were incurred for
theremittance of funds to Esso's Head Office in New York, which is a separate and distinct income taxpayer from the branchin the
Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpfulin the development
of Esso's business in the Philippines exclusively or were incurred for purposes proper to the conductof the affairs of Esso's branch in
the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss inthe Philippines exclusively.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. L-28508-9 July 7, 1989
ESSO STANDARD EASTERN, INC., (formerly, Standard-Vacuum Oil Company), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
Padilla Law Office for petitioner.

CRUZ, J.:
On appeal before us is the decision of the Court of Tax Appeals 1 denying petitioner's claims for refund of overpaid income taxes of
P102,246.00 for 1959 and P434,234.93 for 1960 in CTA Cases No. 1251 and 1558 respectively.
I
In CTA Case No. 1251, petitioner ESSO deducted from its gross income for 1959, as part of its ordinary and necessary business
expenses, the amount it had spent for drilling and exploration of its petroleum concessions. This claim was disallowed by the
respondent Commissioner of Internal Revenue on the ground that the expenses should be capitalized and might be written off as a
loss only when a "dry hole" should result. ESSO then filed an amended return where it asked for the refund of P323,279.00 by
reason of its abandonment as dry holes of several of its oil wells. Also claimed as ordinary and necessary expenses in the same
return was the amount of P340,822.04, representing margin fees it had paid to the Central Bank on its profit remittances to its New
York head office.
On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the claimed deduction for the margin fees paid.
In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the year 1960, in the amount of P367,994.00, plus 18%
interest thereon of P66,238.92 for the period from April 18,1961 to April 18, 1964, for a total of P434,232.92. The deficiency arose
from the disallowance of the margin fees of Pl,226,647.72 paid by ESSO to the Central Bank on its profit remittances to its New
York head office.
ESSO settled this deficiency assessment on August 10, 1964, by applying the tax credit of P221,033.00 representing its
overpayment on its income tax for 1959 and paying under protest the additional amount of P213,201.92. On August 13, 1964, it
claimed the refund of P39,787.94 as overpayment on the interest on its deficiency income tax. It argued that the 18% interest should
have been imposed not on the total deficiency of P367,944.00 but only on the amount of P146,961.00, the difference between the
total deficiency and its tax credit of P221,033.00.
This claim was denied by the CIR, who insisted on charging the 18% interest on the entire amount of the deficiency tax. On May
4,1965, the CIR also denied the claims of ESSO for refund of the overpayment of its 1959 and 1960 income taxes, holding that the
margin fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses.
ESSO appealed to the CTA and sought the refund of P102,246.00 for 1959, contending that the margin fees were deductible from
gross income either as a tax or as an ordinary and necessary business expense. It also claimed an overpayment of its tax by
P434,232.92 in 1960, for the same reason. Additionally, ESSO argued that even if the amount paid as margin fees were not legally
deductible, there was still an overpayment by P39,787.94 for 1960, representing excess interest.
After trial, the CTA denied petitioner's claim for refund of P102,246.00 for 1959 and P434,234.92 for 1960 but sustained its claim for
P39,787.94 as excess interest. This portion of the decision was appealed by the CIR but was affirmed by this Court
in Commissioner of Internal Revenue v. ESSO, G.R. No. L-28502- 03, promulgated on April 18, 1989. ESSO for its part appealed
the CTA decision denying its claims for the refund of the margin fees P102,246.00 for 1959 and P434,234.92 for 1960. That is the
issue now before us.
II
The first question we must settle is whether R.A. 2009, entitled An Act to Authorize the Central Bank of the Philippines to Establish a
Margin Over Banks' Selling Rates of Foreign Exchange, is a police measure or a revenue measure. If it is a revenue measure, the
margin fees paid by the petitioner to the Central Bank on its profit remittances to its New York head office should be deductible from
ESSO's gross income under Sec. 30(c) of the National Internal Revenue Code. This provides that all taxes paid or accrued during or
within the taxable year and which are related to the taxpayer's trade, business or profession are deductible from gross income.
The petitioner maintains that margin fees are taxes and cites the background and legislative history of the Margin Fee Law showing
that R.A. 2609 was nothing less than a revival of the 17% excise tax on foreign exchange imposed by R.A. 601. This was a revenue
measure formally proposed by President Carlos P. Garcia to Congress as part of, and in order to balance, the budget for 1959-
1960. It was enacted by Congress as such and, significantly, properly originated in the House of Representatives. During its two and
a half years of existence, the measure was one of the major sources of revenue used to finance the ordinary operating expenditures
of the government. It was, moreover, payable out of the General Fund.
On the claimed legislative intent, the Court of Tax Appeals, quoting established principles, pointed out that —
We are not unmindful of the rule that opinions expressed in debates, actual proceedings of the legislature, steps taken in the
enactment of a law, or the history of the passage of the law through the legislature, may be resorted to as an aid in the interpretation
of a statute which is ambiguous or of doubtful meaning. The courts may take into consideration the facts leading up to, coincident
with, and in any way connected with, the passage of the act, in order that they may properly interpret the legislative intent. But it is
also well-settled jurisprudence that only in extremely doubtful matters of interpretation does the legislative history of an act of
Congress become important. As a matter of fact, there may be no resort to the legislative history of the enactment of a statute, the
language of which is plain and unambiguous, since such legislative history may only be resorted to for the purpose of solving doubt,
not for the purpose of creating it. [50 Am. Jur. 328.]
Apart from the above consideration, there are at least two cases where we have held that a margin fee is not a tax but an exaction
designed to curb the excessive demands upon our international reserve.
In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, 2 the Court stated through Justice Jose P. Bengzon:
A margin levy on foreign exchange is a form of exchange control or restriction designed to discourage imports
and encourage exports, and ultimately, 'curtail any excessive demand upon the international reserve' in order to
stabilize the currency. Originally adopted to cope with balance of payment pressures, exchange restrictions
have come to serve various purposes, such as limiting non-essential imports, protecting domestic industry and
when combined with the use of multiple currency rates providing a source of revenue to the government, and
are in many developing countries regarded as a more or less inevitable concomitant of their economic
development programs. The different measures of exchange control or restriction cover different phases of
foreign exchange transactions, i.e., in quantitative restriction, the control is on the amount of foreign exchange
allowable. In the case of the margin levy, the immediate impact is on the rate of foreign exchange; in fact, its
main function is to control the exchange rate without changing the par value of the peso as fixed in the Bretton
Woods Agreement Act. For a member nation is not supposed to alter its exchange rate (at par value) to correct
a merely temporary disequilibrium in its balance of payments. By its nature, the margin levy is part of the rate of
exchange as fixed by the government.
As to the contention that the margin levy is a tax on the purchase of foreign exchange and hence should not form part of the
exchange rate, suffice it to state that We have already held the contrary for the reason that a tax is levied to provide revenue for
government operations, while the proceeds of the margin fee are applied to strengthen our country's international reserves.
Earlier, in Chamber of Agriculture and Natural Resources of the Philippines v. Central Bank, 3 the same idea was expressed, though
in connection with a different levy, through Justice J.B.L. Reyes:
Neither do we find merit in the argument that the 20% retention of exporter's foreign exchange constitutes an
export tax. A tax is a levy for the purpose of providing revenue for government operations, while the proceeds of
the 20% retention, as we have seen, are applied to strengthen the Central Bank's international reserve.
We conclude then that the margin fee was imposed by the State in the exercise of its police power and not the power of taxation.
Alternatively, ESSO prays that if margin fees are not taxes, they should nevertheless be considered necessary and ordinary
business expenses and therefore still deductible from its gross income. The fees were paid for the remittance by ESSO as part of
the profits to the head office in the Unites States. Such remittance was an expenditure necessary and proper for the conduct of its
corporate affairs.
The applicable provision is Section 30(a) of the National Internal Revenue Code reading as follows:
SEC. 30. Deductions from gross income in computing net income there shall be allowed as deductions
(a) Expenses:
(1) In general. — All the ordinary and necessary expenses paid or incurred during the taxable year in carrying
on any trade or business, including a reasonable allowance for salaries or other compensation for personal
services actually rendered; traveling expenses while away from home in the pursuit of a trade or business; and
rentals or other payments required to be made as a condition to the continued use or possession, for the
purpose of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which
he has no equity.
(2) Expenses allowable to non-resident alien individuals and foreign corporations. — In the case of a non-
resident alien individual or a foreign corporation, the expenses deductible are the necessary expenses paid or
incurred in carrying on any business or trade conducted within the Philippines exclusively.
In the case of Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue, 4 the Court laid down
the rules on the deductibility of business expenses, thus:
The principle is recognized that when a taxpayer claims a deduction, he must point to some specific provision of
the statute in which that deduction is authorized and must be able to prove that he is entitled to the deduction
which the law allows. As previously adverted to, the law allowing expenses as deduction from gross income for
 purposes of the income tax is Section 30(a) (1) of the National Internal Revenue which allows a deduction of 'all
the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or
business.' An item of expenditure, in order to be deductible under this section of the statute, must fall squarely
within its language.
We come, then, to the statutory test of deductibility where it is axiomatic that to be deductible as a business
expense, three conditions are imposed, namely: (1) the expense must be ordinary and necessary, (2) it must be
paid or incurred within the taxable year, and (3) it must be paid or incurred in carrying on a trade or business. In
addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or records
the deductions claimed under the law, otherwise, the same will be disallowed. The mere allegation of the
taxpayer that an item of expense is ordinary and necessary does not justify its deduction.
While it is true that there is a number of decisions in the United States delving on the interpretation of the terms
'ordinary and necessary' as used in the federal tax laws, no adequate or satisfactory definition of those terms is
possible. Similarly, this Court has never attempted to define with precision the terms 'ordinary and necessary.'
There are however, certain guiding principles worthy of serious consideration in the proper adjudication of
conflicting claims. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate
and helpful in the development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is
normal in relation to the business of the taxpayer and the surrounding circumstances. The term 'ordinary' does
not require that the payments be habitual or normal in the sense that the same taxpayer will have to make them
often; the payment may be unique or non-recurring to the particular taxpayer affected.
There is thus no hard and fast rule on the matter. The right to a deduction depends in each case on the
particular facts and the relation of the payment to the type of business in which the taxpayer is engaged. The
intention of the taxpayer often may be the controlling fact in making the determination. Assuming that the
expenditure is ordinary and necessary in the operation of the taxpayer's business, the answer to the question as
to whether the expenditure is an allowable deduction as a business expense must be determined from the
nature of the expenditure itself, which in turn depends on the extent and permanency of the work accomplished
by the expenditure.
In the light of the above explanation, we hold that the Court of Tax Appeals did not err when it held on this issue as follows:
Considering the foregoing test of what constitutes an ordinary and necessary deductible expense, it may be
asked: Were the margin fees paid by petitioner on its profit remittance to its Head Office in New York
appropriate and helpful in the taxpayer's business in the Philippines? Were the margin fees incurred for
purposes proper to the conduct of the affairs of petitioner's branch in the Philippines? Or were the margin fees
incurred for the purpose of realizing a profit or of minimizing a loss in the Philippines? Obviously not. As stated
in the Lopez case, the margin fees are not expenses in connection with the production or earning of petitioner's
incomes in the Philippines. They were expenses incurred in the disposition of said incomes; expenses for the
remittance of funds after they have already been earned by petitioner's branch in the Philippines for the disposal
of its Head Office in New York which is already another distinct and separate income taxpayer.
xxx
Since the margin fees in question were incurred for the remittance of funds to petitioner's Head Office in New
York, which is a separate and distinct income taxpayer from the branch in the Philippines, for its disposal
abroad, it can never be said therefore that the margin fees were appropriate and helpful in the development of
petitioner's business in the Philippines exclusively or were incurred for purposes proper to the conduct of the
affairs of petitioner's branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing
a loss in the Philippines exclusively. If at all, the margin fees were incurred for purposes proper to the conduct
of the corporate affairs of Standard Vacuum Oil Company in New York, but certainly not in the Philippines.
ESSO has not shown that the remittance to the head office of part of its profits was made in furtherance of its own trade or business.
The petitioner merely presumed that all corporate expenses are necessary and appropriate in the absence of a showing that they
are illegal or ultra vires. This is error. The public respondent is correct when it asserts that "the paramount rule is that claims for
deductions are a matter of legislative grace and do not turn on mere equitable considerations ... . The taxpayer in every instance
has the burden of justifying the allowance of any deduction claimed." 5
It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot now claim this as an ordinary and
necessary expense paid or incurred in carrying on its own trade or business.
WHEREFORE, the decision of the Court of Tax Appeals denying the petitioner's claims for refund of P102,246.00 for 1959 and
P434,234.92 for 1960, is AFFIRMED, with costs against the petitioner.
SO ORDERED.
Narvasa (Chairman), Gancayco, Griño-Aquino and Medialdea, JJ., concur.

MACEDA vs. MACARAIG, JR

223 SCRA 217 June 8, 1993
Topic: Classification of Taxes According to Burden or Incidence (Direct or Indirect)

Facts: 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 petitioner Ernesto Maceda asks this Court to reconsider said
Decision.

A Chronological review of the relevant NPC laws, specially with respect to its tax exemption provisions.
1. On November 3, 1936, Commonwealth Act No. 120: creating the National Power Corporation. 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…”
 2. On June 24, 1938, C.A. No. 344, the provision on tax exemption in relation to the issuance of the NPC bonds was neither amended
nor deleted.
3. On September 30, 1939, C.A. No. 495, the provision on tax exemption in relation to the issuance of the NPC bonds was neither
amended nor deleted.
4. On June 4, 1949, Republic Act No. 357, any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges,
contributions and restrictions of the Republic of the Philippines
5. On the same date, R.A. No. 358, to facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all
taxes.
6. On July 10, 1952, R.A. No. 813 amended R.A. No. 357. The tax provision as stated in R.A. No. 357, was not amended.
7. On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes.
8. On September 8, 1955, R.A. No. 1397, the tax exemption provision related to the payment of this total indebtedness was not amended
nor deleted.
9. On June 13, 1958, R.A. No. 2055, the tax provision related to the repayment of loans was not amended nor deleted.
10. On June 18, 1960, R.A. No 2641 converted the NPC from a public corporation into a stock corporation. No tax exemption was
incorporated in said Act.
11. On June 17, 1961, R.A. No. 3043. No tax provision was incorporated in said Act.
12. On June 17, 1967, R.A. No 4897. No tax provision was incorporated in said Act.
13. On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC. The bonds issued shall be exempt from the
payment of all taxes. As to the foreign loans the NPC was authorized to contract, shall also be exempt from all taxes,
14. On January 22, 1974, P.D. No. 380…shall also be exempt from all direct and indirect taxes,
15. On February 26, 1970, P.D. No. 395, no tax exemption provision was amended, deleted or added.
16. 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
17. On May 27, 1976 P.D. No. 938, declared exempt from the payment of all forms of taxes…
18. On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to imports
19. On July 30, 1977, P.D. 1177, 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
20. On July 11, 1984, P.D. No. 1931, 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.
21. On December 17, 1986, E.O. No. 93 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, “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”

Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC.

Issue: WON NPC is exempted to pay Indirect Income Tax

Held: Yes. Classifications or kinds of Taxes: According to Persons who pay or who bear the burden:
Direct Tax — that 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
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)

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.

P.D. No. 380 added phrase "directly or indirectly,"

P.D. No. 938 amended into “exempt from the payment of ALL FORMS OF taxes”

President Marcos must have considered all the NPC statutes from C.A. No. 120 up to P.D. No. 938.

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.

The tax exemption stood as is — with the express mention of "direct and indirect" tax exemptions. Lawmakers wanted the NPC to be
exempt from ALL FORMS of taxes — direct and indirect.

Therefore, that NPC had been granted tax exemption privileges for both direct and indirect taxes under P.D. No. 938.

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 be held exempted from absorbing the economic burden of indirect taxation
 Republic of the Philippines
SUPREME COURT
Manila
EN 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.
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. 18 All laws or provisions of
laws and executive orders contrary to said R.A. No. 2058 were expressly repealed. 19
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 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.
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 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
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);
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.
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 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 Nos. 380
and 938 were issued by one man, acting as such the Executive and Legislative. 53
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 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 55 with a very simple Section 13, R.A. No. 6395, as amended by P.D. No.
938.
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.
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 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 Malacañang,
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
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 sub-delegating 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, 90wherein he stated
and We quote:
xxx xxx xxx
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 eighty-seven.
(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.
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, 95 the Commissioner correctly issued the Tax Credit
Memo in view of NPC's indirect tax exemption.
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 97executed 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.
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.

CIR v Gotamco
GR No L-31092, February 27, 1987

FACTS:
The World Health Organization (WHO) decided to construct a building to house its offices, as well as the other United
Nations Offices in Manila. Inviting bids for the construction of the building, the WHO informed the bidders of its tax exemptions. The
contract was awarded to John Gotamco and sons. The Commissioner opined that a 3% contractor’s tax should be due from the
contractor. The WHO issued a certification that Gotamco should be exempted, but the Commissioner insisted on the tax. Raised in
the Court of Tax Appeals, the Court ruled in favor of Gotamco.

ISSUE:
Is Gotamco liable for the tax?

RULING:
No. Direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect
taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden
to someone else.
Herein, the contractor’s tax is payable by the contractor but it is the owner of the building that shoulders the burden of the tax
because the same is shifted by the contractor to the owner as a matter of self-preservation. Such tax is an “indirect tax” on the
organization, as the payment thereof or its inclusion in the bid price would have meant an increase in the construction cost of the
building.

Hence, WHO’s exemption from “indirect taxes” implies that Gotamco is exempt from contractor’s tax.

Facts: The World Health Organization (WHO for short) is an international organization which has a regional office in Manila. An
agreement was entered into between the Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of that
Agreement provides, inter alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and
indirect taxes.” The WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed
in Manila. A bidding was held for the building construction. The WHO informed the bidders that the building to be constructed belonged
to an international organization exempted from the payment of all fees, licenses, and taxes, and that therefore their bids"must take
this into account and should not include items for such taxes, licenses and other payments to Government agencies." Thereafter, the
construction contract was awarded to John Gotamco & Sons, Inc. (Gotamco for short). Subsequently, the Commissioner of Internal
Revenue sent a letter of demand to Gotamco demanding payment of for the 3% contractor's tax plus surcharges on the gross receipts
it received from the WHO in the construction of the latter's building. WHO. The WHO issued a certification that the bid of John Gotamco
& Sons, should be exempted from any taxes in connection with the construction of the World Health Organization office building
because such can be considered as an indirect tax to WHO. However, The Commissioner of Internal Revenue contends that the 3%
contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, and thus not covered
by the tax exemption agreement

Issue: Whether or not the said 3% contractor’s tax imposed upon petitioner is covered by the “direct and indirect tax exemption”
granted to WHO by the government.

Held: Yes. The 3% contractor’s tax imposed upon petitioner is covered by the “direct and indirect tax exemption” granted to WHO.
Hence, petitioner cannot be held liable for such contractor’s tax. The Supreme Court explained that direct taxes are those that are
demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in
the first instance from one person in the expectation and intention that he can shift the burden to someone else. While it is true that
the contractor's tax is payable by the contractor, However in the last analysis it is the owner of the building that shoulders the burden
of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax against
the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-31092 February 27, 1987
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS, respondents.

YAP, J.:
The question involved in this petition is whether respondent John Gotamco & Sons, Inc. should pay the 3% contractor's tax under
Section 191 of the National Internal Revenue Code on the gross receipts it realized from the construction of the World Health
Organization office building in Manila.
The World Health Organization (WHO for short) is an international organization which has a regional office in Manila. As an
international organization, it enjoys privileges and immunities which are defined more specifically in the Host Agreement entered into
between the Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of that Agreement provides, inter
alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes. It is
understood, however, that the Organization will not claim exemption from taxes which are, in fact, no more than charges for public
utility services; . . .
When the WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed in
Manila, it entered into a further agreement with the Govermment of the Republic of the Philippines on November 26, 1957. This
agreement contained the following provision (Article III, paragraph 2):
The Organization may import into the country materials and fixtures required for the construction free from all
duties and taxes and agrees not to utilize any portion of the international reserves of the Government.
Article VIII of the above-mentioned agreement referred to the Host Agreement concluded on July 22, 1951 which granted the
Organization exemption from all direct and indirect taxes.
In inviting bids for the construction of the building, the WHO informed the bidders that the building to be constructed belonged to an
international organization with diplomatic status and thus exempt from the payment of all fees, licenses, and taxes, and that
therefore their bids "must take this into account and should not include items for such taxes, licenses and other payments to
Government agencies."
The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for short) on February 10, 1958 for the
stipulated price of P370,000.00, but when the building was completed the price reached a total of P452,544.00.
Sometime in May 1958, the WHO received an opinion from the Commissioner of the Bureau of Internal Revenue stating that "as the
3% contractor's tax is an indirect tax on the assets and income of the Organization, the gross receipts derived by contractors from
their contracts with the WHO for the construction of its new building, are exempt from tax in accordance with . . . the Host
Agreement." Subsequently, however, on June 3, 1958, the Commissioner of Internal Revenue reversed his opinion and stated that
"as the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, the
same is not covered by . . . the Host Agreement."
On January 2, 1960, the WHO issued a certification state 91 inter alia,:
When the request for bids for the construction of the World Health Organization office building was called for,
contractors were informed that there would be no taxes or fees levied upon them for their work in connection
with the construction of the building as this will be considered an indirect tax to the Organization caused by the
increase of the contractor's bid in order to cover these taxes. This was upheld by the Bureau of Internal
Revenue and it can be stated that the contractors submitted their bids in good faith with the exemption in mind.
The undersigned, therefore, certifies that the bid of John Gotamco & Sons, made under the condition stated
above, should be exempted from any taxes in connection with the construction of the World Health Organization
office building.
On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of P
16,970.40, representing the 3% contractor's tax plus surcharges on the gross receipts it received from the WHO in the construction
of the latter's building.
Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which after trial rendered a decision, in
favor of Gotamco and reversed the Commissioner's decision. The Court of Tax Appeal's decision is now before us for review on
certiorari.
In his first assignment of error, petitioner questions the entitlement of the WHO to tax exemption, contending that the Host
Agreement is null and void, not having been ratified by the Philippine Senate as required by the Constitution. We find no merit in this
contention. While treaties are required to be ratified by the Senate under the Constitution, less formal types of international
agreements may be entered into by the Chief Executive and become binding without the concurrence of the legislative body. 1 The
Host Agreement comes within the latter category; it is a valid and binding international agreement even without the concurrence of
the Philippine Senate.
The privileges and immunities granted to the WHO under the Host Agreement have been recognized by this Court as legally binding
on Philippine authorities. 2
Petitioner maintains that even assuming that the Host Agreement granting tax exemption to the WHO is valid and enforceable, the
3% contractor's tax assessed on Gotamco is not an "indirect tax" within its purview. Petitioner's position is that the contractor's tax
"is in the nature of an excise tax which is a charge imposed upon the performance of an act, the enjoyment of a privilege or the
engaging in an occupation. . . It is a tax due primarily and directly on the contractor, not on the owner of the building. Since this tax
has no bearing upon the WHO, it cannot be deemed an indirect taxation upon it."
We agree with the Court of Tax Appeals in rejecting this contention of the petitioner. Said the respondent court:
In context, direct taxes are those that are demanded from the very person who, it is intended or desired, should
pay them; while indirect taxes are those that are demanded in the first instance from one person in the
expectation and intention that he can shift the burden to someone else. (Pollock vs. Farmers, L & T Co., 1957
US 429, 15 S. Ct. 673, 39 Law. Ed. 759.) The contractor's tax is of course payable by the contractor but in the
last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by
the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on
the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO. In the last
analysis it is the WHO that will pay the tax indirectly through the contractor and it certainly cannot be said that
'this tax has no bearing upon the World Health Organization.
Petitioner claims that under the authority of the Philippine Acetylene Company versus Commissioner of Internal Revenue, et
al., 3 the 3% contractor's tax fans directly on Gotamco and cannot be shifted to the WHO. The Court of Tax Appeals, however, held
that the said case is not controlling in this case, since the Host Agreement specifically exempts the WHO from "indirect taxes." We
agree. The Philippine Acetylene case involved a tax on sales of goods which under the law had to be paid by the manufacturer or
producer; the fact that the manufacturer or producer might have added the amount of the tax to the price of the goods did not make
the sales tax "a tax on the purchaser." The Court held that the sales tax must be paid by the manufacturer or producer even if the
sale is made to tax-exempt entities like the National Power Corporation, an agency of the Philippine Government, and to the Voice
of America, an agency of the United States Government.
The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which, although not imposed
upon or paid by the Organization directly, form part of the price paid or to be paid by it. This is made clear in Section 12 of the Host
Agreement which provides:
While the Organization will not, as a general rule, in the case of minor purchases, claim exemption from excise
duties, and from taxes on the sale of movable and immovable property which form part of the price to be paid,
nevertheless, when the Organization is making important purchases for official use of property on which such
duties and taxes have been charged or are chargeable the Government of the Republic of the Philippines shall
make appropriate administrative arrangements for the remission or return of the amount of duty or
tax. (Emphasis supplied).
The above-quoted provision, although referring only to purchases made by the WHO, elucidates the clear intention of the
Agreement to exempt the WHO from "indirect" taxation.
The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor, Gotamco, from any taxes in
connection with the construction of the WHO office building. The 3% contractor's tax would be within this category and should be
viewed as a form of an "indirect tax" On the Organization, as the payment thereof or its inclusion in the bid price would have meant
an increase in the construction cost of the building.
Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the appealed decision is hereby
affirmed.
SO ORDERED.
Narvasa, Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

Villanueva v City v Iloilo

GR No L-26521, December 28, 1968

FACTS:
On September 30, 1946, the Municipal Board of Iloilo City enacted Ordinance 86 imposing license tax fees upon
tenement houses. The validity of such ordinance was challenged by Eusebio and Remedios Villanueva, owners of four tenement
houses containing 34 apartments. The Supreme Court held the ordinance to be ultra views. On January 15, 1960, however, the
municipal board, believing that it acquired authority to enact an ordinance of the same nature pursuant to the Local Autonomy Act,
enacted Ordinance 11, Eusebio and Remedios Villanueva assailed the ordinance anew.

ISSUE:
Does Ordinance 11 violate the rule of uniformity of taxation?

RULING:
No. The Court has ruled the tenement houses constitute a distinct class of property and that taxes are uniform and equal when
imposed upon all property of the same class or character within the taxing authority.
The fact that the owners of the other classes of buildings in Iloilo are not imposed upon by the ordinance, or that tenement taxes are
imposed in other cities do not violate the rule of equality and uniformity. The rule does not require that taxes for the same purpose
should be imposed in different territorial subdivisions at the same time. So long as the burden of tax falls equally and impartially on
all owners or operators of tenement houses similarly classified or situated, equality and uniformity is accomplished. The presumption
that tax statutes are intended to operate uniformly and equally was not overthrown therein.

17. Villanueva vs. City Of Iloilo (26 SCRA 578) FACTS: Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo
enacted Ordinance 11 Series of 1960, imposing a municipal license tax on tenement houses in accordance with the schedule of
payment provided by therein. Villanueva and the other appellees are apartment owners from whom tshe city collected license taxes
by virtue of Ordinance 11. Appellees aver that the said ordinance is unconstitutional for RA 2264 does not empower cities to impose
apartment taxes; that the same is oppressive and unreasonable for it penalizes those who fail to pay the apartment taxes; that it
constitutes not only double taxation but treble taxation; and, that it violates uniformity of taxation.

Issues: 1. Does the ordinance impose double taxation?

2. Is Iloilo city empowered by RA 2264 to impose tenement taxes?

RULING: While it is true that appellees are taxable under the NIRC as real estate dealers, and taxable under Ordinance 11, double
taxation may not be invoked. This is because the same tax may be imposed by the national government as well as by the local
government. The contention that appellees are doubly taxed because they are paying real estate taxes and the tenement tax is also
devoid of merit. A license tax may be levied upon a business or occupation although the land or property used in connection
therewith is subject to property tax. In order to constitute double taxation, both taxes must be the same kind or character. Real
estate taxes and tenement taxes are not of the same character. RA 2264 confers local governments broad taxing powers. The
imposition of the tenement taxes does not fall within the exceptions mentioned by the same law. It is argued however that the said
taxes are real estate taxes and thus, the imposition of more the 1 per centum real estate tax which is the limit provided by CA 158,
makes the said ordinance ultra vires. The court ruled that the tax in question is not a real estate tax. It does not have the attributes
of a real estate tax. By the title and the terms of the ordinance, the tax is a municipal tax which means an imposition or exaction on
the right to use or dispose of property, to pursue a business, occupation or calling, or to exercise a privilege. Tenement houses
being offered for rent or lease constitute a distinct form of business or calling and as such, the imposition of municipal tax finds
support in Section 2 of RA 2264.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-26521 December 28, 1968
EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,
vs.
CITY OF ILOILO, defendants-appellants.
Pelaez, Jalandoni and Jamir for plaintiff-appellees.
Assistant City Fiscal Vicente P. Gengos for defendant-appellant.
CASTRO, J.:
Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring illegal Ordinance 11, series of
1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons Engaged In The Business Of Operating Tenement
Houses," and ordering the City to refund to the plaintiffs-appellees the sums of collected from them under the said ordinance.
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: (1) tenement
house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in or dedicated to business in the streets
of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other
streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by the spouses Eusebio
Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments. This Court, in City of Iloilo vs.
Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not appearing
that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its
Charter."
On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of Republic Act 2264, otherwise
known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that previously declared by
this Court as ultra vires, enacted Ordinance 11, series of 1960, hereunder quoted in full:
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF
OPERATING TENEMENT HOUSES
Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act No. 2264, otherwise
known as the Autonomy Law of Local Government, that:
Section 1. — A municipal license tax is hereby imposed on tenement houses in accordance with the schedule of payment
herein provided.
Section 2. — Tenement house as contemplated in this ordinance shall mean any building or dwelling for renting space
divided into separate apartments or accessorias.
Section 3. — The municipal license tax provided in Section 1 hereof shall be as follows:
I. Tenement houses:

(a) Apartment house made of strong materials P20.00 per door p.a.

(b) Apartment house made of mixed materials P10.00 per door p.a.

II Rooming house of strong materials P10.00 per door p.a.

Rooming house of mixed materials P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or dedicated to business in the

following streets: J.M. Basa, Iznart, Aldeguer, Guanco and Ledesma from Plazoleto
Gay to Valeria. St. P30.00 per door p.a.

IV. Tenement house partly or wholly engaged in or dedicated to business in any other
street P12.00 per door p.a.

V. Tenement houses at the streets surrounding the super market as soon as said place
is declared commercial P24.00 per door p.a.
Section 4. — All ordinances or parts thereof inconsistent herewith are hereby amended.
Section 5. — Any person found violating this ordinance shall be punished with a fine note exceeding Two Hundred Pesos
(P200.00) or an imprisonment of not more than six (6) months or both at the discretion of the Court.
Section 6 — This ordinance shall take effect upon approval.
ENACTED, January 15, 1960.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses, aggregately
containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten apartments. Each of
the appellees' apartments has a door leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is
utilized as a store, while the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns, likewise,
apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon City, which cities, according to him, do not
impose tenement or apartment taxes.
By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios S. Villanueva,
for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S.
Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his
property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against the
City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the
powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of
taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund the
amounts collected from them under the said ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds that (a) "Republic Act 2264
does not empower cities to impose apartment taxes," (b) the same is "oppressive and unreasonable," for the reason that it penalizes
owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates the
rule of uniformity of taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?
1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:
SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts
shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or
 exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licences at rates
fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district
council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal
district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just
and uniform taxes, licenses or fees; Provided, That municipalities and municipal districts shall, in no case, impose any
percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax,
except gasoline, under the provisions of the National Internal Revenue Code; Provided, however, That no city,
municipality or municipal district may levy or impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and publication of any newspaper, magazine, review or
bulletin appearing at regular intervals and having fixed prices for for subscription and sale, and which is not published
primarily for the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the
driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned by the national government, tonnage, and all other
kinds of customs fees, charges and duties;
(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies.
A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall provide
otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the effectivity of any
ordinance within one hundred and twenty days after its passage, if, in his opinion, the tax or fee therein levied or imposed
is unjust, excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority the effectivity of
such ordinance shall be suspended.
In such event, the municipal board or city council in the case of cities and the municipal council or municipal district
council in the case of municipalities or municipal districts may appeal the decision of the Secretary of Finance to the court
during the pendency of which case the tax levied shall be considered as paid under protest.
It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad taxing authority which
extends to almost "everything, excepting those which are mentioned therein," provided that the tax so levied is "for public purposes,
just and uniform," and does not transgress any constitutional provision or is not repugnant to a controlling statute. 2 Thus, when a
tax, levied under the authority of a city or municipal ordinance, is not within the exceptions and limitations aforementioned, the same
comes within the ambit of the general rule, pursuant to the rules of expressio unius est exclusio alterius, and exceptio firmat regulum
in casibus non excepti.
Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of the Local Autonomy
Act? For this purpose, it is necessary to determine the true nature of the tax. The appellees strongly maintain that it is a "property
tax" or "real estate tax,"3 and not a "tax on persons engaged in any occupation or business or exercising privileges," or a license tax,
or a privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license tax on persons engaged in
the business of operating tenement houses," while section 1 thereof states that a "municipal license tax is hereby imposed on
tenement houses." It is the phraseology of section 1 on which the appellees base their contention that the tax involved is a real
estate tax which, according to them, makes the ordinance ultra vires as it imposes a levy "in excess of the one per centum real
estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158." 5.
It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax. Obviously, the appellees confuse
the tax with the real estate tax within the meaning of the Assessment Law, 6 which, although not applicable to the City of Iloilo, has
counterpart provisions in the Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or other
improvements thereon, not specially exempted,8 and is payable regardless of whether the property is used or not, although the
value may vary in accordance with such factor.9 The tax is usually single or indivisible, although the land and building or
improvements erected thereon are assessed separately, except when the land and building or improvements belong to separate
owners.10 It is a fixed proportion11 of the assessed value of the property taxed, and requires, therefore, the intervention of
assessors.12 It is collected or payable at appointed times,13 and it constitutes a superior lien on and is enforceable against the
property14 subject to such taxation, and not by imprisonment of the owner.
The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax on the land on which the
tenement houses are erected, although both land and tenement houses may belong to the same owner. The tax is not a fixed
proportion of the assessed value of the tenement houses, and does not require the intervention of assessors or appraisers. It is not
payable at a designated time or date, and is not enforceable against the tenement houses either by sale or distraint. Clearly,
therefore, the tax in question is not a real estate tax.
"The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court looks less to its words and more
to the context, subject-matter, consequence and effect. Accordingly, what is within the spirit is within the ordinance although it is not
within the letter thereof, while that which is in the letter, although not within the spirit, is not within the ordinance." 15 It is within neither
the letter nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise the subject-matter would have
been not merely tenement houses. On the contrary, it is plain from the context of the ordinance that the intention is to impose a
license tax on the operation of tenement houses, which is a form of business or calling. The ordinance, in both its title and body,
particularly sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself, means an "imposition
or exaction on the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a privilege."16.
"The character of a tax is not to be fixed by any isolated words that may beemployed in the statute creating it, but such
words must be taken in the connection in which they are used and the true character is to be deduced from the nature and
 essence of the subject."17 The subject-matter of the ordinance is tenement houses whose nature and essence are
expressly set forth in section 2 which defines a tenement house as "any building or dwelling for renting space divided into
separate apartments or accessorias." The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695,
March 23, 1959, adopted the definition of a tenement house18 as "any house or building, or portion thereof, which
is rented, leased, or hired out to be occupied, or is occupied, as the home or residence of three families or more living
independently of each other and doing their cooking in the premises or by more than two families upon any floor, so living
and cooking, but having a common right in the halls, stairways, yards, water-closets, or privies, or some of them."
Tenement houses, being necessarily offered for rent or lease by their very nature and essence, therefore constitute
a distinct form of business or calling, similar to the hotel or motel business, or the operation of lodging houses or boarding
houses. This is precisely one of the reasons why this Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva,
et al., supra, declared Ordinance 86 ultra vires, because, although the municipal board of Iloilo City is empowered, under
sec. 21, par. j of its Charter, "to tax, fix the license fee for, and regulate hotels, restaurants, refreshment parlors,
cafes, lodging houses, boarding houses, livery garages, public warehouses, pawnshops, theaters, cinematographs,"
tenement houses, which constitute a different business enterprise,19 are not mentioned in the aforestated section of the
City Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:.
"And it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted
to the City of Iloilo by its Charter, the exercise of such power cannot be assumed and hence the ordinance in question
is ultra vires insofar as it taxes a tenement house such as those belonging to defendants." .
The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment tax. Called by either name,
it is not among the exceptions listed in section 2 of the Local Autonomy Act. On the other hand, the imposition by the ordinance of a
license tax on persons engaged in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act
which provides that chartered cities have the authority to impose municipal license taxes or fees upon persons engaged in any
occupation or business, or exercising privileges within their respective territories, and "otherwise to levy for public purposes, just and
uniform taxes, licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that," because "buildings pay real
estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides the
tenement tax under the said ordinance." Obviously, what the trial court refers to as "income taxes" are the fixed taxes on business
and occupation provided for in section 182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged in
"leasing or renting property, whether on their account as principals or as owners of rental property or properties," are considered
"real estate dealers" and are taxed according to the amount of their annual income. 20.
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal Revenue Code as real
estate dealers, and still taxable under the ordinance in question, the argument against double taxation may not be invoked. The
same tax may be imposed by the national government as well as by the local government. There is nothing inherently obnoxious in
the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political
subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the tenement tax
imposed by the ordinance in question, is also devoid of merit. It is a well-settled rule that a license tax may be levied upon a
business or occupation although the land or property used in connection therewith is subject to property tax. The State may collect
an ad valorem tax on property used in a calling, and at the same time impose a license tax on that calling, the imposition of the latter
kind of tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice
when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same
purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the
same taxing period, and they must be the same kind or character of tax."23 It has been shown that a real estate tax and
the tenement tax imposed by the ordinance, although imposed by the sametaxing authority, are not of the same kind or
character.
At all events, there is no constitutional prohibition against double taxation in the Philippines. 24 It is something not favored, but is
permissible, provided some other constitutional requirement is not thereby violated, such as the requirement that taxes must be
uniform."25.
3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only oppressive because it
"carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both, if the owner or owners of the tenement buildings
divided into apartments do not pay the tenement or apartment tax fixed in said ordinance," but also unconstitutional as it subjects
the owners of tenement houses to criminal prosecution for non-payment of an obligation which is purely sum of money." The lower
court apparently had in mind, when it made the above ruling, the provision of the Constitution that "no person shall be imprisoned for
a debt or non-payment of a poll tax."26 It is elementary, however, that "a tax is not a debt in the sense of an obligation incurred by
contract, express or implied, and therefore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting
imprisonment for debt, and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is not, in conflict
with that prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all
persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may
be engaged.28 Therefore, the tax in question is not oppressive in the manner the lower court puts it. On the other hand, the charter
of Iloilo City29 empowers its municipal board to "fix penalties for violations of ordinances, which shall not exceed a fine of two
hundred pesos or six months' imprisonment, or both such fine and imprisonment for each offense." In Punsalan, et al. vs. Mun.
Board of Manila, supra, this Court overruled the pronouncement of the lower court declaring illegal and void an ordinance imposing
an occupation tax on persons exercising various professions in the City of Manilabecause it imposed a penalty of fine and
imprisonment for its violation.30.
4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.
"... because while the owners of the other buildings only pay real estate tax and income taxes the ordinance imposes
aside from these two taxes an apartment or tenement tax. It should be noted that in the assessment of real estate tax all
parts of the building or buildings are included so that the corresponding real estate tax could be properly imposed. If aside
 from the real estate tax the owner or owners of the tenement buildings should pay apartment taxes as required in the
ordinance then it will violate the rule of uniformity of taxation.".
Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity" and "relative inequality,"
because "only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses, while citizens of other cities,
where their councils do not enact a similar tax ordinance, are permitted to escape such imposition." .
It is our view that both assertions are undeserving of extended attention. This Court has already ruled that tenement houses
constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the
same class or character within the taxing authority."31 The fact, therefore, that the owners of other classes of buildings in the City of
Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax
imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare not imposed in other cities, for
the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same
time.32 So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly
classified or situated, equality and uniformity of taxation is accomplished. 33 The plaintiffs-appellees, as owners of tenement houses
in the City of Iloilo, have not shown that the tax burden is not equally or uniformly distributed among them, to overthrow the
presumption that tax statutes are intended to operate uniformly and equally. 34.
5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere reproduction of Ordinance
86 of the City of Iloilo which was declared by this Court in L-12695, supra, as ultra vires, the decision in that case should be
accorded the effect of res judicata in the present case or should constitute estoppel by judgment. To dispose of this contention, it
suffices to say that there is no identity of subject-matter in that case andthis case because the subject-matter in L-12695 was an
ordinance which dealt not only with tenement houses but also warehouses, and the said ordinance was enacted pursuant to the
provisions of the City charter, while the ordinance in the case at bar was enacted pursuant to the provisions of the Local Autonomy
Act. There is likewise no identity of cause of action in the two cases because the main issue in L-12695 was whether the City of
Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of 1960, under the Local Autonomy Act which
took effect on June 19, 1959, and therefore was not available for consideration in the decision in L-12695 which was promulgated
on March 23, 1959. Moreover, under the provisions of section 2 of the Local Autonomy Act, local governments may now tax any
taxable subject-matter or object not included in the enumeration of matters removed from the taxing power of local
governments.Prior to the enactment of the Local Autonomy Act the taxes that could be legally levied by local governments were only
those specifically authorized by law, and their power to tax was construed in strictissimi juris. 35.
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the complaint is hereby dismissed. No
pronouncement as to costs..
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,Fernando and Capistrano, JJ., concur

CIR vs. CA, Atlas Consolidated

242 SCRA 289
GR No. 104151 March 10, 1995
"Assessments are prima facie presumed correct and made in good faith. So that, in the absence of proof of any irregularities in the
performance of official duties, an assessment will not be disturbed."

FACTS: The Commissioner of Internal Revenue served two notices and demand for payment of the respective deficiency ad
valorem and buiness taxes for taxable years 1975 and 1976 against the respondent Atlas Consolidated Mining and Development
Corporation (ACMDC). The latter protested both assessments but the same were denied, hence it filed two separate petitions for
review in the Court of Tax Appeals. The CTA rendered a consolidated decision holding, inter alia, that ACMDC was not liable for
deficiency ad valorem taxes on copper and silver for 1975 and 1976 thereby effectively sustaining the theory of ACMDC that in
computing the ad valorem tax on copper mineral, the refining and smelting charges should be deducted, in addition to freight and
insurance charges.
However, the tax court held ACMDC liable for the amount consisting of 25% surcharge for late payment of the ad valorem tax and
late filing of notice of removal of silver, gold and pyrite extracted during certain periods, and for alleged deficiency manufacturer's
sales tax and such contractor's tax for leasing out of its personal properties. ACDMC elevated the matter to the Supreme Court
claiming that the leasing out was a mere isolated transaction, hence should not be subjected to contractor's tax.

ISSUE: Is the claim of the private respondent, with respect to the contractor's tax, impressed with merit?

HELD: No. It is being held that ACMDC was not a manufacturer subject to the percentage tax imposed by Section 186 of the tax
code. However such conclusion cannot be made with respect to the contractor's tax being imposed on ACMDC. It cannot validly
claim that the leasing out of its personal properties was merely an isolated transaction. Its book of accounts shows that several
distinct payments were made for the use of its personal properties such as its plane, motor boat and dump truck. The series of
transactions engaged in by ACMDC for the lease of its aforesaid properties could also be deduced from the fact that during the
period there were profits earned and reported therefor. The allegation of ACMDC that it did not realize any profit from the leasing out
of its said personal properties, since its income therefrom covered only the costs of operation such as salaries and fuel, is not
supported by any documentary or substantial evidence.
Assessments are prima facie presumed correct and made in good faith. Contrary to the theory of ACMDC, it is the taxpayer and
not the BIR who has the duty of proving otherwise. It is an elementary rule that in the absence of proof of any irregularities in the
performance of official duties, an assessment will not be disturbed. All presumptions are in favor of tax assessments. Verily, failure
to present proof of error in assessments will justify judicial affirmance of said assessment.
ASSOCIATION OF CUSTOM BROKERS, INC. vs. MUNICIPAL BOARD

G.R. No. L-4376 May 22, 1953

FACTS: The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor

vehicles in the City of Manila challenge the validity Ordinance No. 3379 on the ground that (1) while it levies a so-called property tax
it is in reality a license tax which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance offends against
the rule of uniformity of taxation; and (3) it constitutes double taxation.

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

ISSUE:

Whether or not the ordinance is null and void

RULING:

The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the ordinance exacts the tax
upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor vehicle for hire and one which is
purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one registered in
another place but occasionally comes to Manila and uses its streets and public highways. This is an inequality which we find in the
ordinance, and which renders it offensive to the Constitution.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-4376 May 22, 1953
ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-appellants,
vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY MAYOR, all of the City of
Manila, respondents-appellees.
Teotimo A. Roja for appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for appellees.
BAUTISTA ANGELO, J.:
This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by the Municipal Board of the City of Manila
on March 24, 1950.
The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor vehicles in the
City of Manila, and G. Manlapit, Inc., a member of said association, also a public service operator of the trucks in said City,
challenge the validity of said ordinance on the ground that (1) while it levies a so-called property tax it is in reality a license tax which
is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance offends against the rule of uniformity of taxation;
and (3) it constitutes double taxation.
The respondents, represented by the city fiscal, contend on their part that the challenged ordinance imposes a property tax which is
within the power of the City of Manila to impose under its Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax
in question does not violate the rule of uniformity of taxation, nor does it constitute double taxation.
The issues having been joined, the Court of First Instance of Manila sustained the validity of the ordinance and dismissed the
petition. Hence this appeal.
The disputed ordinance was passed by the Municipal Board of the City of Manila under the authority conferred by section 18 (p) of
Republic Act No. 409. Said section confers upon the municipal board the power "to tax motor and other vehicles operating within the
City of Manila the provisions of any existing law to the contrary notwithstanding." It is contended that this power is broad enough to
confer upon the City of Manila the power to enact an ordinance imposing the property tax on motor vehicles operating within the city
limits.
In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the Motor Vehicles Law, as amended,
(Act No. 3992) which has a bearing on the power of the municipal corporation to impose tax on motor vehicles operating in any
highway in the Philippines. The pertinent provisions are contained in section 70 (b) which provide in part:
No further fees than those fixed in this Act shall be exacted or demanded by any public highway, bridge or ferry, or for the
exercise of the profession of chauffeur, or for the operation of any motor vehicle by the owner thereof: Provided, however,
That nothing in this Act shall be construed to exempt any motor vehicle from the payment of any lawful and equitable
insular, local or municipal property tax imposed thereupon. . . .
Note that under the above section no fees may be exacted or demanded for the operation of any motor vehicle other than those
therein provided, the only exception being that which refers to the property tax which may be imposed by a municipal corporation.
This provision is all-inclusive in that sense that it applies to all motor vehicles. In this sense, this provision should be construed as
limiting the broad grant of power conferred upon the City of Manila by its Charter to impose taxes. When section 18 of said Charter
provides that the City of Manila can impose a tax on motor vehicles operating within its limit, it can only refers to property tax as a
different interpretation would make it repugnant to the Motor Vehicle Law.
Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance Levying a Property Tax on All Motor
Vehicles Operating Within the City of Manila", and that in its section 1 it provides that the tax should be 1 per cent ad valorem per
annum. It also provides that the proceeds of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be
expended exclusively for the repair, maintenance and improvement of its streets and bridges." Considering the wording used in the
ordinance in the light in the purpose for which the tax is created, can we consider the tax thus imposed as property tax, as claimed
by respondents?
While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule should not be taken in its
absolute sense if the nature and purpose of the tax as gathered from the context show that it is in effect an excise or a license tax.
Thus, it has been held that "If a tax is in its nature an excise, it does not become a property tax because it is proportioned in amount
to the value of the property used in connection with the occupation, privilege or act which is taxed. Every excise necessarily must
finally fall upon and be paid by property and so may be indirectly a tax upon property; but if it is really imposed upon the
performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be considered an excise." (26 R. C. L., 35-
36.) It has also been held that
The character of the tax as a property tax or a license or occupation tax must be determined by its incidents, and from the
natural and legal effect of the language employed in the act or ordinance, and not by the name by which it is described, or
by the mode adopted in fixing its amount. If it is clearly a property tax, it will be so regarded, even though nominally and in
form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons on account of their
business, it will be construed as a license or occupation tax, even though it is graduated according to the property used in
such business, or on the gross receipts of the business. (37 C.J., 172)
The ordinance in question falls under the foregoing rules. While it refers to property tax and it is fixed ad valorem yet we cannot
reject the idea that it is merely levied on motor vehicles operating within the City of Manila with the main purpose of raising funds to
be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. This is precisely what
the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act, municipal corporation already
participate in the distribution of the proceeds that are raised for the same purpose of repairing, maintaining and improving bridges
and public highway (section 73 of the Motor Vehicle Law). This prohibition is intended to prevent duplication in the imposition of fees
for the same purpose. It is for this reason that we believe that the ordinance in question merely imposes a license fee although
under the cloak of an ad valorem tax to circumvent the prohibition above adverted to.
It is also our opinion that the ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the
ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor vehicle
for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila
and one registered in another place but occasionally comes to Manila and uses its streets and public highways. The distinction is
important if we note that the ordinance intends to burden with the tax only those registered in the City of Manila as may be inferred
from the word "operating" used therein. The word "operating" denotes a connotation which is akin to a registration, for under the
Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration fees. There is no pretense that the
ordinance equally applies to motor vehicles who come to Manila for a temporary stay or for short errands, and it cannot be denied
that they contribute in no small degree to the deterioration of the streets and public highway. The fact that they are benefited by their
use they should also be made to share the corresponding burden. And yet such is not the case. This is an inequality which we find
in the ordinance, and which renders it offensive to the Constitution.
Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and void.
Paras, C.J., Bengzon and Tuason, JJ., concur.
Montemayor, Reyes, Jugo and Labrador, JJ., concur in the result.

Separate Opinions
FERIA, J., concurring:
I concur on the ground that it is a license tax.

19. Francisco I. Chavez vs. Jaime B. Ongpin and Fidelina Cruz, G.R. No. 76778. June 6, 1990 FACTS: Section 21 of Presidential
Decree No. 464 provides that every five years starting calendar year 1978, there shall be a provincial or city general revision of real
property assessments. The revised assessment shall be the basis for the computation of real property taxes for the five succeeding
years. On the strength of the aforementioned law, the general revision of assessments was completed in 1984. However, Executive
Order No. 1019 was issued, which deferred the collection of real property taxes based on the 1984 values to January 1, 1988
instead of January 1, 1985. On November 25, 1986, President Corazon Aquino issued Executive order No. 73. It states that
beginning January 1, 1987, the 1984 assessments shall be the basis of the real property collection. Thus, it effectively repealed
Executive Order No. 1019. Francisco Chavez, a taxpayer and a land-owner, questioned the constitutionality of Executive Order No.
73. He alleges that it will bring unreasonable increase in real property taxes. In fact, according to him, the application of the assailed
order will cause an excessive increase in real property taxes by 100% to 400% on improvements and up to 100% on land. ISSUE:
Whether or not Executive Order no. 73 imposes unreasonable increase in real property taxes, thus, should be declared
unconstitutional. RULING: The attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a
continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should
be challenged as constitutionally infirm. However, Chavez failed to raise any objection against said decree. Without Executive Order
No. 73, the basis for collection of real property taxes will still be the 1978 revision of property values. Certainly, to continue collecting
real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that
have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a
sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations.

Chavez v Ongpin
GR No 76778, June 6, 1990
FACTS:
Section 21 of Presidential Decree 464 provides that every 5 years starting calendar year 1978, there shall be a provincial or city
general revision of real property assessments. The general revision was completed in 1984.
On November 25, 1986, President Corazon Aquino issued EO 73 stating that beginning January 1, 1987, the 1984 assessments
shall be the basis of real property taxes. Francisco Chavez, a taxpayer and landowner, questioned the constitutionality of EO 74. He
alleges that it will bring unreasonable increase in real property taxes.

ISSUE:
Is EO 73 constitutional?

RULING:
Yes. Without EO 73, the basis for collection of real property taxes will still be the 1978 revision of property values. Certainly, to
continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of
real properties that have occurred since then is not in consonance with a sound tax system.
Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenue must be adequate to
meet government expenditures and their variations.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 76778 June 6, 1990
FRANCISCO I. CHAVEZ, petitioner,
vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity as Acting Municipal
Treasurer of the Municipality of Las Piñas, respondents, REALTY OWNERS ASSOCIATION OF THE PHILIPPINES,
INC., petitioner-intervenor.
Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and Oppression (Bonifacio) for petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners Association.

MEDIALDEA, J.:
The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986, which We quote in full, as follows
(78 O.G. 5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE 1984 REAL
PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE, AS
AMENDED
WHEREAS, the collection of real property taxes is still based on the 1978 revision of property values;
WHEREAS, the latest general revision of real property assessments completed in 1984 has rendered the 1978
revised values obsolete;
WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take
effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an additional
source of revenue;
WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the
rising cost of rendering effective services to the people;
NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do hereby order:
SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the
latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real property
tax collection.
SEC. 2. The Minister of Finance shall promulgate the necessary rules and regulations to implement this
Executive Order.
SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed.
SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof inconsistent with this Executive
Order are hereby repealed or modified accordingly.
SEC. 5. This Executive Order shall take effect immediately.
On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of Executive Order No. 73 until June
30, 1987.
The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of land. He alleges the following: that Executive
Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987 thereby mandating an excessive
increase in real property taxes by 100% to 400% on improvements, and up to 100% on land; that any increase in the value of real
property brought about by the revision of real property values and assessments would necessarily lead to a proportionate increase
in real property taxes; that sheer oppression is the result of increasing real property taxes at a period of time when harsh economic
conditions prevail; and that the increase in the market values of real property as reflected in the schedule of values was brought
about only by inflation and economic recession.
The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national association of owners-lessors, joins
Chavez in his petition to declare unconstitutional Executive Order No. 73, but additionally alleges the following: that Presidential
Decree No. 464 is unconstitutional insofar as it imposes an additional one percent (1%) tax on all property owners to raise funds for
education, as real property tax is admittedly a local tax for local governments; that the General Revision of Assessments does not
meet the requirements of due process as regards publication, notice of hearing, opportunity to be heard and insofar as it authorizes
"replacement cost" of buildings (improvements) which is not provided in Presidential Decree No. 464, but only in an administrative
regulation of the Department of Finance; and that the Joint Local Assessment/Treasury Regulations No. 2-86 2 is even more
oppressive and unconstitutional as it imposes successive increase of 150% over the 1986 tax.
The Office of the Solicitor General argues against the petition.
The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73 insofar as the revision of the
assessments and the effectivity thereof are concerned. It should be emphasized that Executive Order No. 73 merely directs, in
Section 1 thereof, that:
SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the
latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real property
tax collection. (emphasis supplied)
The general revision of assessments completed in 1984 is based on Section 21 of Presidential Decree No. 464 which provides, as
follows:
SEC. 21. General Revision of Assessments. — Beginning with the assessor shall make a calendar year 1978,
the provincial or city general revision of real property assessments in the province or city to take effect January
1, 1979, and once every five years thereafter: Provided; however, That if property values in a province or city, or
in any municipality, have greatly changed since the last general revision, the provincial or city assesor may, with
the approval of the Secretary of Finance or upon bis direction, undertake a general revision of assessments in
the province or city, or in any municipality before the fifth year from the effectivity of the last general revision.
Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No. 73 has no legal basis as the general
revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, it is Presidential
Decree No. 464 which should be challenged as constitutionally infirm. However, Chavez failed to raise any objection against said
decree. It was ROAP which questioned the constitutionality thereof. Furthermore, Presidential Decree No. 464 furnishes the
procedure by which a tax assessment may be questioned:
SEC. 30. Local Board of Assessment Appeals. — Any owner who is not satisfied with the action of the
provincial or city assessor in the assessment of his property may, within sixty days from the date of receipt by
him of the written notice of assessment as provided in this Code, appeal to the Board of Assessment Appeals of
the province or city, by filing with it a petition under oath using the form prescribed for the purpose, together with
copies of the tax declarations and such affidavit or documents submitted in support of the appeal.
xxx xxx xxx
SEC. 34. Action by the Local Board of assessment Appeals. — The Local Board of Assessment Appeals shall
decide the appeal within one hundred and twenty days from the date of receipt of such appeal. The decision
rendered must be based on substantial evidence presented at the hearing or at least contained in the record
and disclosed to the parties or such relevant evidence as a reasonable mind might accept as adequate to
support the conclusion.
In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer
oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum. The
proceedings of the Board shall be conducted solely for the purpose of ascertaining the truth without-necessarily
adhering to technical rules applicable in judicial proceedings.
The Secretary of the Board shall furnish the property owner and the Provincial or City Assessor with a copy
each of the decision of the Board. In case the provincial or city assessor concurs in the revision or the
assessment, it shall be his duty to notify the property owner of such fact using the form prescribed for the
purpose. The owner or administrator of the property or the assessor who is not satisfied with the decision of the
Board of Assessment Appeals, may, within thirty days after receipt of the decision of the local Board, appeal to
the Central Board of Assessment Appeals by filing his appeal under oath with the Secretary of the proper
provincial or city Board of Assessment Appeals using the prescribed form stating therein the grounds and the
reasons for the appeal, and attaching thereto any evidence pertinent to the case. A copy of the appeal should
be also furnished the Central Board of Assessment Appeals, through its Chairman, by the appellant.
Within ten (10) days from receipt of the appeal, the Secretary of the Board of Assessment Appeals concerned
shall forward the same and all papers related thereto, to the Central Board of Assessment Appeals through the
Chairman thereof.
xxx xxx xxx
SEC. 36. Scope of Powers and Functions. — The Central Board of Assessment Appeals shall have jurisdiction
over appealed assessment cases decided by the Local Board of Assessment Appeals. The said Board shall
decide cases brought on appeal within twelve (12) months from the date of receipt, which decision shall
become final and executory after the lapse of fifteen (15) days from the date of receipt of a copy of the decision
by the appellant.
In the exercise of its appellate jurisdiction, the Central Board of Assessment Appeals, or upon express authority,
the Hearing Commissioner, shall have the power to summon witnesses, administer oaths, take depositions, and
issue subpoenas and subpoenas duces tecum.
The Central Board of assessment Appeals shall adopt and promulgate rules of procedure relative to the
conduct of its business.
Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any owner who doubts the assessment
of his property, may appeal to the Local Board of Assessment Appeals. In case the, owner or administrator of the property or the
assessor is not satisfied with the decision of the Local Board of Assessment Appeals, he may, within thirty days from the receipt of
the decision, appeal to the Central Board of Assessment Appeals. The decision of the Central Board of Assessment Appeals shall
become final and executory after the lapse of fifteen days from the date of receipt of the decision.
Chavez argues further that the unreasonable increase in real property taxes brought about by Executive Order No. 73 amounts to a
confiscation of property repugnant to the constitutional guarantee of due process, invoking the cases of Ermita-Malate Hotel, et al. v.
Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849) and Sison v. Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130
SCRA 654).
The reliance on these two cases is certainly misplaced because the due process requirement called for therein applies to the "power
to tax." Executive Order No. 73 does not impose new taxes nor increase taxes.
Indeed, the government recognized the financial burden to the taxpayers that will result from an increase in real property taxes.
Hence, Executive Order No. 1019 was issued on April 18, 1985, deferring the implementation of the increase in real property taxes
resulting from the revised real property assessments, from January 1, 1985 to January 1, 1988. Section 5 thereof is quoted herein
as follows:
SEC. 5. The increase in real property taxes resulting from the revised real property assessments as provided
for under Section 21 of Presidential Decree No. 464, as amended by Presidential Decree No. 1621, shall be
collected beginning January 1, 1988 instead of January 1, 1985 in order to enable the Ministry of Finance and
the Ministry of Local Government to establish the new systems of tax collection and assessment provided
herein and in order to alleviate the condition of the people, including real property owners, as a result of
temporary economic difficulties. (emphasis supplied)
The issuance of Executive Order No. 73 which changed the date of implementation of the increase in real property taxes from
January 1, 1988 to January 1, 1987 and therefore repealed Executive Order No. 1019, also finds ample justification in its "whereas'
clauses, as follows:
WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take
effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an additional
source of revenue;
WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the
rising cost of rendering effective services to the people; (emphasis supplied)
xxx xxx xxx
The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not proper to be resolved in the present
petition. As stated at the outset, the issue here is limited to the constitutionality of Executive Order No. 73. Intervention is not an
independent proceeding, but an ancillary and supplemental one which, in the nature of things, unless otherwise provided for by
legislation (or Rules of Court), must be in subordination to the main proceeding, and it may be laid down as a general rule that an
intervention is limited to the field of litigation open to the original parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67 Phil.
279).
We agree with the observation of the Office of the Solicitor General that without Executive Order No. 73, the basis for collection of
real property taxes win still be the 1978 revision of property values. Certainly, to continue collecting real property taxes based on
valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is
not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that
sources of revenues must be adequate to meet government expenditures and their variations.
ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and Regalado,
JJ., concur.
Padilla, J., took no part.
Griño-Aquino, J., is on leave.

21. ROXAS vs. CTA, GR L –25043, April 26, 1968 Facts: Antonio, Eduardo and Jose Roxas, brothers and at the same time partners
of the Roxas y Compania, inherited from their grandparents several properties which included farmlands with a total area of 19,000
hectares (Nasugbu Farmlands). The tenants therein expressed their desire to purchase from the brothers the parcels which they
actually occupied so the government, pursuant to the constitutional mandate to acquire big landed estate and apportion them
among landless tenants, persuaded the brothers sell the same. Roxas y Cia. then agreed to sell 13, 500 hectares of the lands but
the government, however, did not have enough funds, so the former allowed the farmers to buy the lands for the same price but by
installment. Subsequently, the CIR demanded from the brothers the payment of deficiency income taxes resulting from the sale of
the farmlands and considered the partnership as engaged in the business of real estate, hence, 100% of the profits derived
therefrom was taxed. The brothers protested the assessment but the same was denied. On appeal, the Court of Tax Appeals
sustained the assessment. Hence, this appeal. Issue: Is Roxas y Cia. liable for the payment of deficiency income for the sale of the
farmlands? Ruling: No. Although they (farmers/ vendees) paid for their respective holdings in installment for a period of 10 years, it
would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization period. It should be borne
in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with,
but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless. However, the
Government could not comply with its duty for lack of funds so Roxas y Cia. shouldered the Government's burden, went out of its
way and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the
Government done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's
gratitude. The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the
"hen that lays the golden egg". And, in order to maintain the general public's trust and confidence in the Government this power
must be used justly and not treacherously. It does not conform with Our sense of justice in the instant case for the Government to
persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call. In fine, Roxas y Cia.
cannot be considered a real estate dealer for the sale in question. Hence, pursuant toSection 34 of the Tax Code the lands sold to
the farmers are capital assets, and the gain derived from thesale thereof is capital gain, taxable only to the extent of 50%.
Roxas et al vs CTA

GR L – 25043 April 26, 1968

Facts:

The Roxas brothers owned agricultural lands with a total area of 19,000 hectares. At the end of the second world war, the
tenant express their desire to purchase from the brothers the parcels where they actually occupy. For its’ part, the government, in
consonance with the constitutional mandate to acquire big landed estate and apportion them among landless tenants, persuaded
the brothers to part with their landholdings. However, the government did not have the funds to cover the purchase price, so Roxas
allowed the farmers to buy the land for the same price but by instalment. Subsequently, the CIR demanded that the brothers to pay
real estate dealers’ tax for the sale of the said land.

Issue: Are petitioners liable?

Ruling:

No. the contention of the CIR Roxas y Cia should be considered a real estate dealer because it engaged in the selling of
real estate as without merit. The sale of the farm was not only in consonance with but in obedience to the request and pursuant to
the policy of the government to allocate lands to the landless. It is the duty of the government to pay the agreed compensation after
it persuaded Roxas y Cia to sell the hacienda, and to subsequently subdivide them among the farmers at very reasonable terms and
prices.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-25043 April 26, 1968

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial co-guardians of
JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

Leido, Andrada, Perez and Associates for petitioners.

Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession the
following properties:

(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas province;

(2) A residential house and lot located at Wright St., Malate, Manila; and

(3) Shares of stocks in different corporations.

To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose Roxas, formed a
partnership called Roxas y Compania.

AGRICULTURAL LANDS

At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu for generations expressed
their desire to purchase from Roxas y Cia. the parcels which they actually occupied. For its part, the Government, in consonance
with the constitutional mandate to acquire big landed estates and apportion them among landless tenants-farmers, persuaded the
Roxas brothers to part with their landholdings. Conferences were held with the farmers in the early part of 1948 and finally the
Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual occupants for a price of P2,079,048.47
plus P300,000.00 for survey and subdivision expenses.

It turned out however that the Government did not have funds to cover the purchase price, and so a special arrangement was made
for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of P1,500,000.00 as loan. Collateral for such loan
were the lands proposed to be sold to the farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for
the same price but by installment, and contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of
the yearly amortizations paid by the farmers.

In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and P29,500.71. Fifty percent of
said net gain was reported for income tax purposes as gain on the sale of capital asset held for more than one year pursuant to
Section 34 of the Tax Code.

RESIDENTIAL HOUSE

During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate, Manila, which they inherited from
their grandparents. After Antonio and Eduardo got married, they resided somewhere else leaving only Jose in the old house. In
fairness to his brothers, Jose paid to Roxas y Cia. rentals for the house in the sum of P8,000.00 a year.

ASSESSMENTS

On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment of real estate dealer's tax for
1952 in the amount of P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities for 1952
plus P10.00 compromise penalty for late payment. The assessment for real estate dealer's tax was based on the fact that Roxas y
Cia. received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of a real
estate who derives a yearly rental income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is
liable to pay the corresponding fixed tax.

The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities against Roxas y Cia., on the
fact that said partnership made profits from the purchase and sale of securities.

In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas Brothers for the years 1953 and
1955, as follows:

1953 1955
Antonio Roxas P7,010.00 P5,813.00
Eduardo Roxas 7,281.00 5,828.00
Jose Roxas 6,323.00 5,588.00

The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported 50% of the net profits for 1953
and 1955 derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from gross income of
various business expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that Roxas y Cia.
subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner considered the partnership as
engaged in the business of real estate, hence, 100% of the profits derived therefrom was taxed.

The following deductions were disallowed:

ROXAS Y CIA.:

1953

Tickets for Banquet in honor of P

S. Osmeña 40.00

Gifts of San Miguel beer 28.00

Contributions to —

Philippine Air Force Chapel

100.00
 Manila Police Trust Fund 150.00

Philippines Herald's fund for Manila's neediest

families
100.00

1955

Contributions to Contribution to
Our Lady of Fatima Chapel, FEU 50.00

ANTONIO ROXAS:

1953

Contributions to —

Pasay City Firemen Christmas Fund

25.00

Pasay City Police Dept. X'mas fund

50.00

1955

Contributions to —

Baguio City Police Christmas fund

25.00

Pasay City Firemen Christmas fund

25.00

Pasay City Police Christmas fund

50.00

EDUARDO ROXAS:

1953

Contributions to —

Hijas de Jesus' Retiro de Manresa

450.00

Philippines Herald's fund for Manila's neediest

families
100.00

1955

Contributions to Philippines
Herald's fund for Manila's
neediest families 120.00

JOSE ROXAS:

1955

Contributions to Philippines
Herald's fund for Manila's
neediest families 120.00

The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted an appeal in the Court of
Tax Appeals on January 9, 1961. The Tax Court heard the appeal and rendered judgment on July 31, 1965 sustaining the
assessment except the demand for the payment of the fixed tax on dealer of securities and the disallowance of the deductions for
contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa. The Tax Court's judgment reads:

WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners Antonio Roxas, Eduardo Roxas,
and Jose Roxas who are hereby ordered to pay the respondent Commissioner of Internal Revenue the amounts of
P12,808.00, P12,887.00 and P11,857.00, respectively, as deficiency income taxes for the years 1953 and 1955, plus 5%
 surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and modified with respect to the
partnership Roxas y Cia. in the sense that it should pay only P150.00, as real estate dealer's tax. With costs against
petitioners.

Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of Internal Revenue did not appeal.

The issues:

(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable?

(2) Are the deductions for business expenses and contributions deductible?

(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers?

The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate dealer because it engaged in
the business of selling real estate. The business activity alluded to was the act of subdividing the Nasugbu farm lands and selling
them to the farmers-occupants on installment. To bolster his stand on the point, he cites one of the purposes of Roxas y Cia. as
contained in its articles of partnership, quoted below:

4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer a ella en el futuro,
alquilandoles por los plazos y demas condiciones, estime convenientes y vendiendo aquellas que a juicio de sus gerentes
no deben conservarse;

The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue cannot be favorably accepted
by Us in this isolated transaction with its peculiar circumstances in spite of the fact that there were hundreds of vendees. Although
they paid for their respective holdings in installment for a period of ten years, it would nevertheless not make the vendor Roxas y
Cia. a real estate dealer during the ten-year amortization period.

It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only
in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the
landless. It was the bounden duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its
haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. However, the Government
could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way
and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government
done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude.

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury
to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays
the golden egg". And, in order to maintain the general public's trust and confidence in the Government this power must be used
justly and not treacherously. It does not conform with Our sense of justice in the instant case for the Government to persuade the
taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax
Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the
extent of 50%.

DISALLOWED DEDUCTIONS

Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor of Sergio Osmena and
P28.00 for San Miguel beer given as gifts to various persons. The deduction were claimed as representation expenses.
Representation expenses are deductible from gross income as expenditures incurred in carrying on a trade or business under
Section 30(a) of the Tax Code provided the taxpayer proves that they are reasonable in amount, ordinary and necessary, and
incurred in connection with his business. In the case at bar, the evidence does not show such link between the expenses and the
business of Roxas y Cia. The findings of the Court of Tax Appeals must therefore be sustained.

The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen, and Baguio City Police
Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's neediest families and Our Lady of Fatima chapel
at Far Eastern University.

The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City Police are not deductible for
the reason that the Christmas funds were not spent for public purposes but as Christmas gifts to the families of the members of said
entities. Under Section 39(h), a contribution to a government entity is deductible when used exclusively for public purposes. For this
reason, the disallowance must be sustained. On the other hand, the contribution to the Manila Police trust fund is an allowable
deduction for said trust fund belongs to the Manila Police, a government entity, intended to be used exclusively for its public
functions.

The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the ground that the Philippines
Herald is not a corporation or an association contemplated in Section 30 (h) of the Tax Code. It should be noted however that the
contributions were not made to the Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald
solely for charitable purposes. There is no question that the members of this group of citizens do not receive profits, for all the funds
they raised were for Manila's neediest families. Such a group of citizens may be classified as an association organized exclusively
for charitable purposes mentioned in Section 30(h) of the Tax Code.

Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel at the Far Eastern
University on the ground that the said university gives dividends to its stockholders. Located within the premises of the university,
the chapel in question has not been shown to belong to the Catholic Church or any religious organization. On the other hand, the
lower court found that it belongs to the Far Eastern University, contributions to which are not deductible under Section 30(h) of the
Tax Code for the reason that the net income of said university injures to the benefit of its stockholders. The disallowance should be
sustained.

Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because although it earned a rental income
of P8,000.00 per annum in 1952, said rental income came from Jose Roxas, one of the partners. Section 194 of the Tax Code, in
considering as real estate dealers owners of real estate receiving rentals of at least P3,000.00 a year, does not provide any
qualification as to the persons paying the rentals. The law, which states: 1äwphï1.ñët

. . . "Real estate dealer" includes any person engaged in the business of buying, selling, exchanging, leasing or renting
property on his own account as principal and holding himself out as a full or part-time dealer in real estate or as an owner
of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year:
. . . (Emphasis supplied) .

is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is sustained.1äwphï1.ñët

To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas. For 1955 they are
liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00, respectively, computed as follows: *

ANTONIO ROXAS

Net income per return P315,476.59

Add: 1/3 share, profits in Roxas y Cia. P 153,249.15

Less amount declared 146,135.46

Amount understated P 7,113.69

Contributions disallowed 115.00

P 7,228.69

Less 1/3 share of contributions amounting to P21,126.06

disallowed from partnership but allowed to partners 7,042.02 186.67

Net income per review P315,663.26

Less: Exemptions 4,200.00

Net taxable income P311,463.26

Tax due 154,169.00

Tax paid 154,060.00

Deficiency
 P 109.00
==========

EDUARDO ROXAS

P
Net income per return
304,166.92

Add: 1/3 share, profits in Roxas y Cia P 153,249.15

Less profits declared 146,052.58

Amount understated P 7,196.57

Less 1/3 share in contributions amounting to P21,126.06

disallowed from partnership but allowed to partners 7,042.02 155.55

Net income per review P304,322.47

Less: Exemptions 4,800.00

Net taxable income P299,592.47

Tax Due P147,250.00

Tax paid 147,159.00

Deficiency P91.00
===========

JOSE ROXAS

Net income per return P222,681.76

Add: 1/3 share, profits in Roxas y Cia. P153,429.15

Less amount reported 146,135.46

Amount understated 7,113.69

Less 1/3 share of contributions disallowed from

partnership but allowed as deductions to partners 7,042.02 71.67

Net income per review P222,753.43

Less: Exemption 1,800.00

Net income subject to tax P220,953.43

Tax due P102,763.00

Tax paid 102,714.00

Deficiency P 49.00
===========

WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay the sum of P150.00 as real estate
dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and Jose Roxas are ordered to pay the respective sums of P109.00,
P91.00 and P49.00 as their individual deficiency income tax all corresponding for the year 1955. No costs. So ordered.
Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Zaldivar, J., took no part.
Concepcion, C.J., is on leave.

22. Tanada vs. Angara, G.R. No. 118295, May 2, 1997 Facts: On April 15, 1994 Rizalino Navarro, the
Secretary of Department of Trade and Industry representing the Government of the Republic of the
Philippines, signed the Final Act Embodying the results of the Uruguay Round of Multilateral
Negotiations. By signing the Final Act he bound the Philippines to submit to its respective competent
authorities the WTO (World Trade Organization) Agreements to seek approval. On December 14, 1994,
the Phillipine Senate adopted Resolution No. 97 to ratify the WTO agreement. This is a petition seeking
to nullify the ratification of the World Trade Organization (WTO) Agreement. The WTO opens access to
foreign markets, especially its major trading partners, through the reduction of tariffs on its exports,
particularly agricultural and industrial products. Thus, provides new opportunities for the service sector
cost and uncertainty associated with exporting and more investment in the country. These are the
predicted benefits as reflected in the agreement and as viewed by the signatory Senators, a “free
market” espoused by WTO. Petitioners question the concurrence of the respondents acting in their
capacities as Senators by signing the said agreement andthe constitutionality of the WTO agreement as
it derogates from the power to tax, which is lodged in the Congress and violates Sec 19, Article II,
providing for the development of a self reliant and independent national economy, and Sections 10 and
12, Article XII, providing for the “Filipino first” policy. Issues: Whether or not the provisions of the WTO
agreement and its three annexes contravene sec. 19, article II, and secs. 10 and 12, article XII, of the
Philippine Constitution. Ruling: By its very title, Article II of the Constitution is a “declaration of principles
and state policies.” These principles in Article II are not intended to be self-executing principles ready for
enforcement through the courts. They are used by the judiciary as aids or as guides in the exercise of its
power of judicial review, and by the legislature in its enactment of laws. As held in the leading case of
Kilosbayan, Incorporated vs. Morato, the principles and state policies enumerated in Article II and some
sections of Article XII are not “self-executing provisions, the disregard of which can give rise to a cause of
action in the courts. They do not embody judicially enforceable constitutional rights but guidelines for
legislation.”

TANADA v. ANGARA
October 26, 2012 § Leave a comment

272 SCRA 18, May 2, 1997

Facts :
This is a petition seeking to nullify the Philippine ratification of the World Trade Organization (WTO) Agreement. Petitioners question
the concurrence of herein respondents acting in their capacities as Senators via signing the said agreement.

The WTO opens access to foreign markets, especially its major trading partners, through the reduction of tariffs on its exports,
particularly agricultural and industrial products. Thus, provides new opportunities for the service sector cost and uncertainty
associated with exporting and more investment in the country. These are the predicted benefits as reflected in the agreement and
as viewed by the signatory Senators, a “free market” espoused by WTO.

Petitioners on the other hand viewed the WTO agreement as one that limits, restricts and impair Philippine economic sovereignty
and legislative power. That the Filipino First policy of the Constitution was taken for granted as it gives foreign trading intervention.

Issue : Whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the
Senate in giving its concurrence of the said WTO agreement.

Held:
In its Declaration of Principles and state policies, the Constitution “adopts the generally accepted principles of international law as
part of the law of the land, and adheres to the policy of peace, equality, justice, freedom, cooperation and amity , with all nations. By
the doctrine of incorporation, the country is bound by generally accepted principles of international law, which are considered
automatically part of our own laws. Pacta sunt servanda – international agreements must be performed in good faith. A treaty is not
a mere moral obligation but creates a legally binding obligation on the parties.
Through WTO the sovereignty of the state cannot in fact and reality be considered as absolute because it is a regulation of
commercial relations among nations. Such as when Philippines joined the United Nations (UN) it consented to restrict its
sovereignty right under the “concept of sovereignty as autolimitation.” What Senate did was a valid exercise of authority. As to
determine whether such exercise is wise, beneficial or viable is outside the realm of judicial inquiry and review. The act of signing
the said agreement is not a legislative restriction as WTO allows withdrawal of membership should this be the political desire of a
member. Also, it should not be viewed as a limitation of economic sovereignty. WTO remains as the only viable structure for
multilateral trading and the veritable forum for the development of international trade law. Its alternative is isolation, stagnation if not
economic self-destruction. Thus, the people be allowed, through their duly elected officers, make their free choice.
Petition is DISMISSED for lack of merit.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 118295 May 2, 1997

WIGBERTO E. TAÑADA and ANNA DOMINIQUE COSETENG, as members of the Philippine Senate and as taxpayers;
GREGORIO ANDOLANA and JOKER ARROYO as members of the House of Representatives and as taxpayers; NICANOR
P. PERLAS and HORACIO R. MORALES, both as taxpayers; CIVIL LIBERTIES UNION, NATIONAL ECONOMIC
PROTECTIONISM ASSOCIATION, CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES, LIKAS-KAYANG
KAUNLARAN FOUNDATION, INC., PHILIPPINE RURAL RECONSTRUCTION MOVEMENT, DEMOKRATIKONG KILUSAN NG
MAGBUBUKID NG PILIPINAS, INC., and PHILIPPINE PEASANT INSTITUTE, in representation of various taxpayers and as
non-governmental organizations, petitioners,
vs.
EDGARDO ANGARA, ALBERTO ROMULO, LETICIA RAMOS-SHAHANI, HEHERSON ALVAREZ, AGAPITO AQUINO,
RODOLFO BIAZON, NEPTALI GONZALES, ERNESTO HERRERA, JOSE LINA, GLORIA. MACAPAGAL-ARROYO, ORLANDO
MERCADO, BLAS OPLE, JOHN OSMEÑA, SANTANINA RASUL, RAMON REVILLA, RAUL ROCO, FRANCISCO TATAD and
FREDDIE WEBB, in their respective capacities as members of the Philippine Senate who concurred in the ratification by
the President of the Philippines of the Agreement Establishing the World Trade Organization; SALVADOR ENRIQUEZ, in
his capacity as Secretary of Budget and Management; CARIDAD VALDEHUESA, in her capacity as National Treasurer;
RIZALINO NAVARRO, in his capacity as Secretary of Trade and Industry; ROBERTO SEBASTIAN, in his capacity as
Secretary of Agriculture; ROBERTO DE OCAMPO, in his capacity as Secretary of Finance; ROBERTO ROMULO, in his
capacity as Secretary of Foreign Affairs; and TEOFISTO T. GUINGONA, in his capacity as Executive Secretary, respondents.

PANGANIBAN, J.:
The emergence on January 1, 1995 of the World Trade Organization, abetted by the membership thereto of the vast majority of
countries has revolutionized international business and economic relations amongst states. It has irreversibly propelled the world
towards trade liberalization and economic globalization. Liberalization, globalization, deregulation and privatization, the third-
millennium buzz words, are ushering in a new borderless world of business by sweeping away as mere historical relics the
heretofore traditional modes of promoting and protecting national economies like tariffs, export subsidies, import quotas, quantitative
restrictions, tax exemptions and currency controls. Finding market niches and becoming the best in specific industries in a market-
driven and export-oriented global scenario are replacing age-old "beggar-thy-neighbor" policies that unilaterally protect weak and
inefficient domestic producers of goods and services. In the words of Peter Drucker, the well-known management guru, "Increased
participation in the world economy has become the key to domestic economic growth and prosperity."
Brief Historical Background
To hasten worldwide recovery from the devastation wrought by the Second World War, plans for the establishment of three
multilateral institutions — inspired by that grand political body, the United Nations — were discussed at Dumbarton Oaks and
Bretton Woods. The first was the World Bank (WB) which was to address the rehabilitation and reconstruction of war-ravaged and
later developing countries; the second, the International Monetary Fund (IMF) which was to deal with currency problems; and
the third, the International Trade Organization (ITO), which was to foster order and predictability in world trade and to minimize
unilateral protectionist policies that invite challenge, even retaliation, from other states. However, for a variety of reasons, including
its non-ratification by the United States, the ITO, unlike the IMF and WB, never took off. What remained was only GATT — the
General Agreement on Tariffs and Trade. GATT was a collection of treaties governing access to the economies of treaty adherents
with no institutionalized body administering the agreements or dependable system of dispute settlement.
After half a century and several dizzying rounds of negotiations, principally the Kennedy Round, the Tokyo Round and the Uruguay
Round, the world finally gave birth to that administering body — the World Trade Organization — with the signing of the "Final Act"
in Marrakesh, Morocco and the ratification of the WTO Agreement by its members. 1
Like many other developing countries, the Philippines joined WTO as a founding member with the goal, as articulated by President
Fidel V. Ramos in two letters to the Senate (infra), of improving "Philippine access to foreign markets, especially its major trading
partners, through the reduction of tariffs on its exports, particularly agricultural and industrial products." The President also saw in
the WTO the opening of "new opportunities for the services sector . . . , (the reduction of) costs and uncertainty associated with
exporting . . . , and (the attraction of) more investments into the country." Although the Chief Executive did not expressly mention it
in his letter, the Philippines — and this is of special interest to the legal profession — will benefit from the WTO system of dispute
settlement by judicial adjudication through the independent WTO settlement bodies called (1) Dispute Settlement Panels and (2)
Appellate Tribunal. Heretofore, trade disputes were settled mainly through negotiations where solutions were arrived at frequently
on the basis of relative bargaining strengths, and where naturally, weak and underdeveloped countries were at a disadvantage.
The Petition in Brief
Arguing mainly (1) that the WTO requires the Philippines "to place nationals and products of member-countries on the same footing
as Filipinos and local products" and (2) that the WTO "intrudes, limits and/or impairs" the constitutional powers of both Congress
and the Supreme Court, the instant petition before this Court assails the WTO Agreement for violating the mandate of the 1987
Constitution to "develop a self-reliant and independent national economy effectively controlled by Filipinos . . . (to) give preference to
qualified Filipinos (and to) promote the preferential use of Filipino labor, domestic materials and locally produced goods."
Simply stated, does the Philippine Constitution prohibit Philippine participation in worldwide trade liberalization and economic
globalization? Does it proscribe Philippine integration into a global economy that is liberalized, deregulated and privatized? These
are the main questions raised in this petition for certiorari, prohibition and mandamus under Rule 65 of the Rules of Court praying
(1) for the nullification, on constitutional grounds, of the concurrence of the Philippine Senate in the ratification by the President of
the Philippines of the Agreement Establishing the World Trade Organization (WTO Agreement, for brevity) and (2) for the prohibition
of its implementation and enforcement through the release and utilization of public funds, the assignment of public officials and
employees, as well as the use of government properties and resources by respondent-heads of various executive offices concerned
therewith. This concurrence is embodied in Senate Resolution No. 97, dated December 14, 1994.
The Facts
On April 15, 1994, Respondent Rizalino Navarro, then Secretary of The Department of Trade and Industry (Secretary Navarro, for
brevity), representing the Government of the Republic of the Philippines, signed in Marrakesh, Morocco, the Final Act Embodying
the Results of the Uruguay Round of Multilateral Negotiations (Final Act, for brevity).
By signing the Final Act, 2 Secretary Navarro on behalf of the Republic of the Philippines, agreed:
(a) to submit, as appropriate, the WTO Agreement for the consideration of their respective competent
authorities, with a view to seeking approval of the Agreement in accordance with their procedures; and
(b) to adopt the Ministerial Declarations and Decisions.
On August 12, 1994, the members of the Philippine Senate received a letter dated August 11, 1994 from the President of the
3
Philippines, stating among others that "the Uruguay Round Final Act is hereby submitted to the Senate for its concurrence
pursuant to Section 21, Article VII of the Constitution."
On August 13, 1994, the members of the Philippine Senate received another letter from the President of the Philippines 4 likewise
dated August 11, 1994, which stated among others that "the Uruguay Round Final Act, the Agreement Establishing the World Trade
Organization, the Ministerial Declarations and Decisions, and the Understanding on Commitments in Financial Services are hereby
submitted to the Senate for its concurrence pursuant to Section 21, Article VII of the Constitution."
On December 9, 1994, the President of the Philippines certified the necessity of the immediate adoption of P.S. 1083, a resolution
entitled "Concurring in the Ratification of the Agreement Establishing the World Trade Organization." 5
On December 14, 1994, the Philippine Senate adopted Resolution No. 97 which "Resolved, as it is hereby resolved, that the Senate
concur, as it hereby concurs, in the ratification by the President of the Philippines of the Agreement Establishing the World Trade
Organization." 6 The text of the WTO Agreement is written on pages 137 et seq. of Volume I of the 36-volume Uruguay Round of
Multilateral Trade Negotiations and includes various agreements and associated legal instruments (identified in the said Agreement
as Annexes 1, 2 and 3 thereto and collectively referred to as Multilateral Trade Agreements, for brevity) as follows:
ANNEX 1
Annex 1A: Multilateral Agreement on Trade in Goods
General Agreement on Tariffs and Trade 1994
Agreement on Agriculture
Agreement on the Application of Sanitary and
Phytosanitary Measures
Agreement on Textiles and Clothing
Agreement on Technical Barriers to Trade
Agreement on Trade-Related Investment Measures
Agreement on Implementation of Article VI of he
General Agreement on Tariffs and Trade
1994
Agreement on Implementation of Article VII of the
General on Tariffs and Trade 1994
Agreement on Pre-Shipment Inspection
Agreement on Rules of Origin
Agreement on Imports Licensing Procedures
Agreement on Subsidies and Coordinating
Measures
Agreement on Safeguards
Annex 1B: General Agreement on Trade in Services and Annexes
Annex 1C: Agreement on Trade-Related Aspects of Intellectual
Property Rights
ANNEX 2
Understanding on Rules and Procedures Governing
the Settlement of Disputes
ANNEX 3
Trade Policy Review Mechanism
On December 16, 1994, the President of the Philippines signed 7 the Instrument of Ratification, declaring:
NOW THEREFORE, be it known that I, FIDEL V. RAMOS, President of the Republic of the Philippines, after
having seen and considered the aforementioned Agreement Establishing the World Trade Organization and the
agreements and associated legal instruments included in Annexes one (1), two (2) and three (3) of that
Agreement which are integral parts thereof, signed at Marrakesh, Morocco on 15 April 1994, do hereby ratify
and confirm the same and every Article and Clause thereof.
To emphasize, the WTO Agreement ratified by the President of the Philippines is composed of the Agreement Proper and "the
associated legal instruments included in Annexes one (1), two (2) and three (3) of that Agreement which are integral parts thereof."
On the other hand, the Final Act signed by Secretary Navarro embodies not only the WTO Agreement (and its integral annexes
aforementioned) but also (1) the Ministerial Declarations and Decisions and (2) the Understanding on Commitments in Financial
Services. In his Memorandum dated May 13, 1996, 8 the Solicitor General describes these two latter documents as follows:
The Ministerial Decisions and Declarations are twenty-five declarations and decisions on a wide range of
matters, such as measures in favor of least developed countries, notification procedures, relationship of WTO
with the International Monetary Fund (IMF), and agreements on technical barriers to trade and on dispute
settlement.
The Understanding on Commitments in Financial Services dwell on, among other things, standstill or limitations
and qualifications of commitments to existing non-conforming measures, market access, national treatment,
and definitions of non-resident supplier of financial services, commercial presence and new financial service.
On December 29, 1994, the present petition was filed. After careful deliberation on respondents' comment and petitioners' reply
thereto, the Court resolved on December 12, 1995, to give due course to the petition, and the parties thereafter filed their respective
memoranda. The court also requested the Honorable Lilia R. Bautista, the Philippine Ambassador to the United Nations stationed in
Geneva, Switzerland, to submit a paper, hereafter referred to as "Bautista Paper," 9 for brevity, (1) providing a historical background
of and (2) summarizing the said agreements.
During the Oral Argument held on August 27, 1996, the Court directed:
(a) the petitioners to submit the (1) Senate Committee Report on the matter in controversy and (2) the transcript
of proceedings/hearings in the Senate; and
(b) the Solicitor General, as counsel for respondents, to file (1) a list of Philippine treaties signed prior to the
Philippine adherence to the WTO Agreement, which derogate from Philippine sovereignty and (2) copies of the
multi-volume WTO Agreement and other documents mentioned in the Final Act, as soon as possible.
After receipt of the foregoing documents, the Court said it would consider the case submitted for resolution. In a Compliance dated
September 16, 1996, the Solicitor General submitted a printed copy of the 36-volume Uruguay Round of Multilateral Trade
Negotiations, and in another Compliance dated October 24, 1996, he listed the various "bilateral or multilateral treaties or
international instruments involving derogation of Philippine sovereignty." Petitioners, on the other hand, submitted their Compliance
dated January 28, 1997, on January 30, 1997.
The Issues
In their Memorandum dated March 11, 1996, petitioners summarized the issues as follows:
A. Whether the petition presents a political question or is otherwise not justiciable.
B. Whether the petitioner members of the Senate who participated in the deliberations and voting leading to the
concurrence are estopped from impugning the validity of the Agreement Establishing the World Trade
Organization or of the validity of the concurrence.
C. Whether the provisions of the Agreement Establishing the World Trade Organization contravene the
provisions of Sec. 19, Article II, and Secs. 10 and 12, Article XII, all of the 1987 Philippine Constitution.
D. Whether provisions of the Agreement Establishing the World Trade Organization unduly limit, restrict and
impair Philippine sovereignty specifically the legislative power which, under Sec. 2, Article VI, 1987 Philippine
Constitution is "vested in the Congress of the Philippines";
E. Whether provisions of the Agreement Establishing the World Trade Organization interfere with the exercise
of judicial power.
F. Whether the respondent members of the Senate acted in grave abuse of discretion amounting to lack or
excess of jurisdiction when they voted for concurrence in the ratification of the constitutionally-infirm Agreement
Establishing the World Trade Organization.
G. Whether the respondent members of the Senate acted in grave abuse of discretion amounting to lack or
excess of jurisdiction when they concurred only in the ratification of the Agreement Establishing the World
Trade Organization, and not with the Presidential submission which included the Final Act, Ministerial
Declaration and Decisions, and the Understanding on Commitments in Financial Services.
On the other hand, the Solicitor General as counsel for respondents "synthesized the several issues raised by petitioners into the
following": 10
1. Whether or not the provisions of the "Agreement Establishing the World Trade Organization and the
Agreements and Associated Legal Instruments included in Annexes one (1), two (2) and three (3) of that
agreement" cited by petitioners directly contravene or undermine the letter, spirit and intent of Section 19,
Article II and Sections 10 and 12, Article XII of the 1987 Constitution.
2. Whether or not certain provisions of the Agreement unduly limit, restrict or impair the exercise of legislative
power by Congress.
3. Whether or not certain provisions of the Agreement impair the exercise of judicial power by this Honorable
Court in promulgating the rules of evidence.
4. Whether or not the concurrence of the Senate "in the ratification by the President of the Philippines of the
Agreement establishing the World Trade Organization" implied rejection of the treaty embodied in the Final Act.
By raising and arguing only four issues against the seven presented by petitioners, the Solicitor General has effectively ignored
three, namely: (1) whether the petition presents a political question or is otherwise not justiciable; (2) whether petitioner-members of
the Senate (Wigberto E. Tañada and Anna Dominique Coseteng) are estopped from joining this suit; and (3) whether the
respondent-members of the Senate acted in grave abuse of discretion when they voted for concurrence in the ratification of the
WTO Agreement. The foregoing notwithstanding, this Court resolved to deal with these three issues thus:
(1) The "political question" issue — being very fundamental and vital, and being a matter that probes into the very jurisdiction of this
Court to hear and decide this case — was deliberated upon by the Court and will thus be ruled upon as the first issue;
(2) The matter of estoppel will not be taken up because this defense is waivable and the respondents have effectively waived it by
not pursuing it in any of their pleadings; in any event, this issue, even if ruled in respondents' favor, will not cause the petition's
dismissal as there are petitioners other than the two senators, who are not vulnerable to the defense of estoppel; and
(3) The issue of alleged grave abuse of discretion on the part of the respondent senators will be taken up as an integral part of the
disposition of the four issues raised by the Solicitor General.
During its deliberations on the case, the Court noted that the respondents did not question the locus standi of petitioners. Hence,
they are also deemed to have waived the benefit of such issue. They probably realized that grave constitutional issues,
expenditures of public funds and serious international commitments of the nation are involved here, and that transcendental public
interest requires that the substantive issues be met head on and decided on the merits, rather than skirted or deflected by
procedural matters. 11
To recapitulate, the issues that will be ruled upon shortly are:
(1) DOES THE PETITION PRESENT A JUSTICIABLE CONTROVERSY? OTHERWISE STATED, DOES THE
PETITION INVOLVE A POLITICAL QUESTION OVER WHICH THIS COURT HAS NO JURISDICTION?
(2) DO THE PROVISIONS OF THE WTO AGREEMENT AND ITS THREE ANNEXES CONTRAVENE SEC. 19,
ARTICLE II, AND SECS. 10 AND 12, ARTICLE XII, OF THE PHILIPPINE CONSTITUTION?
(3) DO THE PROVISIONS OF SAID AGREEMENT AND ITS ANNEXES LIMIT, RESTRICT, OR IMPAIR THE
EXERCISE OF LEGISLATIVE POWER BY CONGRESS?
(4) DO SAID PROVISIONS UNDULY IMPAIR OR INTERFERE WITH THE EXERCISE OF JUDICIAL POWER
BY THIS COURT IN PROMULGATING RULES ON EVIDENCE?
(5) WAS THE CONCURRENCE OF THE SENATE IN THE WTO AGREEMENT AND ITS ANNEXES
SUFFICIENT AND/OR VALID, CONSIDERING THAT IT DID NOT INCLUDE THE FINAL ACT, MINISTERIAL
DECLARATIONS AND DECISIONS, AND THE UNDERSTANDING ON COMMITMENTS IN FINANCIAL
SERVICES?
The First Issue: Does the Court
Have Jurisdiction Over the Controversy?
In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the Constitution, the petition no doubt raises a
justiciable controversy. Where an action of the legislative branch is seriously alleged to have infringed the Constitution, it becomes
not only the right but in fact the duty of the judiciary to settle the dispute. "The question thus posed is judicial rather than political.
The duty (to adjudicate) remains to assure that the supremacy of the Constitution is upheld." 12 Once a "controversy as to the
application or interpretation of a constitutional provision is raised before this Court (as in the instant case), it becomes a legal issue
which the Court is bound by constitutional mandate to decide." 13
The jurisdiction of this Court to adjudicate the matters 14 raised in the petition is clearly set out in the 1987 Constitution, 15 as follows:
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
government.
The foregoing text emphasizes the judicial department's duty and power to strike down grave abuse of discretion on the part of any
branch or instrumentality of government including Congress. It is an innovation in our political law. 16As explained by former Chief
Justice Roberto Concepcion, 17 "the judiciary is the final arbiter on the question of whether or not a branch of government or any of
its officials has acted without jurisdiction or in excess of jurisdiction or so capriciously as to constitute an abuse of discretion
amounting to excess of jurisdiction. This is not only a judicial power but a duty to pass judgment on matters of this nature."
As this Court has repeatedly and firmly emphasized in many cases, 18 it will not shirk, digress from or abandon its sacred duty and
authority to uphold the Constitution in matters that involve grave abuse of discretion brought before it in appropriate cases,
committed by any officer, agency, instrumentality or department of the government.
As the petition alleges grave abuse of discretion and as there is no other plain, speedy or adequate remedy in the ordinary course of
law, we have no hesitation at all in holding that this petition should be given due course and the vital questions raised therein ruled
upon under Rule 65 of the Rules of Court. Indeed, certiorari, prohibition and mandamus are appropriate remedies to raise
constitutional issues and to review and/or prohibit/nullify, when proper, acts of legislative and executive officials. On this, we have no
equivocation.
We should stress that, in deciding to take jurisdiction over this petition, this Court will not review the wisdom of the decision of the
President and the Senate in enlisting the country into the WTO, or pass upon the merits of trade liberalization as a policy espoused
by said international body. Neither will it rule on the propriety of the government's economic policy of reducing/removing tariffs,
taxes, subsidies, quantitative restrictions, and other import/trade barriers. Rather, it will only exercise its constitutional duty "to
determine whether or not there had been a grave abuse of discretion amounting to lack or excess of jurisdiction" on the part of the
Senate in ratifying the WTO Agreement and its three annexes.
Second Issue: The WTO Agreement
and Economic Nationalism
This is the lis mota, the main issue, raised by the petition.
Petitioners vigorously argue that the "letter, spirit and intent" of the Constitution mandating "economic nationalism" are violated by
the so-called "parity provisions" and "national treatment" clauses scattered in various parts not only of the WTO Agreement and its
annexes but also in the Ministerial Decisions and Declarations and in the Understanding on Commitments in Financial Services.
Specifically, the "flagship" constitutional provisions referred to are Sec 19, Article II, and Secs. 10 and 12, Article XII, of the
Constitution, which are worded as follows:
Article II
DECLARATION OF PRINCIPLES
AND STATE POLICIES
xxx xxx xxx
Sec. 19. The State shall develop a self-reliant and independent national economy effectively controlled by
Filipinos.
xxx xxx xxx
Article XII
NATIONAL ECONOMY AND PATRIMONY
xxx xxx xxx
 Sec. 10. . . . The Congress shall enact measures that will encourage the formation and operation of enterprises
whose capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall
give preference to qualified Filipinos.
xxx xxx xxx
Sec. 12. The State shall promote the preferential use of Filipino labor, domestic materials and locally produced
goods, and adopt measures that help make them competitive.
Petitioners aver that these sacred constitutional principles are desecrated by the following WTO provisions quoted in their
memorandum: 19
a) In the area of investment measures related to trade in goods (TRIMS, for brevity):
Article 2
National Treatment and Quantitative Restrictions.
1. Without prejudice to other rights and obligations under GATT 1994, no Member shall
apply any TRIM that is inconsistent with the provisions of Article II or Article XI of GATT
1994.
2. An illustrative list of TRIMS that are inconsistent with the obligations of general
elimination of quantitative restrictions provided for in paragraph I of Article XI of GATT 1994
is contained in the Annex to this Agreement." (Agreement on Trade-Related Investment
Measures, Vol. 27, Uruguay Round, Legal Instruments, p. 22121, emphasis supplied).
The Annex referred to reads as follows:
ANNEX
Illustrative List
1. TRIMS that are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III
of GATT 1994 include those which are mandatory or enforceable under domestic law or under administrative
rulings, or compliance with which is necessary to obtain an advantage, and which require:
(a) the purchase or use by an enterprise of products of domestic origin or from any
domestic source, whether specified in terms of particular products, in terms of volume or
value of products, or in terms of proportion of volume or value of its local production; or
(b) that an enterprise's purchases or use of imported products be limited to an amount
related to the volume or value of local products that it exports.
2. TRIMS that are inconsistent with the obligations of general elimination of quantitative restrictions provided for
in paragraph 1 of Article XI of GATT 1994 include those which are mandatory or enforceable under domestic
laws or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which
restrict:
(a) the importation by an enterprise of products used in or related to the local production
that it exports;
(b) the importation by an enterprise of products used in or related to its local production by
restricting its access to foreign exchange inflows attributable to the enterprise; or
(c) the exportation or sale for export specified in terms of particular products, in terms of
volume or value of products, or in terms of a preparation of volume or value of its local
production. (Annex to the Agreement on Trade-Related Investment Measures, Vol. 27,
Uruguay Round Legal Documents, p. 22125, emphasis supplied).
The paragraph 4 of Article III of GATT 1994 referred to is quoted as follows:
The products of the territory of any contracting party imported into the territory of any other
contracting party shall be accorded treatment no less favorable than that accorded to like
products of national origin in respect of laws, regulations and requirements affecting their
internal sale, offering for sale, purchase, transportation, distribution or use, the provisions of
this paragraph shall not prevent the application of differential internal transportation
charges which are based exclusively on the economic operation of the means of transport
and not on the nationality of the product." (Article III, GATT 1947, as amended by the
Protocol Modifying Part II, and Article XXVI of GATT, 14 September 1948, 62 UMTS 82-84
in relation to paragraph 1(a) of the General Agreement on Tariffs and Trade 1994, Vol. 1,
Uruguay Round, Legal Instruments p. 177, emphasis supplied).
(b) In the area of trade related aspects of intellectual property rights (TRIPS, for brevity):
Each Member shall accord to the nationals of other Members treatment no less favourable
than that it accords to its own nationals with regard to the protection of intellectual property.
. . (par. 1 Article 3, Agreement on Trade-Related Aspect of Intellectual Property rights, Vol.
31, Uruguay Round, Legal Instruments, p. 25432 (emphasis supplied)
(c) In the area of the General Agreement on Trade in Services:
National Treatment
1. In the sectors inscribed in its schedule, and subject to any conditions and qualifications
set out therein, each Member shall accord to services and service suppliers of any other
Member, in respect of all measures affecting the supply of services, treatment no less
favourable than it accords to its own like services and service suppliers.
2. A Member may meet the requirement of paragraph I by according to services and
service suppliers of any other Member, either formally suppliers of any other Member,
either formally identical treatment or formally different treatment to that it accords to its own
like services and service suppliers.
3. Formally identical or formally different treatment shall be considered to be less
favourable if it modifies the conditions of completion in favour of services or service
 suppliers of the Member compared to like services or service suppliers of any other
Member. (Article XVII, General Agreement on Trade in Services, Vol. 28, Uruguay Round
Legal Instruments, p. 22610 emphasis supplied).
It is petitioners' position that the foregoing "national treatment" and "parity provisions" of the WTO Agreement "place nationals and
products of member countries on the same footing as Filipinos and local products," in contravention of the "Filipino First" policy of
the Constitution. They allegedly render meaningless the phrase "effectively controlled by Filipinos." The constitutional conflict
becomes more manifest when viewed in the context of the clear duty imposed on the Philippines as a WTO member to ensure the
conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed
agreements. 20 Petitioners further argue that these provisions contravene constitutional limitations on the role exports play in
national development and negate the preferential treatment accorded to Filipino labor, domestic materials and locally produced
goods.
On the other hand, respondents through the Solicitor General counter (1) that such Charter provisions are not self-executing and
merely set out general policies; (2) that these nationalistic portions of the Constitution invoked by petitioners should not be read in
isolation but should be related to other relevant provisions of Art. XII, particularly Secs. 1 and 13 thereof; (3) that read properly, the
cited WTO clauses do not conflict with Constitution; and (4) that the WTO Agreement contains sufficient provisions to protect
developing countries like the Philippines from the harshness of sudden trade liberalization.
We shall now discuss and rule on these arguments.
Declaration of Principles
Not Self-Executing
By its very title, Article II of the Constitution is a "declaration of principles and state policies." The counterpart of this article in the
1935 Constitution 21 is called the "basic political creed of the nation" by Dean Vicente Sinco. 22 These principles in Article II are not
intended to be self-executing principles ready for enforcement through the courts. 23 They are used by the judiciary as aids or as
guides in the exercise of its power of judicial review, and by the legislature in its enactment of laws. As held in the leading case
of Kilosbayan, Incorporated vs. Morato, 24 the principles and state policies enumerated in Article II and some sections of Article XII
are not "self-executing provisions, the disregard of which can give rise to a cause of action in the courts. They do not embody
judicially enforceable constitutional rights but guidelines for legislation."
In the same light, we held in Basco vs. Pagcor 25 that broad constitutional principles need legislative enactments to implement the,
thus:
On petitioners' allegation that P.D. 1869 violates Sections 11 (Personal Dignity) 12 (Family) and 13 (Role of
Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of
the 1987 Constitution, suffice it to state also that these are merely statements of principles and policies. As
such, they are basically not self-executing, meaning a law should be passed by Congress to clearly define and
effectuate such principles.
In general, therefore, the 1935 provisions were not intended to be self-executing principles
ready for enforcement through the courts. They were rather directives addressed to the
executive and to the legislature. If the executive and the legislature failed to heed the
directives of the article, the available remedy was not judicial but political. The electorate
could express their displeasure with the failure of the executive and the legislature through
the language of the ballot. (Bernas, Vol. II, p. 2).
The reasons for denying a cause of action to an alleged infringement of board constitutional principles are sourced from basic
considerations of due process and the lack of judicial authority to wade "into the uncharted ocean of social and economic policy
making." Mr. Justice Florentino P. Feliciano in his concurring opinion in Oposa vs. Factoran, Jr., 26 explained these reasons as
follows:
My suggestion is simply that petitioners must, before the trial court, show a more specific legal right — a right
cast in language of a significantly lower order of generality than Article II (15) of the Constitution — that is or
may be violated by the actions, or failures to act, imputed to the public respondent by petitioners so that the trial
court can validly render judgment grating all or part of the relief prayed for. To my mind, the court should be
understood as simply saying that such a more specific legal right or rights may well exist in our corpus of law,
considering the general policy principles found in the Constitution and the existence of the Philippine
Environment Code, and that the trial court should have given petitioners an effective opportunity so to
demonstrate, instead of aborting the proceedings on a motion to dismiss.
It seems to me important that the legal right which is an essential component of a cause of action be a specific,
operable legal right, rather than a constitutional or statutory policy, for at least two (2) reasons. One is that
unless the legal right claimed to have been violated or disregarded is given specification in operational terms,
defendants may well be unable to defend themselves intelligently and effectively; in other words, there are due
process dimensions to this matter.
The second is a broader-gauge consideration — where a specific violation of law or applicable regulation is not
alleged or proved, petitioners can be expected to fall back on the expanded conception of judicial power in the
second paragraph of Section 1 of Article VIII of the Constitution which reads:
Sec. 1. . . .
Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine whether
or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis
supplied)
When substantive standards as general as "the right to a balanced and healthy ecology" and "the right to
health" are combined with remedial standards as broad ranging as "a grave abuse of discretion amounting to
lack or excess of jurisdiction," the result will be, it is respectfully submitted, to propel courts into the uncharted
ocean of social and economic policy making. At least in respect of the vast area of environmental protection and
management, our courts have no claim to special technical competence and experience and professional
 qualification. Where no specific, operable norms and standards are shown to exist, then the policy making
departments — the legislative and executive departments — must be given a real and effective opportunity to
fashion and promulgate those norms and standards, and to implement them before the courts should intervene.
Economic Nationalism Should Be Read with
Other Constitutional Mandates to Attain
Balanced Development of Economy
On the other hand, Secs. 10 and 12 of Article XII, apart from merely laying down general principles relating to the national economy
and patrimony, should be read and understood in relation to the other sections in said article, especially Secs. 1 and 13 thereof
which read:
Sec. 1. The goals of the national economy are a more equitable distribution of opportunities, income, and
wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the
people; and an expanding productivity as the key to raising the quality of life for all especially the
underprivileged.
The State shall promote industrialization and full employment based on sound agricultural development and
agrarian reform, through industries that make full and efficient use of human and natural resources, and which
are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum
opportunity to develop. . . .
xxx xxx xxx
Sec. 13. The State shall pursue a trade policy that serves the general welfare and utilizes all forms and
arrangements of exchange on the basis of equality and reciprocity.
As pointed out by the Solicitor General, Sec. 1 lays down the basic goals of national economic development, as follows:
1. A more equitable distribution of opportunities, income and wealth;
2. A sustained increase in the amount of goods and services provided by the nation for the benefit of the people; and
3. An expanding productivity as the key to raising the quality of life for all especially the underprivileged.
With these goals in context, the Constitution then ordains the ideals of economic nationalism (1) by expressing preference in favor of
qualified Filipinos "in the grant of rights, privileges and concessions covering the national economy and patrimony" 27 and in the use
of "Filipino labor, domestic materials and locally-produced goods"; (2) by mandating the State to "adopt measures that help make
them competitive; 28 and (3) by requiring the State to "develop a self-reliant and independent national economy effectively controlled
by Filipinos." 29 In similar language, the Constitution takes into account the realities of the outside world as it requires the pursuit of
"a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality ad
reciprocity"; 30 and speaks of industries "which are competitive in both domestic and foreign markets" as well as of the protection of
"Filipino enterprises against unfair foreign competition and trade practices."
It is true that in the recent case of Manila Prince Hotel vs. Government Service Insurance System, et al., 31 this Court held that "Sec.
10, second par., Art. XII of the 1987 Constitution is a mandatory, positive command which is complete in itself and which needs no
further guidelines or implementing laws or rule for its enforcement. From its very words the provision does not require any legislation
to put it in operation. It is per se judicially enforceable." However, as the constitutional provision itself states, it is enforceable only in
regard to "the grants of rights, privileges and concessions covering national economy and patrimony" and not to every aspect of
trade and commerce. It refers to exceptions rather than the rule. The issue here is not whether this paragraph of Sec. 10 of Art. XII
is self-executing or not. Rather, the issue is whether, as a rule, there are enough balancing provisions in the Constitution to allow the
Senate to ratify the Philippine concurrence in the WTO Agreement. And we hold that there are.
All told, while the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the same time, it
recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of
Filipino enterprises only against foreign competition and trade practices that are unfair. 32 In other words, the Constitution did not
intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the
Philippine economy. While the Constitution does not encourage the unlimited entry of foreign goods, services and investments into
the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on
foreign competition that is unfair.
WTO Recognizes Need to
Protect Weak Economies
Upon the other hand, respondents maintain that the WTO itself has some built-in advantages to protect weak and developing
economies, which comprise the vast majority of its members. Unlike in the UN where major states have permanent seats and veto
powers in the Security Council, in the WTO, decisions are made on the basis of sovereign equality, with each member's vote equal
in weight to that of any other. There is no WTO equivalent of the UN Security Council.
WTO decides by consensus whenever possible, otherwise, decisions of the Ministerial Conference and the
General Council shall be taken by the majority of the votes cast, except in cases of interpretation of the
Agreement or waiver of the obligation of a member which would require three fourths vote. Amendments would
require two thirds vote in general. Amendments to MFN provisions and the Amendments provision will require
assent of all members. Any member may withdraw from the Agreement upon the expiration of six months from
the date of notice of withdrawals. 33
Hence, poor countries can protect their common interests more effectively through the WTO than through one-on-one negotiations
with developed countries. Within the WTO, developing countries can form powerful blocs to push their economic agenda more
decisively than outside the Organization. This is not merely a matter of practical alliances but a negotiating strategy rooted in law.
Thus, the basic principles underlying the WTO Agreement recognize the need of developing countries like the Philippines to "share
in the growth in international trade commensurate with the needs of their economic development." These basic principles are found
in the preamble 34of the WTO Agreement as follows:
The Parties to this Agreement,
Recognizing that their relations in the field of trade and economic endeavour should be conducted with a view
to raising standards of living, ensuring full employment and a large and steadily growing volume of real income
 and effective demand, and expanding the production of and trade in goods and services, while allowing for the
optimal use of the world's resources in accordance with the objective of sustainable development, seeking both
to protect and preserve the environment and to enhance the means for doing so in a manner consistent with
their respective needs and concerns at different levels of economic development,
Recognizing further that there is need for positive efforts designed to ensure that developing countries, and
especially the least developed among them, secure a share in the growth in international trade commensurate
with the needs of their economic development,
Being desirous of contributing to these objectives by entering into reciprocal and mutually advantageous
arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of
discriminatory treatment in international trade relations,
Resolved, therefore, to develop an integrated, more viable and durable multilateral trading system
encompassing the General Agreement on Tariffs and Trade, the results of past trade liberalization efforts, and
all of the results of the Uruguay Round of Multilateral Trade Negotiations,
Determined to preserve the basic principles and to further the objectives underlying this multilateral trading
system, . . . (emphasis supplied.)
Specific WTO Provisos
Protect Developing Countries
So too, the Solicitor General points out that pursuant to and consistent with the foregoing basic principles, the WTO Agreement
grants developing countries a more lenient treatment, giving their domestic industries some protection from the rush of foreign
competition. Thus, with respect to tariffs in general, preferential treatment is given to developing countries in terms of the amount of
tariff reduction and the period within which the reduction is to be spread out. Specifically, GATT requires an average tariff reduction
rate of 36% for developed countries to be effected within a period of six (6) years while developing countries — including the
Philippines — are required to effect an average tariff reduction of only 24% within ten (10) years.
In respect to domestic subsidy, GATT requires developed countries to reduce domestic support to agricultural products by 20% over
six (6) years, as compared to only 13% for developing countries to be effected within ten (10) years.
In regard to export subsidy for agricultural products, GATT requires developed countries to reduce their budgetary outlays for export
subsidy by 36% and export volumes receiving export subsidy by 21% within a period of six (6) years. For developing countries,
however, the reduction rate is only two-thirds of that prescribed for developed countries and a longer period of ten (10) years within
which to effect such reduction.
Moreover, GATT itself has provided built-in protection from unfair foreign competition and trade practices including anti-dumping
measures, countervailing measures and safeguards against import surges. Where local businesses are jeopardized by unfair
foreign competition, the Philippines can avail of these measures. There is hardly therefore any basis for the statement that under the
WTO, local industries and enterprises will all be wiped out and that Filipinos will be deprived of control of the economy. Quite the
contrary, the weaker situations of developing nations like the Philippines have been taken into account; thus, there would be no
basis to say that in joining the WTO, the respondents have gravely abused their discretion. True, they have made a bold decision to
steer the ship of state into the yet uncharted sea of economic liberalization. But such decision cannot be set aside on the ground of
grave abuse of discretion, simply because we disagree with it or simply because we believe only in other economic policies. As
earlier stated, the Court in taking jurisdiction of this case will not pass upon the advantages and disadvantages of trade liberalization
as an economic policy. It will only perform its constitutional duty of determining whether the Senate committed grave abuse of
discretion.
Constitution Does Not
Rule Out Foreign Competition
Furthermore, the constitutional policy of a "self-reliant and independent national economy" 35 does not necessarily rule out the entry
of foreign investments, goods and services. It contemplates neither "economic seclusion" nor "mendicancy in the international
community." As explained by Constitutional Commissioner Bernardo Villegas, sponsor of this constitutional policy:
Economic self-reliance is a primary objective of a developing country that is keenly aware of overdependence
on external assistance for even its most basic needs. It does not mean autarky or economic seclusion; rather, it
means avoiding mendicancy in the international community. Independence refers to the freedom from undue
foreign control of the national economy, especially in such strategic industries as in the development of natural
resources and public utilities. 36
The WTO reliance on "most favored nation," "national treatment," and "trade without discrimination" cannot be struck down as
unconstitutional as in fact they are rules of equality and reciprocity that apply to all WTO members. Aside from envisioning a trade
policy based on "equality and reciprocity," 37 the fundamental law encourages industries that are "competitive in both domestic and
foreign markets," thereby demonstrating a clear policy against a sheltered domestic trade environment, but one in favor of the
gradual development of robust industries that can compete with the best in the foreign markets. Indeed, Filipino managers and
Filipino enterprises have shown capability and tenacity to compete internationally. And given a free trade environment, Filipino
entrepreneurs and managers in Hongkong have demonstrated the Filipino capacity to grow and to prosper against the best offered
under a policy of laissez faire.
Constitution Favors Consumers,
Not Industries or Enterprises
The Constitution has not really shown any unbalanced bias in favor of any business or enterprise, nor does it contain any specific
pronouncement that Filipino companies should be pampered with a total proscription of foreign competition. On the other hand,
respondents claim that WTO/GATT aims to make available to the Filipino consumer the best goods and services obtainable
anywhere in the world at the most reasonable prices. Consequently, the question boils down to whether WTO/GATT will favor the
general welfare of the public at large.
Will adherence to the WTO treaty bring this ideal (of favoring the general welfare) to reality?
Will WTO/GATT succeed in promoting the Filipinos' general welfare because it will — as promised by its promoters — expand the
country's exports and generate more employment?
Will it bring more prosperity, employment, purchasing power and quality products at the most reasonable rates to the Filipino public?
The responses to these questions involve "judgment calls" by our policy makers, for which they are answerable to our people during
appropriate electoral exercises. Such questions and the answers thereto are not subject to judicial pronouncements based on grave
abuse of discretion.
Constitution Designed to Meet
Future Events and Contingencies
No doubt, the WTO Agreement was not yet in existence when the Constitution was drafted and ratified in 1987. That does not mean
however that the Charter is necessarily flawed in the sense that its framers might not have anticipated the advent of a borderless
world of business. By the same token, the United Nations was not yet in existence when the 1935 Constitution became effective.
Did that necessarily mean that the then Constitution might not have contemplated a diminution of the absoluteness of sovereignty
when the Philippines signed the UN Charter, thereby effectively surrendering part of its control over its foreign relations to the
decisions of various UN organs like the Security Council?
It is not difficult to answer this question. Constitutions are designed to meet not only the vagaries of contemporary events. They
should be interpreted to cover even future and unknown circumstances. It is to the credit of its drafters that a Constitution can
withstand the assaults of bigots and infidels but at the same time bend with the refreshing winds of change necessitated by
unfolding events. As one eminent political law writer and respected jurist 38explains:
The Constitution must be quintessential rather than superficial, the root and not the blossom, the base and
frame-work only of the edifice that is yet to rise. It is but the core of the dream that must take shape, not in a
twinkling by mandate of our delegates, but slowly "in the crucible of Filipino minds and hearts," where it will in
time develop its sinews and gradually gather its strength and finally achieve its substance. In fine, the
Constitution cannot, like the goddess Athena, rise full-grown from the brow of the Constitutional Convention, nor
can it conjure by mere fiat an instant Utopia. It must grow with the society it seeks to re-structure and march
apace with the progress of the race, drawing from the vicissitudes of history the dynamism and vitality that will
keep it, far from becoming a petrified rule, a pulsing, living law attuned to the heartbeat of the nation.
Third Issue: The WTO Agreement and Legislative Power
The WTO Agreement provides that "(e)ach Member shall ensure the conformity of its laws, regulations and administrative
procedures with its obligations as provided in the annexed Agreements." 39 Petitioners maintain that this undertaking "unduly limits,
restricts and impairs Philippine sovereignty, specifically the legislative power which under Sec. 2, Article VI of the 1987 Philippine
Constitution is vested in the Congress of the Philippines. It is an assault on the sovereign powers of the Philippines because this
means that Congress could not pass legislation that will be good for our national interest and general welfare if such legislation will
not conform with the WTO Agreement, which not only relates to the trade in goods . . . but also to the flow of investments and
money . . . as well as to a whole slew of agreements on socio-cultural matters . . . 40
More specifically, petitioners claim that said WTO proviso derogates from the power to tax, which is lodged in the Congress. 41 And
while the Constitution allows Congress to authorize the President to fix tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts, such authority is subject to "specified limits and . . . such limitations and restrictions" as Congress
may provide, 42 as in fact it did under Sec. 401 of the Tariff and Customs Code.
Sovereignty Limited by
International Law and Treaties
This Court notes and appreciates the ferocity and passion by which petitioners stressed their arguments on this issue. However,
while sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is however subject to
restrictions and limitations voluntarily agreed to by the Philippines, expressly or impliedly, as a member of the family of nations.
Unquestionably, the Constitution did not envision a hermit-type isolation of the country from the rest of the world. In its Declaration of
Principles and State Policies, the Constitution "adopts the generally accepted principles of international law as part of the law of the
land, and adheres to the policy of peace, equality, justice, freedom, cooperation and amity, with all nations." 43 By the doctrine of
incorporation, the country is bound by generally accepted principles of international law, which are considered to be automatically
part of our own laws. 44 One of the oldest and most fundamental rules in international law is pacta sunt servanda — international
agreements must be performed in good faith. "A treaty engagement is not a mere moral obligation but creates a legally binding
obligation on the parties . . . A state which has contracted valid international obligations is bound to make in its legislations such
modifications as may be necessary to ensure the fulfillment of the obligations undertaken." 45
By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty. By their voluntary act, nations may surrender
some aspects of their state power in exchange for greater benefits granted by or derived from a convention or pact. After all, states,
like individuals, live with coequals, and in pursuit of mutually covenanted objectives and benefits, they also commonly agree to limit
the exercise of their otherwise absolute rights. Thus, treaties have been used to record agreements between States concerning
such widely diverse matters as, for example, the lease of naval bases, the sale or cession of territory, the termination of war, the
regulation of conduct of hostilities, the formation of alliances, the regulation of commercial relations, the settling of claims, the laying
down of rules governing conduct in peace and the establishment of international organizations. 46 The sovereignty of a state
therefore cannot in fact and in reality be considered absolute. Certain restrictions enter into the picture: (1) limitations imposed by
the very nature of membership in the family of nations and (2) limitations imposed by treaty stipulations. As aptly put by John F.
Kennedy, "Today, no nation can build its destiny alone. The age of self-sufficient nationalism is over. The age of interdependence is
here." 47
UN Charter and Other Treaties
Limit Sovereignty
Thus, when the Philippines joined the United Nations as one of its 51 charter members, it consented to restrict its sovereign rights
under the "concept of sovereignty as auto-limitation." 47-A Under Article 2 of the UN Charter, "(a)ll members shall give the United
Nations every assistance in any action it takes in accordance with the present Charter, and shall refrain from giving assistance to
any state against which the United Nations is taking preventive or enforcement action." Such assistance includes payment of its
corresponding share not merely in administrative expenses but also in expenditures for the peace-keeping operations of the
organization. In its advisory opinion of July 20, 1961, the International Court of Justice held that money used by the United Nations
Emergency Force in the Middle East and in the Congo were "expenses of the United Nations" under Article 17, paragraph 2, of the
UN Charter. Hence, all its members must bear their corresponding share in such expenses. In this sense, the Philippine Congress is
restricted in its power to appropriate. It is compelled to appropriate funds whether it agrees with such peace-keeping expenses or
not. So too, under Article 105 of the said Charter, the UN and its representatives enjoy diplomatic privileges and immunities, thereby
limiting again the exercise of sovereignty of members within their own territory. Another example: although "sovereign equality" and
"domestic jurisdiction" of all members are set forth as underlying principles in the UN Charter, such provisos are however subject to
enforcement measures decided by the Security Council for the maintenance of international peace and security under Chapter VII of
the Charter. A final example: under Article 103, "(i)n the event of a conflict between the obligations of the Members of the United
Nations under the present Charter and their obligations under any other international agreement, their obligation under the present
charter shall prevail," thus unquestionably denying the Philippines — as a member — the sovereign power to make a choice as to
which of conflicting obligations, if any, to honor.
Apart from the UN Treaty, the Philippines has entered into many other international pacts — both bilateral and multilateral — that
involve limitations on Philippine sovereignty. These are enumerated by the Solicitor General in his Compliance dated October 24,
1996, as follows:
(a) Bilateral convention with the United States regarding taxes on income, where the Philippines agreed, among
others, to exempt from tax, income received in the Philippines by, among others, the Federal Reserve Bank of
the United States, the Export/Import Bank of the United States, the Overseas Private Investment Corporation of
the United States. Likewise, in said convention, wages, salaries and similar remunerations paid by the United
States to its citizens for labor and personal services performed by them as employees or officials of the United
States are exempt from income tax by the Philippines.
(b) Bilateral agreement with Belgium, providing, among others, for the avoidance of double taxation with respect
to taxes on income.
(c) Bilateral convention with the Kingdom of Sweden for the avoidance of double taxation.
(d) Bilateral convention with the French Republic for the avoidance of double taxation.
(e) Bilateral air transport agreement with Korea where the Philippines agreed to exempt from all customs duties,
inspection fees and other duties or taxes aircrafts of South Korea and the regular equipment, spare parts and
supplies arriving with said aircrafts.
(f) Bilateral air service agreement with Japan, where the Philippines agreed to exempt from customs duties,
excise taxes, inspection fees and other similar duties, taxes or charges fuel, lubricating oils, spare parts, regular
equipment, stores on board Japanese aircrafts while on Philippine soil.
(g) Bilateral air service agreement with Belgium where the Philippines granted Belgian air carriers the same
privileges as those granted to Japanese and Korean air carriers under separate air service agreements.
(h) Bilateral notes with Israel for the abolition of transit and visitor visas where the Philippines exempted Israeli
nationals from the requirement of obtaining transit or visitor visas for a sojourn in the Philippines not exceeding
59 days.
(i) Bilateral agreement with France exempting French nationals from the requirement of obtaining transit and
visitor visa for a sojourn not exceeding 59 days.
(j) Multilateral Convention on Special Missions, where the Philippines agreed that premises of Special Missions
in the Philippines are inviolable and its agents can not enter said premises without consent of the Head of
Mission concerned. Special Missions are also exempted from customs duties, taxes and related charges.
(k) Multilateral convention on the Law of Treaties. In this convention, the Philippines agreed to be governed by
the Vienna Convention on the Law of Treaties.
(l) Declaration of the President of the Philippines accepting compulsory jurisdiction of the International Court of
Justice. The International Court of Justice has jurisdiction in all legal disputes concerning the interpretation of a
treaty, any question of international law, the existence of any fact which, if established, would constitute a
breach "of international obligation."
In the foregoing treaties, the Philippines has effectively agreed to limit the exercise of its sovereign powers of taxation, eminent
domain and police power. The underlying consideration in this partial surrender of sovereignty is the reciprocal commitment of the
other contracting states in granting the same privilege and immunities to the Philippines, its officials and its citizens. The same
reciprocity characterizes the Philippine commitments under WTO-GATT.
International treaties, whether relating to nuclear disarmament, human rights, the environment, the law of the
sea, or trade, constrain domestic political sovereignty through the assumption of external obligations. But unless
anarchy in international relations is preferred as an alternative, in most cases we accept that the benefits of the
reciprocal obligations involved outweigh the costs associated with any loss of political sovereignty. (T)rade
treaties that structure relations by reference to durable, well-defined substantive norms and objective dispute
resolution procedures reduce the risks of larger countries exploiting raw economic power to bully smaller
countries, by subjecting power relations to some form of legal ordering. In addition, smaller countries typically
stand to gain disproportionately from trade liberalization. This is due to the simple fact that liberalization will
provide access to a larger set of potential new trading relationship than in case of the larger country gaining
enhanced success to the smaller country's market. 48
The point is that, as shown by the foregoing treaties, a portion of sovereignty may be waived without violating the Constitution,
based on the rationale that the Philippines "adopts the generally accepted principles of international law as part of the law of the
land and adheres to the policy of . . . cooperation and amity with all nations."
Fourth Issue: The WTO Agreement and Judicial Power
Petitioners aver that paragraph 1, Article 34 of the General Provisions and Basic Principles of the Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS) 49 intrudes on the power of the Supreme Court to promulgate rules concerning
pleading, practice and procedures. 50
To understand the scope and meaning of Article 34, TRIPS, 51 it will be fruitful to restate its full text as follows:
Article 34
Process Patents: Burden of Proof
1. For the purposes of civil proceedings in respect of the infringement of the rights of the owner referred to in
paragraph 1 (b) of Article 28, if the subject matter of a patent is a process for obtaining a product, the judicial
authorities shall have the authority to order the defendant to prove that the process to obtain an identical
 product is different from the patented process. Therefore, Members shall provide, in at least one of the following
circumstances, that any identical product when produced without the consent of the patent owner shall, in the
absence of proof to the contrary, be deemed to have been obtained by the patented process:
(a) if the product obtained by the patented process is new;
(b) if there is a substantial likelihood that the identical product was made by the process
and the owner of the patent has been unable through reasonable efforts to determine the
process actually used.
2. Any Member shall be free to provide that the burden of proof indicated in paragraph 1 shall be on the alleged
infringer only if the condition referred to in subparagraph (a) is fulfilled or only if the condition referred to in
subparagraph (b) is fulfilled.
3. In the adduction of proof to the contrary, the legitimate interests of defendants in protecting their
manufacturing and business secrets shall be taken into account.
From the above, a WTO Member is required to provide a rule of disputable (not the words "in the absence of proof to the contrary")
presumption that a product shown to be identical to one produced with the use of a patented process shall be deemed to have been
obtained by the (illegal) use of the said patented process, (1) where such product obtained by the patented product is new, or (2)
where there is "substantial likelihood" that the identical product was made with the use of the said patented process but the owner of
the patent could not determine the exact process used in obtaining such identical product. Hence, the "burden of proof"
contemplated by Article 34 should actually be understood as the duty of the alleged patent infringer to overthrow such presumption.
Such burden, properly understood, actually refers to the "burden of evidence" (burden of going forward) placed on the producer of
the identical (or fake) product to show that his product was produced without the use of the patented process.
The foregoing notwithstanding, the patent owner still has the "burden of proof" since, regardless of the presumption provided under
paragraph 1 of Article 34, such owner still has to introduce evidence of the existence of the alleged identical product, the fact that it
is "identical" to the genuine one produced by the patented process and the fact of "newness" of the genuine product or the fact of
"substantial likelihood" that the identical product was made by the patented process.
The foregoing should really present no problem in changing the rules of evidence as the present law on the subject, Republic Act
No. 165, as amended, otherwise known as the Patent Law, provides a similar presumption in cases of infringement of patented
design or utility model, thus:
Sec. 60. Infringement. — Infringement of a design patent or of a patent for utility model shall consist in
unauthorized copying of the patented design or utility model for the purpose of trade or industry in the article or
product and in the making, using or selling of the article or product copying the patented design or utility
model. Identity or substantial identity with the patented design or utility model shall constitute evidence of
copying. (emphasis supplied)
Moreover, it should be noted that the requirement of Article 34 to provide a disputable presumption applies only if (1) the product
obtained by the patented process in NEW or (2) there is a substantial likelihood that the identical product was made by the process
and the process owner has not been able through reasonable effort to determine the process used. Where either of these two
provisos does not obtain, members shall be free to determine the appropriate method of implementing the provisions of TRIPS
within their own internal systems and processes.
By and large, the arguments adduced in connection with our disposition of the third issue — derogation of legislative power — will
apply to this fourth issue also. Suffice it to say that the reciprocity clause more than justifies such intrusion, if any actually exists.
Besides, Article 34 does not contain an unreasonable burden, consistent as it is with due process and the concept of adversarial
dispute settlement inherent in our judicial system.
So too, since the Philippine is a signatory to most international conventions on patents, trademarks and copyrights, the adjustment
in legislation and rules of procedure will not be substantial. 52
Fifth Issue: Concurrence Only in the WTO Agreement and
Not in Other Documents Contained in the Final Act
Petitioners allege that the Senate concurrence in the WTO Agreement and its annexes — but not in the other documents referred to
in the Final Act, namely the Ministerial Declaration and Decisions and the Understanding on Commitments in Financial Services —
is defective and insufficient and thus constitutes abuse of discretion. They submit that such concurrence in the WTO
Agreement alone is flawed because it is in effect a rejection of the Final Act, which in turn was the document signed by Secretary
Navarro, in representation of the Republic upon authority of the President. They contend that the second letter of the President to
the Senate 53 which enumerated what constitutes the Final Act should have been the subject of concurrence of the Senate.
"A final act, sometimes called protocol de cloture, is an instrument which records the winding up of the proceedings of a diplomatic
conference and usually includes a reproduction of the texts of treaties, conventions, recommendations and other acts agreed upon
and signed by the plenipotentiaries attending the conference." 54 It is not the treaty itself. It is rather a summary of the proceedings of
a protracted conference which may have taken place over several years. The text of the "Final Act Embodying the Results of the
Uruguay Round of Multilateral Trade Negotiations" is contained in just one page 55 in Vol. I of the 36-volume Uruguay Round of
Multilateral Trade Negotiations. By signing said Final Act, Secretary Navarro as representative of the Republic of the Philippines
undertook:
(a) to submit, as appropriate, the WTO Agreement for the consideration of their respective competent
authorities with a view to seeking approval of the Agreement in accordance with their procedures; and
(b) to adopt the Ministerial Declarations and Decisions.
The assailed Senate Resolution No. 97 expressed concurrence in exactly what the Final Act required from its signatories, namely,
concurrence of the Senate in the WTO Agreement.
The Ministerial Declarations and Decisions were deemed adopted without need for ratification. They were approved by the ministers
by virtue of Article XXV: 1 of GATT which provides that representatives of the members can meet "to give effect to those provisions
of this Agreement which invoke joint action, and generally with a view to facilitating the operation and furthering the objectives of this
Agreement." 56
The Understanding on Commitments in Financial Services also approved in Marrakesh does not apply to the Philippines. It applies
only to those 27 Members which "have indicated in their respective schedules of commitments on standstill, elimination of
monopoly, expansion of operation of existing financial service suppliers, temporary entry of personnel, free transfer and processing
of information, and national treatment with respect to access to payment, clearing systems and refinancing available in the normal
course of business." 57
On the other hand, the WTO Agreement itself expresses what multilateral agreements are deemed included as its integral
parts, 58 as follows:
Article II
Scope of the WTO
1. The WTO shall provide the common institutional frame-work for the conduct of trade relations among its
Members in matters to the agreements and associated legal instruments included in the Annexes to this
Agreement.
2. The Agreements and associated legal instruments included in Annexes 1, 2, and 3, (hereinafter referred to as
"Multilateral Agreements") are integral parts of this Agreement, binding on all Members.
3. The Agreements and associated legal instruments included in Annex 4 (hereinafter referred to as "Plurilateral
Trade Agreements") are also part of this Agreement for those Members that have accepted them, and are
binding on those Members. The Plurilateral Trade Agreements do not create either obligation or rights for
Members that have not accepted them.
4. The General Agreement on Tariffs and Trade 1994 as specified in annex 1A (hereinafter referred to as
"GATT 1994") is legally distinct from the General Agreement on Tariffs and Trade, dated 30 October 1947,
annexed to the Final Act adopted at the conclusion of the Second Session of the Preparatory Committee of the
United Nations Conference on Trade and Employment, as subsequently rectified, amended or modified
(hereinafter referred to as "GATT 1947").
It should be added that the Senate was well-aware of what it was concurring in as shown by the members' deliberation on August
25, 1994. After reading the letter of President Ramos dated August 11, 1994, 59 the senators
of the Republic minutely dissected what the Senate was concurring in, as follows: 60
THE CHAIRMAN: Yes. Now, the question of the validity of the submission came up in the first day hearing of
this Committee yesterday. Was the observation made by Senator Tañada that what was submitted to the
Senate was not the agreement on establishing the World Trade Organization by the final act of the Uruguay
Round which is not the same as the agreement establishing the World Trade Organization? And on that basis,
Senator Tolentino raised a point of order which, however, he agreed to withdraw upon understanding that his
suggestion for an alternative solution at that time was acceptable. That suggestion was to treat the proceedings
of the Committee as being in the nature of briefings for Senators until the question of the submission could be
clarified.
And so, Secretary Romulo, in effect, is the President submitting a new . . . is he making a new submission
which improves on the clarity of the first submission?
MR. ROMULO: Mr. Chairman, to make sure that it is clear cut and there should be no misunderstanding, it was
his intention to clarify all matters by giving this letter.
THE CHAIRMAN: Thank you.
Can this Committee hear from Senator Tañada and later on Senator Tolentino since they were the ones that
raised this question yesterday?
Senator Tañada, please.
SEN. TAÑADA: Thank you, Mr. Chairman.
Based on what Secretary Romulo has read, it would now clearly appear that what is being submitted to the
Senate for ratification is not the Final Act of the Uruguay Round, but rather the Agreement on the World Trade
Organization as well as the Ministerial Declarations and Decisions, and the Understanding and Commitments in
Financial Services.
I am now satisfied with the wording of the new submission of President Ramos.
SEN. TAÑADA. . . . of President Ramos, Mr. Chairman.
THE CHAIRMAN. Thank you, Senator Tañada. Can we hear from Senator Tolentino? And after him Senator
Neptali Gonzales and Senator Lina.
SEN. TOLENTINO, Mr. Chairman, I have not seen the new submission actually transmitted to us but I saw the
draft of his earlier, and I think it now complies with the provisions of the Constitution, and with the Final Act
itself . The Constitution does not require us to ratify the Final Act. It requires us to ratify the Agreement which is
now being submitted. The Final Act itself specifies what is going to be submitted to with the governments of the
participants.
In paragraph 2 of the Final Act, we read and I quote:
By signing the present Final Act, the representatives agree: (a) to submit as appropriate the WTO Agreement
for the consideration of the respective competent authorities with a view to seeking approval of the Agreement
in accordance with their procedures.
In other words, it is not the Final Act that was agreed to be submitted to the governments for ratification or
acceptance as whatever their constitutional procedures may provide but it is the World Trade Organization
Agreement. And if that is the one that is being submitted now, I think it satisfies both the Constitution and the
Final Act itself .
Thank you, Mr. Chairman.
THE CHAIRMAN. Thank you, Senator Tolentino, May I call on Senator Gonzales.
SEN. GONZALES. Mr. Chairman, my views on this matter are already a matter of record. And they had been
adequately reflected in the journal of yesterday's session and I don't see any need for repeating the same.
Now, I would consider the new submission as an act ex abudante cautela.
THE CHAIRMAN. Thank you, Senator Gonzales. Senator Lina, do you want to make any comment on this?
SEN. LINA. Mr. President, I agree with the observation just made by Senator Gonzales out of the abundance of
question. Then the new submission is, I believe, stating the obvious and therefore I have no further comment to
make.
 Epilogue
In praying for the nullification of the Philippine ratification of the WTO Agreement, petitioners are invoking this Court's constitutionally
imposed duty "to determine whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction" on
the part of the Senate in giving its concurrence therein via Senate Resolution No. 97. Procedurally, a writ of certiorari grounded on
grave abuse of discretion may be issued by the Court under Rule 65 of the Rules of Court when it is amply shown that petitioners
have no other plain, speedy and adequate remedy in the ordinary course of law.
By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of
jurisdiction. 61 Mere abuse of discretion is not enough. It must be grave abuse of discretion as when the power is exercised in an
arbitrary or despotic manner by reason of passion or personal hostility, and must be so patent and so gross as to amount to an
evasion of a positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. 62 Failure on the
part of the petitioner to show grave abuse of discretion will result in the dismissal of the petition. 63
In rendering this Decision, this Court never forgets that the Senate, whose act is under review, is one of two sovereign houses of
Congress and is thus entitled to great respect in its actions. It is itself a constitutional body independent and coordinate, and thus its
actions are presumed regular and done in good faith. Unless convincing proof and persuasive arguments are presented to
overthrow such presumptions, this Court will resolve every doubt in its favor. Using the foregoing well-accepted definition of grave
abuse of discretion and the presumption of regularity in the Senate's processes, this Court cannot find any cogent reason to impute
grave abuse of discretion to the Senate's exercise of its power of concurrence in the WTO Agreement granted it by Sec. 21 of Article
VII of the Constitution. 64
It is true, as alleged by petitioners, that broad constitutional principles require the State to develop an independent national economy
effectively controlled by Filipinos; and to protect and/or prefer Filipino labor, products, domestic materials and locally produced
goods. But it is equally true that such principles — while serving as judicial and legislative guides — are not in themselves sources
of causes of action. Moreover, there are other equally fundamental constitutional principles relied upon by the Senate which
mandate the pursuit of a "trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the
basis of equality and reciprocity" and the promotion of industries "which are competitive in both domestic and foreign markets,"
thereby justifying its acceptance of said treaty. So too, the alleged impairment of sovereignty in the exercise of legislative and
judicial powers is balanced by the adoption of the generally accepted principles of international law as part of the law of the land and
the adherence of the Constitution to the policy of cooperation and amity with all nations.
That the Senate, after deliberation and voting, voluntarily and overwhelmingly gave its consent to the WTO Agreement thereby
making it "a part of the law of the land" is a legitimate exercise of its sovereign duty and power. We find no "patent and gross"
arbitrariness or despotism "by reason of passion or personal hostility" in such exercise. It is not impossible to surmise that this
Court, or at least some of its members, may even agree with petitioners that it is more advantageous to the national interest to strike
down Senate Resolution No. 97. But that is not a legal reason to attribute grave abuse of discretion to the Senate and to nullify its
decision. To do so would constitute grave abuse in the exercise of our own judicial power and duty. Ineludably, what the Senate did
was a valid exercise of its authority. As to whether such exercise was wise, beneficial or viable is outside the realm of judicial inquiry
and review. That is a matter between the elected policy makers and the people. As to whether the nation should join the worldwide
march toward trade liberalization and economic globalization is a matter that our people should determine in electing their policy
makers. After all, the WTO Agreement allows withdrawal of membership, should this be the political desire of a member.
The eminent futurist John Naisbitt, author of the best seller Megatrends, predicts an Asian Renaissance 65 where "the East will
become the dominant region of the world economically, politically and culturally in the next century." He refers to the "free market"
espoused by WTO as the "catalyst" in this coming Asian ascendancy. There are at present about 31 countries including China,
Russia and Saudi Arabia negotiating for membership in the WTO. Notwithstanding objections against possible limitations on
national sovereignty, the WTO remains as the only viable structure for multilateral trading and the veritable forum for the
development of international trade law. The alternative to WTO is isolation, stagnation, if not economic self-destruction. Duly
enriched with original membership, keenly aware of the advantages and disadvantages of globalization with its on-line experience,
and endowed with a vision of the future, the Philippines now straddles the crossroads of an international strategy for economic
prosperity and stability in the new millennium. Let the people, through their duly authorized elected officers, make their free choice.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Kapunan, Mendoza, Francisco, Hermosisima, Jr. and Torres,
Jr., JJ., concur.
Padilla and Vitug, JJ., concur in the result.

24. RUFINO R. TAN vs. RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER
OF INTERNAL REVENUE, G.R. No. 109289, October 3, 1994 FACTS: These two consolidated special civil actions for prohibition
challenge, in G.R. No. 109289, the constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net Income
Taxationn Scheme (“SNIT”), amending certain provisions of the National Internal Revenue Regulations No. 293, promulgated by
public respondents pursuant to said law. Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement
that taxation “shall be uniform and equitable” in that the law would now attempt to tax single proprietorships and professionals
differently from the manner it imposes the tax on corporations and partnerships. Petitioners claim to be taxpayers adversely affected
by the continued implementation of the amendatory legislation. ISSUE: Does Republic Act No. 7496 violate the Constitution for
imposing taxes that are not uniform and equitable? RULING: The Petition is dismissed. Uniformity of taxation, like the kindred
concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in
privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long as:
(1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative
purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally
well to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 771).
What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift the income tax
system towards the schedular approach in the income taxation of individual taxpayers and to maintain, by and large, the present
global treatment on taxable corporations. We certainly do not view this classification to be arbitrary and inappropriate. Having
arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative of due process must
perforce fail. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional
limitations in the exercise of the tax power.

Tan vs. Del Rosario

237 SCRA 324

Facts:

Petitioners challenge the constitutionality of RA 7496 or the simplified income taxation scheme (SNIT) under Arts (26) and
(28) and III (1). The SNIT contained changes in the tax schedules and different treatment in the professionals which petitioners
assail as unconstitutional for being isolative of the equal protection clause in the constitution.

Issue: is the contention meritorious?

Ruling:

No. uniformity of taxation, like the hindered concept of equal protection, merely require that all subjects or objects of
taxation similarly situated are to be treated alike both privileges and liabilities. Uniformity, does not offend classification as long as it
rest on substantial distinctions, it is germane to the purpose of the law. It is not limited to existing only and must apply equally to all
members of the same class.

The legislative intent is to increasingly shift the income tax system towards the scheduled approach in taxation of
individual taxpayers and maintain the present global treatment on taxable corporations. This classification is neither arbitrary nor
inappropriate.

Facts: Republic Act No 17946 limited the allowable deductions from gross income of single proprietorship and professionals in the
computation of their taxable income. It was argued that this violated the requirement of uniformity in taxation and due process
because single proprietorships and professionals were taxed differently from corporations and partnerships.
Issue: Whether or not deductions should be uniform for all?
Decision: Petition dismissed. Uniformity does not prohibit classification so long as the requirements for a valid classification under
the equal protection clause are complied with. Shifting the taxation of individuals to the scheduled system which makes the income
tax depend on the kind of taxable income and maintaining for corporations the global treatment which treat in common all kinds if
taxable income of the taxpayer is not arbitrary.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 109289 October 3, 1994

RUFINO R. TAN, petitioner,

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

G.R. No. 109446 October 3, 1994

CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG, MANUELITO O. CABALLES, ELPIDIO C.
JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in his capacity as
COMMISSIONER OF INTERNAL REVENUE, respondents.

Rufino R. Tan for and in his own behalf.

Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446.

VITUG, J.:

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

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

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

No. 7496 violates the following provisions of the Constitution:

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

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

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

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

The Solicitor General espouses the position taken by public respondents.

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

G.R. No. 109289

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

The full text of the title actually reads:

An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and Professionals
Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the National Internal Revenue
Code, as Amended.

The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code, as now amended, provide:

Sec. 21. Tax on citizens or residents. —

xxx xxx xxx

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

Not over P10,000 3%

 Over P10,000 P300 + 9%
but not over P30,000 of excess over P10,000

Over P30,000 P2,100 + 15%

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

Over P120,000 P15,600 + 20%

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

Over P350,000 P61,600 + 30%

of excess over P350,000

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

(a) Raw materials, supplies and direct labor;

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

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

(d) Business rentals;

(e) Depreciation;

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

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

For individuals whose cost of goods sold and direct costs are difficult to determine, a maximum of forty per cent
(40%) of their gross receipts shall be allowed as deductions to answer for business or professional expenses as
the case may be.

On the basis of the above language of the law, it would be difficult to accept petitioner's view that the amendatory law should be
considered as having now adopted a gross income, instead of as having still retained the net income, taxation scheme. The
allowance for deductible items, it is true, may have significantly been reduced by the questioned law in comparison with that which
has prevailed prior to the amendment; limiting, however, allowable deductions from gross income is neither discordant with, nor
opposed to, the net income tax concept. The fact of the matter is still that various deductions, which are by no means
inconsequential, continue to be well provided under the new law.

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

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

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

What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift the income tax
system towards the schedular approach 2 in the income taxation of individual taxpayers and to maintain, by and large, the present
global treatment 3 on taxable corporations. We certainly do not view this classification to be arbitrary and inappropriate.

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

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

G.R. No. 109446

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

The questioned regulation reads:

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

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

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

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

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

Other deliberations support this position, to wit:

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

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

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

In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version of the SNITS, it is
categorically stated, thus:
 This bill, Mr. President, is not applicable to business corporations or to partnerships; it is
only with respect to individuals and professionals. (Emphasis ours)

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

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

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

(1) Shall take into account separately his distributive share of the partnership's income,
gain, loss, deduction, or credit to the extent provided by the pertinent provisions of this
Code, and

(2) Shall be deemed to have elected the itemized deductions, unless he declares his
distributive share of the gross income undiminished by his share of the deductions.

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

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

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

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

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

SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno, Kapunan and Mendoza, JJ.,
concur.

Padilla and Bidin, JJ., are on leave.

25. CIR vs. Santos, 277 SCRA 617 (1997) Facts: Guild of Phil. Jewellers questions the constitutionality of certain provisions of the
NIRC and Tariff and Customs Code of the Philippines. It is their contention that present Tariff and tax structure increases
manufacturing costs and render local jewelry manufacturers uncompetitive against other countries., in support of their position, they
submitted what they purported to be an exhaustive study of the tax rates on jewelry prevailing in other Asian countries, in
comparison to tax rates levied in the country. Judge Santos of RTC Pasig, ruled that the laws in question are confiscatory and
oppressive and declared them INOPERATIVE and WITHOUR FORCE AND EFFECT insofar as petitioners are concerned.
Petitioner CIR assailed decision rendered by respondent judge contending that the latter has no authority to pass judgment upon the
taxation policy of the government. Petitioners also impugn the decision by asserting that there was no showing that the tax laws on
jewelry are confiscatory. ISSUE: Whether or not the Regional Trial Court has authority to pass judgment upon taxation policy of the
government. RULING: The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the
political departments are valid in the absence of a clear and unmistakable showing to the contrary. This is not to say that RTC has
no power whatsoever to declare a law unconstitutional. But this authority does not extend to deciding questions which pertain to
legislative policy. RTC have the power to declare the law unconstitutional but this authority does not extend to deciding questions
which pertain to legislative policy. RTC can only look into the validity of a provision, that is whether or not it has been passed
according to the provisions laid down by law, and thus cannot inquire as to the reasons for its existence. RULING ON THE EXTENT
OF LEGISLATIVE POWER TO TAX SC held that it is within the power f the legislature whether to tax jewelry or not. With the
legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subject) and situs
(place) of taxation.

CIR v. Santos, 277 SCRA 617 (1997)

G.R. No. 119252 August 18, 1997COMMISSIONER OF IN ERNA! RE"EN#E an$ COMMISSIONER OF C#S OMS,
petitioners,vs.
%ON. A&O!INARIO '. SAN OS, n s *a+a* t as &- s $ ng /u$g o0 t R g ona - a Cou-t, '-an* 67, &as gC t AN ONIO M.
MARCO /E3E!R4 '4 MARCO CO., INC., an$ G#I! OF &%I!I&&INE /E3E!!ERS,INC.,
respondents.
%ERMOSISIMA, /R.,
J.:
Fa*ts
Guild of Phil. Jewelers, Inc. questions the constitutionality of certain provisions of the NIRC and Tariff and CustomsCode of the
Philippines. It is their contention that the present Tariff and ta structure increases manufacturin!costs and render local "ewelry
manufacturers uncompetitive a!ainst other countries, in support of their position,they su#mitted what they purported to #e an
e haustive study of the ta rates on "ewelry prevailin! in other $siancountries, in comparison to ta rates levied in the
country.Jud!e %antos of RTC Pasi!, ruled that the laws in question are confiscatory and oppressive and declared themIN&P'R$TI('
and )IT*&+T &RC' $N- ' 'CT insofar as petitioners are concerned.Petitioner CIR assailed decision rendered #y respondent "ud!e
contendin! that the latter has no authority to pass"ud!ment upon the ta ation policy of the Government. Petitioners also impu!n the
decision #y assertin! thatthere was no showin! that the ta laws on "ewelry are confiscatory.
Issu I.
)hether RTC has authority to pass "ud!ment upon ta ation policy of the !overnment.I I . ) & N t h e s t a t e h a s t h e
power to select the su#"ects of ta ation.
Ru ng I.
The policy of the court is to avoid rulin! on constitutional questions and to presume that the acts of thepolitical departments are valid
in the a#sence of a clear and unmista a#le showin! to the contrary.This is not to say that RTC has no power whatsoever to declare
a law unconstitutional. /ut this authoritydoes not e tend to decidin! questions which pertain to le!islative policy.RTC have the power
to declare the law unconstitutional #ut this authority does not e tend to decidin!questions which pertain to le!islative policy. RTC can
only loo into the validity of a provision, that is whether ornot it has #een passed accordin! to the provisions laid down #y law, and
thus cannot inquire as to the reasons forits e istence.I I . 0 ' % . T h e r e s p o n d e n t s p r e s e n t e d a n
e haustive study on the ta r a t e s o n " e w e l r y l e v i e d # y d i f f e r e n t $sian
countries. This is m eant to convi nce us that com pared to other count ries1 the ta rat es im posed on
saidindustry in the Philippines is oppressive and confiscatory. This Court, however, cannot su#scri#e to the theory thatthe ta rates
of other countries should #e used as a yardstic in determinin! what may #e the proper su#"ects of ta ation in our own country. It
should #e pointed out that in imposin! the aforementioned ta es and duties, the%tate, actin! throu!h the le!islative and e ecutive
#ranches, is e ercisin! its soverei!n prero!ative. It is inherentin the power to ta that the %tate #e free to select the su#"ects of
ta ation, and it has #een repeatedly held that2inequalities whic h result from a sin! lin! out or one particular class for
ta ation, o r e em ption, infri n! e noconstitutional limitation
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 119252 August 18, 1997

COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS, petitioners,
vs.
HON. APOLINARIO B. SANTOS, in his capacity as Presiding Judge of the Regional Trial Court, Branch 67, Pasig City;
ANTONIO M. MARCO; JEWELRY BY MARCO & CO., INC., and GUILD OF PHILIPPINE JEWELLERS, INC., respondents.

HERMOSISIMA, JR., J.:

Of grave concern to this Court is the judicial pronouncement of the court a quo that certain provisions of the Tariff & Customs Code
and the National Internal Revenue Code are unconstitutional. This provokes the issue: Can the Regional Trial Courts declare a law
inoperative and without force and effect or otherwise unconstitutional? If it can, under what circumstances?
In this petition, the Commissioner of Internal Revenue and the Commissioner of Customs jointly seek the reversal of the
Decision, 1 dated February 16, 1995, of herein public respondent, Hon. Apolinario B. Santos, Presiding Judge of Branch 67 of the
Regional Trial Court of Pasig City.
The following facts, concisely related in the petition 2 of the Office of the Solicitor General, appear to be undisputed:
1. Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino jewelers engaged in the
manufacture of jewelries (sic) and allied undertakings. Among its members are Hans Brumann, Inc., Miladay
Jewels, Inc., Mercelles, Inc., Solid Gold International Traders, Inc., Diagem Trading Corporation, and private
respondent Jewelry by Marco & Co., Inc. Private respondent Antonio M. Marco is the President of the Guild.
2. On August 5, 1988, Felicidad L. Viray, then Regional Director, Region No. 4-A of the Bureau of Internal
Revenue, acting for and in behalf of the Commissioner of Internal Revenue, issued Regional Mission Order No.
109-88 to BIR officers, led by Eliseo Corcega, to conduct surveillance, monitoring, and inventory of all imported
articles of Hans Brumann, Inc., and place the same under preventive embargo. The duration of the mission was
from August 8 to August 20, 1988 (Exhibit "1"; Exhibit "A").
3. On August 17, 1988, pursuant to the aforementioned Mission Order, the BIR officers proceeded to the
establishment of Hans Brumann, Inc., served the Mission Order, and informed the establishment that they were
going to make an inventory of the articles involved to see if the proper taxes thereon have been paid. They then
made an inventory of the articles displayed in the cabinets with the assistance of an employee of the
establishment. They listed down the articles, which list was signed by the assistant employee. They also
requested the presentation of proof of necessary payments for excise tax and value-added tax on said articles
(pp. 10-15, TSN, April 12, 1993, Exhibits "2", "2-A", "3", "3-A").
4. The BIR officers requested the establishment not to sell the articles until it can be proven that the necessary
taxes thereon have been paid. Accordingly, Mr. Hans Brumann, the owner of the establishment, signed a
receipt for Goods, Articles, and Things Seized under Authority of the National Internal Revenue Code (dated
August 17, 1988), acknowledging that the articles inventoried have been seized and left in his possession, and
promising not to dispose of the same without authority of the Commissioner of Internal Revenue pending
investigation. 3
5. Subsequently, BIR officer Eliseo Corcega submitted to his superiors a report of the inventory conducted and
a computation of the value-added tax and ad valorem tax on the articles for evaluation and disposition. 4
6. Mr. Hans Brumann, the owner of the establishment, never filed a protest with the BIR on the preventive
embargo of the articles. 5
7. On October 17, 1988, Letter of Authority No. 0020596 was issued by Deputy Commissioner Eufracio D.
Santos to BIR officers to examine the books of accounts and other accounting records of Hans Brumann, Inc.,
for "stocktaking investigation for excise tax purposes for the period January 1, 1988 to present" (Exhibit "C"). In
a letter dated October 27, 1988, in connection with the physical count of the inventory (stocks on hand)
pursuant to said Letter of Authority, Hans Brumann, Inc. was requested to prepare and make available to the
BIR the documents indicated therein (Exhibit "D").
8. Hans Brumann, Inc., did not produce the documents requested by the BIR. 6
9. Similar Letter of Authority were issued to BIR officers to examine the books of accounts and other accounting
records of Miladay Jewels, Inc., Mercelles, Inc., Solid Gold International Traders, Inc., (Exhibits "E", "G" and
"N") and Diagem Trading Corporation 7 for "stocktaking/investigation far excise tax purpose for the period
January 1, 1988 to present."
10. In the case of Miladay Jewels, Inc. and Mercelles, Inc., there is no account of what actually transpired in the
implementation of the Letters of Authority.
11. In the case of Solid Gold International Traders Corporation, the BIR officers made an inventory of the
articles in the establishment. 8 The same is true with respect to Diagem Traders Corporation. 9
12. On November 29, 1988, private respondents Antonio M. Marco and Jewelry By Marco & Co., Inc. filed with
the Regional Trial Court, National Capital Judicial Region, Pasig City, Metro Manila, a petition for declaratory
relief with writ of preliminary injunction and/or temporary restraining order against herein petitioners and
Revenue Regional Director Felicidad L. Viray (docketed as Civil Case No. 56736) praying that Sections 126,
127(a) and (b) and 150(a) of the National Internal Revenue Code and Hdg. No. 71.01, 71.02, 71.03, and 71.04,
Chapter 71 of the Tariff and Customs Code of the Philippines be declared unconstitutional and void, and that
the Commissioner of Internal Revenue and Customs be prevented or enjoined from issuing mission orders and
other orders of similar nature. . . .
13. On February 9, 1989, herein petitioners filed their answer to the petition. . . .
 14 On October 16, 1989, private respondents filed a Motion with Leave to Amend Petition by including as
petitioner the Guild of Philippine Jewelers, Inc., which motion was granted. . . .
15. The case, which was originally assigned to Branch 154, was later reassigned to Branch 67.
16. On February 16, 1995, public respondents rendered a decision, the dispositive portion of which reads:
In view of the foregoing reflections, judgment is hereby rendered, as follows:
1. Declaring Section 104 of the Tariff and the Customs Code of the
Philippines, Hdg. 71.01, 71.02, 71.03, and 71.04, Chapter 71 as
amended by Executive Order No. 470, imposing three to ten (3% to
10%) percent tariff and customs duty on natural and cultured pearls
and precious or semi-precious stones, and Section 150 par. (a) the
National Internal Revenue Code of 1977, as amended, renumbered
and rearranged by Executive Order 273, imposing twenty (20%)
percent excise tax on jewelry, pearls and other precious stones, as
INOPERATIVE and WITHOUT FORCE and EFFECT insofar as
petitioners are concerned.
2. Enforcement of the same is hereby enjoined.
No cost.
SO ORDERED.
Section 150 (a) of Executive Order No. 273 reads:
Sec. 150. Non-essential goods. — There shall be levied, assessed and collected a tax equivalent to 20% based
on the wholesale price or the value of importation used by the Bureau of Customs in determining tariff and
customs duties; net of the excise tax and value-added tax, of the following goods:
(a) All goods commonly or commercially known as jewelry, whether real or imitation, pearls,
precious and semi-precious stones and imitations thereof; goods made of, or ornamented,
mounted and fitted with, precious metals or imitations thereof or ivory (not including surgical
and dental instruments, silver-plated wares, frames or mountings for spectacles or
eyeglasses, and dental gold or gold alloys and other precious metals used in filling,
mounting or fitting of the teeth); opera glasses and lorgnettes. The term "precious metals"
shall include platinum, gold, silver, and other metals of similar or greater value. The term
"imitations thereof" shall include platings and alloys of such metals.
Section 150 (a) of Executive Order No. 273, which took effect on January 1, 1988, amended the then Section 163 (a) of the Tax
Code of 1986 which provided that:
Sec. 163. Percentage tax on sales of non-essential articles. — There shall be levied, assessed and collected,
once only on every original sale, barter, exchange or similar transaction for nominal or valuable consideration
intended to transfer ownership of, or title to, the articles herein below enumerated a tax equivalent to 50% of the
gross value in money of the articles so sold, bartered, exchanged or transferred, such tax to be paid by the
manufacturer or producer:
(a) All articles commonly or commercially known as jewelry, whether real or imitation,
pearls, precious and semi-precious stones, and imitations thereof, articles made of, or
ornamented, mounted or fitted with, precious metals or imitations thereof or ivory (not
including surgical and dental instruments, silver-plated wares, frames or mounting for
spectacles or eyeglasses, and dental gold or gold alloys and other precious metal used in
filling, mounting or fitting of the teeth); opera glasses, and lorgnettes. The term "precious
metals" shall include platinum, gold, silver, and other metals of similar or greater value. The
term "imitations thereof" shall include platings and alloys of such metals;
Section 163 (a) of the 1986 Tax Code was formerly Section 194(a) of the 1977 Tax Code and Section 184(a) of the Tax code, as
amended by Presidential Decree No. 69, which took effect on January 1, 1974.
It will be noted that, while under the present law, jewelry is subject to a 20% excise tax in addition to a 10% value-added tax under
the old law, it was subjected to 50% percentage tax. It was even subjected to a 70% percentage tax under then Section 184(a) of
the Tax Code, as amended by P.D. 69.
Section 104, Hdg. Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the Tariff and Customs Code, as amended by Executive Order
No. 470, dated July 20, 1991, imposes import duty on natural or cultured pearls and precious or semi-precious stones at the rate of
3% to 10% to be applied in stages from 1991 to 1994 and 30% in 1995.
Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10% to 50% when the petition was filed in the court a quo.
In support of their petition before the lower court, the private respondents submitted a position paper purporting to be an exhaustive
study of the tax rates on jewelry prevailing in other Asian countries, in comparison to tax rates levied on the same in the
Philippines. 10
The following issues were thus raised therein:
1. Whether or not the Honorable Court has jurisdiction over the subject matter of the petition.
2. Whether the petition states a cause of action or whether the petition alleges a justiciable controversy between
the parties.
3. Whether Section 150, par. (a) of the NIRC and Section 104, Hdg. 71.01, 71.02, 71.03 and 71.04 of the Tariff
and Customs Code are unconstitutional.
4. Whether the issuance of the Mission Order and Letters of Authority is valid and legal.
In the assailed decision, the public respondent held indeed that the Regional Trial Court has jurisdiction to take cognizance of the
petition since "jurisdiction over the nature of the suit is conferred by law and it is determine[d] through the allegations in the petition,"
and that the "Court of Tax Appeals has no jurisdiction to declare a statute unconstitutional much less issue writs of certiorari and
prohibition in order to correct acts of respondents allegedly committed with grave abuse of discretion amounting to lack of
jurisdiction."
As to the second issue, the public respondent, made the holding that there exists a justiciable controversy between the parties,
agreeing with the statements made in the position paper presented by the private respondents, and considering these statements to
be factual evidence, to wit:
Evidence for the petitioners indeed reveals that government taxation policy treats jewelry, pearls, and other
precious stones and metals as non-essential luxury items and therefore, taxed heavily; that the atmospheric
cost of taxation is killing the local manufacturing jewelry industry because they cannot compete with neighboring
and other countries where importation and manufacturing of jewelry is not taxed heavily, if not at all; that while
government incentives and subsidies exit, local manufacturers cannot avail of the same because officially many
of them are unregistered and are unable to produce the required official documents because they operate
underground, outside the tariff and tax structure; that local jewelry manufacturing is under threat of extinction,
otherwise discouraged, while domestic trading has become more attractive; and as a consequence, neighboring
countries, such as: Hongkong, Singapore, Malaysia, Thailand, and other foreign competitors supplying the
Philippine market either through local channels or through the black market for smuggled goods are the ones
who are getting business and making money, while members of the petitioner Guild of Philippine Jewelers, Inc.
are constantly subjected to bureaucratic harassment instead of being given by the government the necessary
support in order to survive and generate revenue for the government, and most of all fight competitively not only
in the domestic market but in the arena of world market where the real contest is.
Considering the allegations of fact in the petition which were duly proven during the trial, the Court holds that
the petition states a cause of action and there exists a justiciable controversy between the parties which would
require determination of constitutionality of the laws imposing excise tax and customs duty on
jewelry. 11 (emphasis ours)
The public respondent, in addressing the third issue, ruled that the laws in question are confiscatory and oppressive. Again, virtually
adopting verbatim the reasons presented by the private respondents in their position paper, the lower court stated:
The Court finds that indeed government taxation policy trats(sic) hewelry(sic) as non-essential luxury item and
therefore, taxed heavily. Aside from the ten (10%) percent value added tax (VAT), local jewelry manufacturers
contend with the (manufacturing) excise tax of twenty (20%) percent (to be applied in stages) customs duties on
imported raw materials, the highest in the Asia-Pacific region. In contrast, imported gemstones and other
precious metals are duty free in Hongkong, Thailand, Malaysia and Singapore.
The Court elaborates further on the experiences of other countries in their treatment of the jewelry sector.
MALAYSIA
Duties and taxes on imported gemstones and gold and the sales tax on jewelry were abolished in Malaysia in
1984. They were removed to encourage the development of Malaysia's jewelry manufacturing industry and to
increase exports of jewelry.
THAILAND
Gems and jewelry are Thailand's ninth most important export earner. In the past, the industry was overlooked
by successive administrations much to the dismay of those involved in developing trade. Prohibitive import
duties and sales tax on precious gemstones restricted the growht (sic) of the industry, resulting in most of the
business being unofficial. It was indeed difficult for a government or businessman to promote an industry which
did not officially exist.
Despite these circumstances, Thailand's Gem business kept growing up in (sic) businessmen began to realize
it's potential. In 1978, the government quietly removed the severe duties on precious stones, but imposed a
sales tax of 3.5%. Little was said or done at that time as the government wanted to see if a free trade in
gemstones and jewelry would increase local manufacturing and exports or if it would mean more foreign made
jewelry pouring into Thailand. However, as time progressed, there were indications that local manufacturing
was indeed being encouraged and the economy was earning mom from exports. The government soon
removed the 3% sales tax too, putting Thailand at par with Hongkong and Singapore. In these countries, there
are no more import duties and sales tax on gems. (Cited in pages 6 and 7 of Exhibit "M". The Center for
Research and Communication in cooperation with the Guild of Philippine Jewelers, Inc., June 1986).
To illustrate, shown hereunder is the Philippine tariff and tax structure on jewelry and other precious and semi-
precious stones compared to other neighboring countries, to wit:
Tariff on imported
Jewelry and (Manufacturing) Sales Tax 10% (VAT)
precious stones Excise tax
Philippines 3% to 10% to be 20% 10% VAT
applied in stages
Malaysia None None None
Thailand None None None
Singapore None None None
Hongkong None None None
In this connection, the present tariff and tax structure increases manufacturing costs and renders the local
jewelry manufacturers uncompetitive against other countries even before they start manufacturing and trading.
Because of the prohibitive cast (sic) of taxation, most manufacturers source from black market for smuggled
goods, and that while manufacturers can avail of tax exemption and/or tax credits from the (manufacturing)
excise tax, they have no documents to present when filing this exemption because, or pointed out earlier, most
of them source their raw materials from the block market, and since many of them do not legally exist or operate
onofficially (sic), or underground, again they have no records (receipts) to indicate where and when they will
utilize such tax credits. (Cited in Exhibit "M" — Buencamino Report).
Given these constraints, the local manufacturer has no recourse but to the back door for smuggled goods if only
to be able to compete even ineffectively, or cease manufacturing activities and instead engage in the tradinf
(sic) of smuggled finished jewelry.
 Worthy of note is the fact that indeed no evidence was adduced by respondents to disprove the foregoing
allegations of fact. Under the foregoing factual circumstances, the Court finds the questioned statutory
provisions confiscatory and destructive of the proprietary right of the petitioners to engage in business in
violation of Section 1, Article III of the Constitution which states, as follows:
No person shall be deprived of the life, liberty, or property without due process of law . . . . 12
Anent the fourth and last issue, the herein public respondent did not find it necessary to rule thereon, since, in his opinion, "the
same has been rendered moot and academic by the aforementioned pronouncement." 13
The petitioners now assail the decision rendered by the public respondent, contending that the latter has no authority to pass
judgment upon the taxation policy of the government. In addition, the petitioners impugn the decision in question by asserting that
there was no showing that the tax laws on jewelry are confiscatory and destructive of private respondent's proprietary rights.
We rule in favor of the petitioners.
It is interesting to note that public respondent, in the dispositive portion of his decision, perhaps keeping in mind his limitations under
the law as a trial judge, did not go so far as to declare the laws in question to be unconstitutional. However, therein he declared the
laws to be inoperative and without force and effect insofar as the private respondents are concerned. But, respondent judge, in the
body of his decision, unequivocally but wrongly declared the said provisions of law to be violative of Section 1, Article III of the
Constitution. In fact, in their Supplemental Comment on the Petition for Review, 14 the private respondents insist that Judge Santos,
in his capacity as judge of the Regional Trial Court, acted within his authority in passing upon the issues, to wit:
A perusal of the appealed decision would undoubtedly disclose that public respondent did not pass judgment on
the soundness or wisdom of the government's tax policy on jewelry. True, public respondent, in his questioned
decision, observed, inter alia, that indeed government tax policy treats jewelry as non-essential item, and
therefore, taxed heavily; that the present tariff and tax structure increase manufacturing cost and renders the
local jewelry manufacturers uncompetitive against other countries even before they start manufacturing and
trading; that many of the local manufacturers do not legally exist or operate unofficially or underground; and that
the manufacturers have no recourse but to the back door for smuggled goods if only to be able to compete even
if ineffectively or cease manufacturing activities.
BUT, public respondent did not, in any manner, interfere with or encroach upon the prerogative of the
legislature to determine what should be the tax policy on jewelry. On the other hand, the issue raised before,
and passed upon by, the public respondent was whether or not Section 150, paragraph (a) of the National
Internal Revenue Code (NIRC) and Section 104, Hdg. 71.01, 71.02, 71.03 and 71.04 of the Tariff and Customs
Code are unconstitutional, or differently stated, whether or not the questioned statutory provisions affect the
constitutional right of private respondents to engage in business.
It is submitted that public respondent confined himself on this issue which is clearly a judicial question.
We find it incongruous, in the face of the sweeping pronouncements made by Judge Santos in his decision, that private respondents
can still persist in their argument that the former did not overreach the restrictions dictated upon him by law. There is no doubt in the
Court's mind, despite protestations to the contrary, that respondent judge encroached upon matters properly falling within the
province of legislative functions. In citing as basis for his decision unproven comparative data pertaining to differences between tax
rates of various Asian countries, and concluding that the jewelry industry in the Philippines suffers as a result, the respondent judge
took it upon himself to supplant legislative policy regarding jewelry taxation. In advocating the abolition of local tax and duty on
jewelry simply because other countries have adopted such policies, the respondent judge overlooked the fact that such matters are
not for him to decide. There are reasons why jewelry, a non-essential item, is taxed as it is in this country, and these reasons,
deliberated upon by our legislature, are beyond the reach of judicial questioning. As held in Macasiano vs. National Housing
Authority: 15
The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the political
departments are valid in the absence of a clear and unmistakable showing to the contrary. To doubt is to
sustain. This presumption is based on the doctrine of separation of powers which enjoins upon each
department a becoming respect for the acts of the other departments. The theory is that as the joint act of
Congress and the President of the Philippines, a law has been carefully studied and determined to be in
accordance with the fundamental low before it was finally enacted. (emphasis ours)
What we see here is a debate on the WISDOM of the laws in question. This is a matter on which the RTC is not competent to
rule. 16 As Cooley observed: "Debatable questions are for the legislature to decide. The courts do not sit to resolve the merits of
conflicting issues." 17 In Angara vs. Electoral Commission, 18 Justice Laurel made it clear that "the judiciary does not pass upon
questions of wisdom, justice or expediency of legislation." And fittingly so, for in the exercise of judicial power, we are allowed only
"to settle actual controversies involving rights which are legally demandable and enforceable", and may not annul an act of the
political departments simply because we feel it is unwise or impractical. 19 This is not to say that Regional Trial Courts have no
power whatsoever to declare a law unconstitutional. In J.M. Tuason and Co. v. Court of Appeals, 20 we said that "[p]lainly the
Constitution contemplates that the inferior courts should have jurisdiction in cases involving constitutionality of any treaty or law, for
it speaks of appellate review of final judgments of inferior courts in cases where such constitutionality happens to be in issue." This
authority of lower courts to decide questions of constitutionality in the first instance reaffirmed in Ynos v. Intermediate Court of
Appeals. 21 But this authority does not extend to deciding questions which pertain to legislative policy.
The trial court is not the proper forum for the ventilation of the issues raised by the private respondents. The arguments they
presented focus on the wisdom of the provisions of law which they seek to nullify. Regional Trial Courts can only look into the
validity of a provision, that is, whether or not it has been passed according to the procedures laid down by law, and thus cannot
inquire as to the reasons for its existence. Granting arguendo that the private respondents may have provided convincing arguments
why the jewelry industry in the Philippines should not be taxed as it is, it is to the legislature that they must resort to for relief, since
with the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects)
and situs (place) of taxation. This Court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative
judgment. 22
As succinctly put in Lim vs. Pacquing: 23 "Where a controversy may be settled on a platform other than one involving constitutional
adjudication, the court should exercise becoming modesty and avoid the constitutional question." As judges, we can only interpret
and apply the law and, despite our doubts about its wisdom, cannot repeal or amend it. 24
The respondents presented an exhaustive study on the tax rates on jewelry levied by different Asian countries. This is meant to
convince us that compared to other countries, the tax rates imposed on said industry in the Philippines is oppressive and
confiscatory. This Court, however, cannot subscribe to the theory that the tax rates of other countries should be used as a yardstick
in determining what may be the proper subjects of taxation in our own country. It should be pointed out that in imposing the
aforementioned taxes and duties, the State, acting through the legislative and executive branches, is exercising its sovereign
prerogative. It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held
that "inequalities which result from a singling out or one particular class for taxation, or exemption, infringe no constitutional
limitation." 25
WHEREFORE, premises considered, the petition is hereby GRANTED, and the Decision in Civil Case No. 56736 is hereby
REVERSED and SET ASIDE. No costs.
SO ORDERED.
Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.

Sison vs. Ancheta

GR L- 59431 June 25, 1984

Facts:

BP 135 was enacted. Sison, as a taxpayer alleged that Sison is thereof unduly discriminated against him by the imposition
of higher rate upon his income as a professional, that it amounts to class legislation, and that it transgresses against the equal
protection and due process clauses of the 1987 Constitution as well as the rule requiring the uniformity in taxation.

Issue: is the contention meritorious?

Ruling:

No. it is manifest that the field of state activity has assumed a much wider scope. The reason was clearly set forth by
justice Makalintal, thus: the areas which need to be left with 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 any individual or groups
and individual continue to lose their well-defined boundaries and to be absorbed within the activities that the government must
undertake in the sovereign capacity if it is to meet the increasing social challenges of the times. Hence, there is a need for more
revenues. The power to tax, on inherent prerogative, has to be reconciled to assure the performance of vital state functions. It is the
source of public funds. Taxes, being the lifeblood of the government, their prompt and certain availability is of the essence.

Sison vs Ancheta (1984)

February 15, 2013 markerwins Tax Law

Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly discriminated against
him by the imposition of higher rates upon his income as a professional, that it amounts to class legislation, and that it transgresses
against the equal protection and due process clauses of the Constitution as well as the rule requiring uniformity in taxation.

Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity in taxation.

Held: There is a need for proof of such persuasive character as would lead to a conclusion that there was a violation of the due
process and equal protection clauses. Absent such showing, the presumption of validity must prevail. Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has
the authority to make reasonable and natural classifications for purposes of taxation. Where the differentitation conforms to the
practical dictates of justice and equity, similar to the standards of equal protection, it is not discriminatory within the meaning of the
clause and is therefore uniform. Taxpayers may be classified into different categories, such as recipients of compensation income
as against professionals. Recipients of compensation income are not entitled to make deductions for income tax purposes as there
is no practically no overhead expense, while professionals and businessmen have no uniform costs or expenses necessaryh to
produce their income. There is ample justification 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.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-59431 July 25, 1984

ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy Commissioner, Bureau
of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue; MANUEL ALBA, Minister of
Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit, 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. 4He characterizes the above sction
as arbitrary amounting to class legislation, oppressive and capricious in character 5 For petitioner, therefore, there is a transgression
of both the equal protection and due process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice. Such an answer,
after two extensions were granted the Office of the Solicitor General, was filed on May 28, 1982. 8The facts as alleged were
admitted but not the allegations which to their mind are "mere arguments, opinions or conclusions on the part of the petitioner, the
truth [for them] being those stated [in their] Special and Affirmative Defenses." 9 The answer then affirmed: "Batas Pambansa Big.
135 is a valid exercise of the State's power to tax. The authorities and cases cited while correctly quoted or paraghraph do not
support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.

This Court finds such a plea more than justified. The petition must be dismissed.

1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth by retired Chief
Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and which the government was called
upon to enter optionally, and only 'because it was better equipped to administer for the public welfare than is any private individual
or group of individuals,' continue to lose their well-defined boundaries and to be absorbed within activities that the government must
undertake in its sovereign capacity if it is to meet the increasing social challenges of the times." 11 Hence the need for more
revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the
source of the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the government, their prompt and
certain availability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of
of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions.
The Constitution sets forth such limits . Adversely affecting as it does properly rights, both the due process and equal protection
clauses inay properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise,
there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." 14 In a
separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a
flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of absolutes." 16 This is merely to
emphasize that it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web
of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is
not the power to destroy while this Court sits." 17 So it is in the Philippines.

3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or executive, act that runs
counter to it. In any case therefore where it can be demonstrated that the challenged statutory provision — as petitioner here alleges
— fails to abide by its command, then this Court must so declare and adjudge it null. The injury thus is centered on the question of
whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is
constitutionally infirm.

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here. does not suffice. There
must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void
or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that were the due process and equal
protection clauses are invoked, considering that they arc not fixed rules but rather broad standards, there is a need for of such
persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. 18

5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of
power. It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not
conferred. That properly calls for the application of the Holmes dictum. It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it
is subject to attack on due process grounds. 19

6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional mandate whether
the assailed act is in the exercise of the 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. 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.

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN vs. TAN

G.R. No. 81311 June 30, 1988

FACTS: This petition seeks to nullify Executive Order No. 273 (EO 273, for short), issued by the President of the

Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the National Internal Revenue
Code and adopted the value-added tax (VAT, for short), for being unconstitutional in that its enactment is not allegedly within the
powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection
clauses and other provisions of the 1987 Constitution.

ISSUE:

Whether or not EO 273 was enacted by the president with grave abuse of discretion and whether or not such law is unconstitutional.

RULING:

Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason
of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by these framers
and other government agencies involved in its implementation, even under the past administration. The petitioners have failed to
adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles which are
actually hearsay and have evidentiary value. To justify the nullification of a law, there must be a clear and unequivocal breach of the
Constitution, not a doubtful and argumentative implication. The disputed sales tax is also equitable. It is imposed only on sales of
goods or services by persons engage in business with an aggregate gross annual sales exceeding P200, 000.00. Small corners a r
i- s a r i stores are consequently exempt from its application.

Kapatiran ng mga Naglilingkod sa Pamahalaan v Tan (1988)

Kapatiran ng mga Naglilingkod sa Pamahalaan v Tan GR No 81311 June 30, 1988

FACTS:
EO 372 was issued by the President of the Philippines which amended the Revenue Code, adopting the value-added tax (VAT)
effective January 1, 1988. Four petitions assailed the validity of the VAT Law from being beyond the President to enact; for being
oppressive, discriminatory, regressive and violative of the due process and equal protection clauses, among others, of the
Constitution. The Integrated Customs Brokers Association particularly contend that it unduly discriminate against customs brokers
(Section 103r) as the amended provision of the Tax Code provides that “service performed in the exercise of profession or calling
(except custom brokers) subject to occupational tax under the Local Tax Code and professional services performed by registered
general professional partnerships are exempt from VAT.

ISSUE:
Whether the E-VAT law is void for being discriminatory against customs brokers

RULING:
No. The phrase “except custom brokers” is not meant to discriminate against custom brokers but to avert a potential conflict
between Sections 102 and 103 of the Tax Code, as amended. The distinction of the customs brokers from the other professionals
who are subject to occupation tax under the Local Tax Code is based on material differences, in that the activities of customs
partake more of a business, rather than a profession and were thus subjected to the percentage tax under Section 174 of the Tax
Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the Association did
not protest the classification of customs brokers then, there is no reason why it should protest now.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 81311 June 30, 1988

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q.

QUADRA, and MARIO C. VILLANUEVA, petitioners,
vs.
HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent.

G.R. No. 81820 June 30, 1988

KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated labor federations and alliances, petitioners,
vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE, and
SECRETARY OF BUDGET, respondents.

G.R. No. 81921 June 30, 1988

INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES and JESUS B. BANAL, petitioners,
vs.
The HON. COMMISSIONER, BUREAU OF INTERNAL REVENUE, respondent.

G.R. No. 82152 June 30, 1988

RICARDO C. VALMONTE, petitioner,

vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, COMMISSIONER OF INTERNAL REVENUE and SECRETARY OF
BUDGET, respondent.

Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.

Jaime C. Opinion for individual petitioners in G.R. No. 81311.

Banzuela, Flores, Miralles, Rañeses, Sy, Taquio and Associates for petitioners in G.R. No 81820.

Union of Lawyers and Advocates for Peoples Right collaborating counsel for petitioners in G.R. No 81820.

Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.

PADILLA, J.:

These four (4) petitions, which have been consolidated because of the similarity of the main issues involved therein, seek to nullify
Executive Order No. 273 (EO 273, for short), issued by the President of the Philippines on 25 July 1987, to take effect on 1 January
1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT, for
short), for being unconstitutional in that its enactment is not alledgedly within the powers of the President; that the VAT is
oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987
Constitution.

The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have failed to show justification for
the exercise of its judicial powers, viz. (1) the existence of an appropriate case; (2) an interest, personal and substantial, of the party
raising the constitutional questions; (3) the constitutional question should be raised at the earliest opportunity; and (4) the question
of constitutionality is directly and necessarily involved in a justiciable controversy and its resolution is essential to the protection of
the rights of the parties. According to the Solicitor General, only the third requisite — that the constitutional question should be
raised at the earliest opportunity — has been complied with. He also questions the legal standing of the petitioners who, he
contends, are merely asking for an advisory opinion from the Court, there being no justiciable controversy for resolution.

Objections to taxpayers' suit for lack of sufficient personality standing, or interest are, however, in the main procedural matters.
Considering the importance to the public of the cases at bar, and in keeping with the Court's duty, under the 1987 Constitution, to
determine wether or not the other branches of government have kept themselves within the limits of the Constitution and the laws
and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken
cognizance of these petitions.

But, before resolving the issues raised, a brief look into the tax law in question is in order.
The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with aggregate gross
annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods and services, unless exempt. VAT is
computed at the rate of 0% or 10% of the gross selling price of goods or gross receipts realized from the sale of services.

The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers, advance sales tax, and
compensating tax on importations. The framers of EO 273 that it is principally aimed to rationalize the system of taxing goods and
services; simplify tax administration; and make the tax system more equitable, to enable the country to attain economic recovery.

The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed out by the Solicitor
General, the Philippine sales tax system, prior to the issuance of EO 273, was essentially a single stage value added tax system
computed under the "cost subtraction method" or "cost deduction method" and was imposed only on original sale, barter or
exchange of articles by manufacturers, producers, or importers. Subsequent sales of such articles were not subject to sales tax.
However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale, which was reduced to 1.5%
upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were imposed not only
on the second sale, but on every subsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-
rated or exempt.

Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no authority to issue EO 273 on 25
July 1987.

The contention is without merit.

It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative authority was vested
upon the President. Art. II, sec. 1 of the Provisional Constitution states:

Sec. 1. Until a legislature is elected and convened under a new Constitution, the President shall continue to
exercise legislative powers.

On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the Republic of the Philippines which
was ratified in a plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution, hereafter referred to as the 1987
Constitution, provides:

Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is
convened.

It should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested with legislative powers until a
legislature under a new Constitution is convened. The first Congress, created and elected under the 1987 Constitution, was
convened on 27 July 1987. Hence, the enactment of EO 273 on 25 July 1987, two (2) days before Congress convened on 27 July
1987, was within the President's constitutional power and authority to legislate.

Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27 July 1987). He contends that
the word "convene" is synonymous with "the date when the elected members of Congress assumed office."

The contention is without merit. The word "convene" which has been interpreted to mean "to call together, cause to assemble, or
convoke," 1 is clearly different from assumption of office by the individual members of Congress or their taking the oath of office. As
an example, we call to mind the interim National Assembly created under the 1973 Constitution, which had not been "convened" but
some members of the body, more particularly the delegates to the 1971 Constitutional Convention who had opted to serve therein
by voting affirmatively for the approval of said Constitution, had taken their oath of office.

To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene" a bit too far. It would also defeat
the purpose of the framers of the 1987 Constitutional and render meaningless some other provisions of said Constitution. For
example, the provisions of Art. VI, sec. 15, requiring Congress to convene once every year on the fourth Monday of July for its
regular session would be a contrariety, since Congress would already be deemed to be in session after the individual members
have taken their oath of office. A portion of the provisions of Art. VII, sec. 10, requiring Congress to convene for the purpose of
enacting a law calling for a special election to elect a President and Vice-President in case a vacancy occurs in said offices, would
also be a surplusage. The portion of Art. VII, sec. 11, third paragraph, requiring Congress to convene, if not in session, to decide a
conflict between the President and the Cabinet as to whether or not the President and the Cabinet as to whether or not the
President can re-assume the powers and duties of his office, would also be redundant. The same is true with the portion of Art. VII,
sec. 18, which requires Congress to convene within twenty-four (24) hours following the declaration of martial law or the suspension
of the privilage of the writ of habeas corpus.

The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers of said Constitution
had intended to terminate the exercise of legislative powers by the President at the beginning of the term of office of the members of
Congress, they should have so stated (but did not) in clear and unequivocal terms. The Court has not power to re-write the
Constitution and give it a meaning different from that intended.

The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in grave abuse of discretion
amounting to lack or excess of jurisdiction. "Grave abuse of discretion" has been defined, as follows:

Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is equivalent to lack
of jurisdiction (Abad Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other words, where the power is
exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent
and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to
act at all in contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. 62). 2

Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason
of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers
and other government agencies involved in its implementation, even under the past administration. As the Solicitor General correctly
sated. "The signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative process started
long before the signing when the data were gathered, proposals were weighed and the final wordings of the measure were drafted,
revised and finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the Congress, two days before it
convened." 3

Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the provisions of Art. VI,
sec. 28(1) of the 1987 Constitution, which states:

Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system
of taxation.

The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their conclusions. They have
failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles which
are actually hearsay and have evidentiary value. To justify the nullification of a law. there must be a clear and unequivocal breach of
the Constitution, not a doubtful and argumentative implication. 4

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court, in City of Baguio vs. De
Leon, 5 said:

... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court, stated: "A tax is
considered uniform when it operates with the same force and effect in every place where the subject may be
found."

There was no occasion in that case to consider the possible effect on such a constitutional requirement where
there is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862). Thus:
"Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation; . . ." About two years later, Justice Tuason, speaking for this Court in Manila Race Horses
Trainers Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his opinion and continued;
"Taking everything into account, the differentiation against which the plaintiffs complain conforms to the
practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution."

To satisfy this requirement then, all that is needed as held in another case decided two years later, (Uy Matias
v. City of Cebu, 93 Phil. 300) is that the statute or ordinance in question "applies equally to all persons, firms
and corporations placed in similar situation." This Court is on record as accepting the view in a leading
American case (Carmichael v. Southern Coal and Coke Co., 301 US 495) that "inequalities which result from a
singling out of one particular class for taxation or exemption infringe no constitutional limitation." (Lutz v.
Araneta, 98 Phil. 148, 153).

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

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business with an
aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application.
Likewise exempt from the tax are sales of farm and marine products, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public. 6
The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers Association of the Philippines that
EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates against customs
brokers. The contested provision states:

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

xxx xxx xxx

(r) Service performed in the exercise of profession or calling (except customs brokers) subject to the occupation
tax under the Local Tax Code, and professional services performed by registered general professional
partnerships;

The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was inserted in Sec. 103(r) to
complement the provisions of Sec. 102 of the Code, which makes the services of customs brokers subject to the payment of the
VAT and to distinguish customs brokers from other professionals who are subject to the payment of an occupation tax under the
Local Tax Code. Pertinent provisions of Sec. 102 read:

Sec. 102. Value-added tax on sale of services. — There shall be levied, assessed and collected, a value-added
tax equivalent to 10% percent of gross receipts derived by any person engaged in the sale of services. The
phrase sale of services" means the performance of all kinds of services for others for a fee, remuneration or
consideration, including those performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of personal property; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others;
and similar services regardless of whether or not the performance thereof call for the exercise or use of the
physical or mental faculties: ...

With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a potential conflict between the two sections,
(Secs. 102 and 103), insofar as customs brokers are concerned, is averted.

At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local
Tax Code is based upon material differences, in that the activities of customs brokers (like those of stock, real estate and
immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax under Sec.
174 of the National Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it
with the VAT. If the petitioner Association did not protest the classification of customs brokers then, the Court sees no reason why it
should protest now.

The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the fears expressed by the
petitioners that the adoption of the VAT will trigger skyrocketing of prices of basic commodities and services, as well as mass
actions and demonstrations against the VAT should by now be evident. The fact that nothing of the sort has happened shows that
the fears and apprehensions of the petitioners appear to be more imagined than real. It would seem that the VAT is not as bad as
we are made to believe.

In any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to the general
welfare or the interests of the majority of the people, they should seek recourse and relief from the political branches of the
government. The Court, following the time-honored doctrine of separation of powers, cannot substitute its judgment for that of the
President as to the wisdom, justice and advisability of the adoption of the VAT. The Court can only look into and determine whether
or not EO 273 was enacted and made effective as law, in the manner required by, and consistent with, the Constitution, and to
make sure that it was not issued in grave abuse of discretion amounting to lack or excess of jurisdiction; and, in this regard, the
Court finds no reason to impede its application or continued implementation.

WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.

SO ORDERED.

Yap, C.J., Fernan, Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and Griño-Aquino, JJ.,
concur.

Gutierrez, Jr. and Medialdea, JJ., are on leave.

 10. Reyes vs. Almanzor
196 SCRA 322; April 26, 1991

FACTS: Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo and Sta. Cruz
Districts, City of Manila, which are leased and entirely occupied as dwelling sites by tenants. Said tenants were paying monthly rentals
not exceeding three hundred pesos (P300.00) in July, 1971.

On July 14, 1971, the National Legislature enacted Republic Act No. 6359 prohibiting for one year from its effectivity, an increase in
monthly rentals of dwelling units or of lands on which another's dwelling is located, where such rentals do not exceed three hundred
pesos (P300.00) a month but allowing an increase in rent by not more than 10% thereafter.

On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the prohibition to increase monthly
rentals below P300.00 and by indefinitely suspending the aforementioned provision of the Civil Code, excepting leases with a definite
period. Consequently, the Reyeses were precluded from raising the rentals and from ejecting the tenants thereof.

The City Assessor of Manila assessed the value of the Reyeses property on the schedule of market values duly reviewed by the
Secretary of Finance. The revision entailed an increase to the tax rates and the petitioners averred that the reassessment imposed
upon them greatly exceeded the annual income derived from their properties.

ISSUE: WON income approach is the method to be used in the tax assessment and not the comparable sales approach.
HELD: The income approach and not the comparable sales approach must be used.
“By no strength of the imagination can the market value of properties covered by P.D. No. 20 be equated with the market value of
properties not so covered. The former has naturally a much lesser market value in view of the rental restrictions.
In the case at bar, not even the factors determinant of the assessed value of subject properties under the "comparable sales approach"
were presented by the public respondents, namely: (1) that the sale must represent a bonafide arm's length transaction between a
willing seller and a willing buyer and (2) the property must be comparable property. Nothing can justify or support their view as it is of
judicial notice that for properties covered by P.D. 20 especially during the time in question, there were hardly any willing buyers. As a
general rule, there were no takers so that there can be no reasonable basis for the conclusion that these properties were comparable
with other residential properties not burdened by P.D. 20.”

REYES VS. ALMANZOR

GR 43839-46 April 26, 1991 196 SCRA 322
Paras, J.:
FACTS:
Petitioner are owners of parcels of land leased to tenants. RA 6359 was enacted prohibiting for one year an increase in monthly
rentals of dwelling units and said Act also disallowed ejectment of lessees upon the expiration of the usual period of lease. City
assessor of Manila assessed the value of petitioner’s property based on the schedule of market values duly reviewed by the
Secretary of Finance. The revision entailed an increase to the tax rates and petitioners averred that the reassessment imposed
upon them greatly exceeded the annual income derived from their properties.
ISSUE:
Whether or not income approach is the method to be used in the tax assessment and not the comparable sales approach.
RULING:
By no stretch of the imagination can the market value of properties covered by PD 20 be equated with the market value of properties
not so covered. In the case at bar, not even factors determinant of the assessed value of subject properties under the comparable
sales approach were presented by respondent namely:
1. That the sale must represent a bonafide arm’s length transaction between a willing seller and a willing buyer
2. The property must be comparable property.
As a general rule, there were no takers so that there can be no reasonable basis for the conclusion that these properties are
comparable.
Taxes are lifeblood of government, however, such collection should be made in accordance with the law and therefore necessary to
reconcile conflicting interests of the authorities so that the real purpose of taxation, promotion of the welfare of common good can be
achieved.

REYES v. ALMANZOR
GR Nos. L-49839-46, April 26, 1991
196 SCRA 322

FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as dwelling
units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the Rental
Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling
units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses were precluded from
raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and
reassessed the value of the subject properties based on the schedule of market values, which entailed an
increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement averring
that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional"
considering that the taxes imposed upon them greatly exceeded the annual income derived from their
properties. They argued that the income approach should have been used in determining the land values instead
of the comparable sales approach which the City Assessor adopted.

ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?
HELD: No. The taxing power has the authority to make a reasonable and natural classification for purposes of
taxation but the government's act must not be prompted by a 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.
Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the
same government by the imposition of excessive taxes petitioners can ill afford and eventually result in the
forfeiture of their properties.

TITLE:
J.B.L. Reyes, Edmundo Reyes, et al, petitioner, v. Board of Assessment Appeals ofManila and City Assessor of Manila, respondents
CITATION:
G.R. Nos. L-49839-46, 196 SCRA 322
DATE:
April 26, 1991
FACTS:
J.B.L Reyes, et al., petitioners, owners of parcels of land in Tondo and Sta. CruzDistricts, City of Manila which are leased by tenants for a monthly rentals not exceeding
threehundred pesos (P300.00) in July 1971. Around that time, a law was passed prohibiting theincrease of rentals of properties leased for rentals not exceeding
P300.00 monthly and ejectinglessees after the expiration of the usual legal period of lease. In 1973, respondent City Assessorof Manila re-classified and reassessed
the value of the subject properties based on theschedule of market values which entailed an increase in the acorresponding tax rates promptingpetitioners to file a
Memorandum of Disagreement with the Board of Tax Assessment Appeals.They averred that the reassessments made were "excessive, unwarranted,
inequitable,confiscatory and unconstitutional" considering that the taxes imposed upon them greatlyexceeded the annual income derived from their properties. They
argued that the incomeapproach should have been used in determining the land values instead of the comparablesales approach which the City Assessor adopted
ISSUE:
Is the approach adopted by the City Assessor appropriate in assessing the property?
HELD:
No. The taxing power is an attribute of sovereignty. However, the power to tax is notunconfined as there are restrictions. The due process and equal protection clauses
of theConstitution limit this power. The laws should operate equally and uniformly on all personsunder similar circumstances or that all persons must be treated in the
same manner, theconditions not being different both in the privileges conferred and the liabilities imposed. Themarket value of properties covered by P.D. No. 20
cannot be equated with the market value ofproperties not covered. The former has naturally a much lesser market value in view of therental restrictions. Consequently,
the use of the Comparable Sales Approach in the assessmentof the properties on the ground of uniformity is unreasonable

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their capacities as appointed and Acting Members of the
CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES,
in their capacities as appointed and Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS
CATIIL in his capacity as City Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board of Assessment Appeals 1 in
CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board of Assessment Appeals of Manila and City
Assessor of Manila" which affirmed the March 29, 1976 decision of the Board of Tax Assessment Appeals 2 in BTAA Cases Nos.
614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. City
Assessor of Manila" upholding the classification and assessments made by the City Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo and Sta. Cruz Districts, City
of Manila, which are leased and entirely occupied as dwelling sites by tenants. Said tenants were paying monthly rentals not
exceeding three hundred pesos (P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359
prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units or of lands on which another's dwelling is
located, where such rentals do not exceed three hundred pesos (P300.00) a month but allowing an increase in rent by not more
than 10% thereafter. The said Act also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its effectivity
thereby disallowing the ejectment of lessees upon the expiration of the usual legal period of lease. On October 12, 1972,
Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the prohibition to increase monthly rentals below P300.00
and by indefinitely suspending the aforementioned provision of the Civil Code, excepting leases with a definite period.
Consequently, the Reyeses, petitioners herein, were precluded from raising the rentals and from ejecting the tenants. In 1973,
respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on the schedule of
market values duly reviewed by the Secretary of Finance. The revision, as expected, entailed an increase in the corresponding tax
rates prompting petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals. They averred that
the reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes
imposed upon them greatly exceeded the annual income derived from their properties. They argued that the income approach
should have been used in determining the land values instead of the comparable sales approach which the City Assessor adopted
(Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to submit concrete evidence which could overcome the
presumptive regularity of the classification and assessments appear to be in accordance with the base schedule of market
values and of the base schedule of building unit values, as approved by the Secretary of Finance, the cases should be, as
they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals.1âwphi1 They submitted, among others, the summary of the
yearly rentals to show the income derived from the properties. Respondent City Assessor, on the other hand, submitted three (3)
deeds of sale showing the different market values of the real property situated in the same vicinity where the subject properties of
petitioners are located. To better appreciate the locational and physical features of the land, the Board of Hearing Commissioners
conducted an ocular inspection with the presence of two representatives of the City Assessor prior to the healing of the case.
Neither the owners nor their authorized representatives were present during the said ocular inspection despite proper notices served
them. It was found that certain parcels of land were below street level and were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots covered by Tax Declaration
Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-266, the appealed Decision is
modified by allowing a 20% reduction in their respective market values and applying therein the assessment level of 30%
to arrive at the corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES APPROACH" METHOD IN FIXING
THE ASSESSED VALUE OF APPELLANTS' PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in question. Petitioners maintain that the
"Income Approach" method would have been more realistic for in disregarding the effect of the restrictions imposed by P.D. 20 on
the market value of the properties affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the resulting annual real estate taxes would admittedly exceed the sum total
of the yearly rentals paid or payable by the dweller tenants under P.D. 20. Hence, petitioners protested against the levels of the
values assigned to their properties as revised and increased on the ground that they were arbitrarily excessive, unwarranted,
inequitable, confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that the income approach is used in
determining land values in some vicinities, it maintains that when income is affected by some sort of price control, the same is
rejected in the consideration and study of land values as in the case of properties affected by the Rent Control Law for they do not
project the true market value in the open market (Rollo, p. 21). Thus, respondents opted instead for the "Comparable Sales
Approach" on the ground that the value estimate of the properties predicated upon prices paid in actual, market transactions would
be a uniform and a more credible standards to use especially in case of mass appraisal of properties (Ibid.). Otherwise stated, public
respondents would have this Court completely ignore the effects of the restrictions of P.D. No. 20 on the market value of properties
within its coverage. In any event, it is unquestionable that both the "Comparable Sales Approach" and the "Income Approach" are
generally acceptable methods of appraisal for taxation purposes (The Law on Transfer and Business Taxation by Hector S. De
Leon, 1988 Edition). However, it is conceded that the propriety of one as against the other would of course depend on several
factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it
has been stressed that the assessors, in finding the value of the property, have to consider all the circumstances and elements of
value and must exercise a prudent discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only be uniform, but must also be
equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same class shall be taxed at the
same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of taxation required in the 1973
Charter (Fernando "The Constitution of the Philippines", p. 221, Second Edition). Thus, the need to examine closely and determine
the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressive when its rate goes up
depending on the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of government. But for all its plenitude
the power to tax is not unconfined as there are restrictions. Adversely effecting as it does property rights, both the due process and
equal protection clauses of the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If it were
otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy."
The web or unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmes pen, thus: "The
power to tax is not the power to destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655
[1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
In the same vein, 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 confiscation of property. That would be a clear abuse of
power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the government's act
must not be prompted by a 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 (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first Fundamental Principle to guide the
appraisal and assessment of real property for taxation purposes is that the property must be "appraised at its current and fair market
value."
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be equated with the market value of
properties not so covered. The former has naturally a much lesser market value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject properties under the "comparable
sales approach" were presented by the public respondents, namely: (1) that the sale must represent a bonafide arm's length
transaction between a willing seller and a willing buyer and (2) the property must be comparable property (Rollo, p. 27). Nothing can
justify or support their view as it is of judicial notice that for properties covered by P.D. 20 especially during the time in question,
there were hardly any willing buyers. As a general rule, there were no takers so that there can be no reasonable basis for the
conclusion that these properties were comparable with other residential properties not burdened by P.D. 20. Neither can the given
circumstances be nonchalantly dismissed by public respondents as imposed under distressed conditions clearly implying that the
same were merely temporary in character. At this point in time, the falsity of such premises cannot be more convincingly
demonstrated by the fact that the law has existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself It is
therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxations, which is the promotion of the common good, may be achieved (Commissioner of Internal Revenue v. Algue Inc., et al.,
158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the same government by
the imposition of excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.
By the public respondents' own computation the assessment by income approach would amount to only P10.00 per sq. meter at the
time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public respondents are REVERSED and
SET ASIDE; and (e) the respondent Board of Assessment Appeals of Manila and the City Assessor of Manila are ordered to make a
new assessment by the income approach method to guarantee a fairer and more realistic basis of computation (Rollo, p. 71).
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Griño-Aquino,
Medialdea, Regalado and Davide, Jr., JJ., concur.

26. Maceda vs. ERB, 192 SCRA 365 and 199 SCRA 454 Facts: On 10 September 1990, Caltex (Philippines), Inc., Pilipinas Shell
Petroleum Corporation, and Petron Corporation proferred separate applications with the Energy Regulatory Board for permission to
increase the wholesale posted prices of petroleum products, and meanwhile, for provisional authority to increase temporarily such
wholesale posted prices pending further proceedings. On September 21, 1990, the Energy Regulatory Board, in a joint (on three
applications) order granted provisional relief and authorizes said applicants a weighted average provisional increase of ONE PESO
AND FORTY-TWO CENTAVOS (P1.42) per liter in the wholesale posted prices of their various petroleum products, refined and/or
marketed by them locally. The petitioners, Senator Ernesto Maceda and Atty. Oliver Lozano submits that the same was issued
without proper notice and hearing in violation of Section 3, paragraph (e), of Executive Order No. 172, and has been issued with
grave abuse of discretion, tantamount to lack of jurisdiction, and correctible by certiorari. Hence, this petition praying for injunctive
relief, to stop the Energy Regulatory Board from implementing its order, dated September 21, 1990, mandating a provisional
increase in the prices of petroleum and petroleum products. Issue: Whether or not the Order of the Energy Regulatory Board
mandating a provisional increase on petroleum products was issued in violation of principle of nondelegation of taxation power.
RULING: The Board Order authorizing the proceeds generated by the increase to be deposited to the OPSF is not an act of
taxation. It is authorized by Presidential Decree No. 1956, as amended by Executive Order No. 137, as follows: SECTION 8. There
is hereby created a Trust Account in the books of accounts of the Ministry of Energy to be designated as Oil Price Stabilization Fund
(OPSF) for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in world
market prices of crude oil and imported petroleum products. xxx Evidently, authorities have been unable to collect enough taxes
necessary to replenish the OPSF as provided by Presidential Decree No. 1956, and hence, there was no available alternative but to
hike existing prices. The OPSF, as the Court held in the aforecited CACP cases, must not be understood to be a funding designed
to guarantee oil firms' profits although as a subsidy, or a trust account, the Court has no doubt that oil firms make money from it. As
we held there, however, the OPSF was established precisely to protect the consuming public from the erratic movement of oil prices
and to preclude oil companies from taking advantage of fluctuations occurring every so often. As a buffer mechanism, it stabilizes
domestic prices by bringing about a uniform rate rather than leaving pricing to the caprices of the market. In all likelihood, therefore,
an oil hike would have probably been imminent, with or without trouble in the Gulf, although trouble would have probably aggravated
it.: nad

Maceda vs. ERB

192 SCRA 363Sarmiento
Facts:
1. Petroleum companies Caltex,Shell and Petron filed separate applications with theEnergy Regulatory Board for permission to increase the wholesale prices of
petroleumproducts, and meanwhile, for provisional authority to increase temporarily such pricespending further proceedings.2. The Energy Regulatory Board, in a joint
order granted provisional relief and authorizessaid applicants a provisional increase.3. The petitioners, Senator Ernesto Maceda and Atty. Oliver Lozano submits that
the samewas issued without proper notice and hearing in violation of Section 3, paragraph (e), of Executive Order No. 172, and has been issued with grave abuse of
discretion,tantamount to lack of jurisdiction.4. Hence, this petition praying for injunctive relief, to stop the Energy Regulatory Boardfrom implementing its order mandating
a provisional increase in the prices of petroleumand petroleum products.
Issue:
Whether or not the Order of the Energy Regulatory Board is valid?
Held:

YES.
Senator Maceda and Atty. Lozano, in questioning the lack of a hearing, have overlooked theprovisions of Section 8 of Executive Order No. 172 which authorizes the
Board to grantprovisional relief on motion of a party in the case or on its own initiative, without prejudice to afinal decision after hearing, should the Board find that the
documentary evidences substantiallysupport the provisional order. Provided, That the Board shall immediately schedule and conducta hearing thereon within thirty (30)
days thereafter, upon publication and notice to all affectedparties.: naSection 3, paragraph (e) and Section 8 do not negate each other, or otherwise,
operateexclusively of the other, in that the Board may resort to one but not to both at the same time.Section 3(e) outlines the jurisdiction of the Board and the grounds for
which it may decree aprice adjustment, subject to the requirements of notice and hearing. Pending that, however, itmay order, under Section 8, an authority to increase
provisionally, without need of a hearing,subject to the final outcome of the proceeding

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 96266 July 18, 1991

ERNESTO M. MACEDA, petitioner,

vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL PETROLEUM CORPORATION AND
PETRON CORPORATION, respondents.

G.R. No. 96349 July 18, 1991

EUGENIO O. ORIGINAL, IRENEO N. AARON, JR., RENE LEDESMA, ROLANDO VALLE, ORLANDO MONTANO, STEVE
ABITANG, NERI JINON, WILFREDO DELEONIO, RENATO BORRO, RODRIGO DE VERA, ALVIN BAYUANG, JESUS
MELENDEZ, NUMERIANO CAJILIG JR., RUFINO DE LA CRUZ AND JOVELINO G. TIPON, petitioners,
vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL PETROLEUM CORPORATION AND
PETRON CORPORATION, respondents.

G.R. No. 96284 July 18,1991

CEFERINO S. PAREDES, JR., petitioner,

vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL, INC. AND PETROPHIL
CORPORATION, respondents.

RESOLUTION

MEDIALDEA, J.:p

In G.R. No. 96266, petitioner Maceda seeks nullification of the Energy Regulatory Board (ERB) Orders dated December 5 and 6,
1990 on the ground that the hearings conducted on the second provisional increase in oil prices did not allow him substantial cross-
examination, in effect, allegedly, a denial of due process.

The facts of the case are as follows:

Upon the outbreak of the Persian Gulf conflict on August 2, 1990, private respondents oil companies filed with the ERB their
respective applications on oil price increases (docketed as ERB Case Nos. 90-106, 90-382 and 90-384, respectively).
On September 21, 1990, the ERB issued an order granting a provisional increase of P1.42 per liter. Petitioner Maceda filed a
petition for Prohibition on September 26, 1990 (E. Maceda v. ERB, et al., G.R. No. 95203), seeking to nullify the provisional
increase. We dismissed the petition on December 18, 1990, reaffirming ERB's authority to grant provisional increase even without
prior hearing, pursuant to Sec. 8 of E.O. No. 172, clarifying as follows:

What must be stressed is that while under Executive Order No. 172, a hearing is indispensable, it does not
preclude the Board from ordering, ex-parte, a provisional increase, as it did here, subject to its final disposition
of whether or not: (1) to make it permanent; (2) to reduce or increase it further; or (3) to deny the application.
Section 3, paragraph (e) is akin to a temporary restraining order or a writ of preliminary attachment issued by
the courts, which are given ex-parte and which are subject to the resolution of the main case.

Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate exclusively of the other,
in that the Board may resort to one but not to both at the same time. Section 3(e) outlines the jurisdiction of the
Board and the grounds for which it may decree a price adjustment, subject to the requirements of notice and
hearing. Pending that, however, it may order, under Section 8, an authority to increase provisionally, without
need of a hearing, subject to the final outcome of the proceeding. The Board, of course, is not prevented from
conducting a hearing on the grant of provisional authority-which is of course, the better procedure — however, it
cannot be stigmatized later if it failed to conduct one. (pp. 129-130, Rollo) (Emphasis supplied)

In the same order of September 21, 1990, authorizing provisional increase, the ERB set the applications for hearing with due notice
to all interested parties on October 16, 1990. Petitioner Maceda failed to appear at said hearing as well as on the second hearing on
October 17, 1990.

To afford registered oppositors the opportunity to cross-examine the witnesses, the ERB set the continuation of the hearing to
October 24, 1990. This was postponed to November 5, 1990, on written notice of petitioner Maceda.

On November 5, 1990, the three oil companies filed their respective motions for leave to file or admit amended/supplemental
applications to further increase the prices of petroleum products.

The ERB admitted the respective supplemental/amended petitions on November 6, 1990 at the same time requiring applicants to
publish the corresponding Notices of Public Hearing in two newspapers of general circulation (p. 4, Rollo and Annexes "F" and "G,"
pp. 60 and 62, Rollo).

Hearing for the presentation of the evidence-in-chief commenced on November 21, 1990 with ERB ruling that testimonies of
witnesses were to be in the form of Affidavits (p. 6, Rollo). ERB subsequently outlined the procedure to be observed in the reception
of evidence, as follows:

CHAIRMAN FERNANDO:

Well, at the last hearing, applicant Caltex presented its evidence-in-chief and there is an understanding or it is
the Board's wish that for purposes of good order in the presentation of the evidence considering that these are
being heard together, we will defer the cross-examination of applicant Caltex's witness and ask the other
applicants to present their evidence-in-chief so that the oppositors win have a better Idea of what an of these
will lead to because as I mentioned earlier, it has been traditional and it is the intention of the Board to act on
these applications on an industry-wide basis, whether to accept, reject, modify or whatever, the Board win do it
on an industry wide basis, so, the best way to have (sic) the oppositors and the Board a clear picture of what
the applicants are asking for is to have all the evidence-in-chief to be placed on record first and then the
examination will come later, the cross-examination will come later. . . . (pp. 5-6, tsn., November 23, 1990, ERB
Cases Nos. 90-106, 90382 and 90-384). (p. 162, Rollo)

Petitioner Maceda maintains that this order of proof deprived him of his right to finish his cross-examination of Petron's
witnesses and denied him his right to cross-examine each of the witnesses of Caltex and Shell. He points out that this
relaxed procedure resulted in the denial of due process.

We disagree. The Solicitor General has pointed out:

. . . The order of testimony both with respect to the examination of the particular witness and to the general
course of the trial is within the discretion of the court and the exercise of this discretion in permitting to be
introduced out of the order prescribed by the rules is not improper (88 C.J.S. 206-207).

Such a relaxed procedure is especially true in administrative bodies, such as the ERB which in matters of rate
or price fixing is considered as exercising a quasi-legislative, not quasi-judicial, function As such administrative
 agency, it is not bound by the strict or technical rules of evidence governing court proceedings (Sec. 29, Public
Service Act; Dickenson v. United States, 346, U.S. 389, 98 L. ed. 132, 74 S. St. 152). (Emphasis supplied)

In fact, Section 2, Rule I of the Rules of Practice and Procedure Governing Hearings Before the ERB provides
that —

These Rules shall govern pleadings, practice and procedure before the Energy Regulatory Board in all matters
of inquiry, study, hearing, investigation and/or any other proceedings within the jurisdiction of the
Board. However, in the broader interest of justice, the Board may, in any particular matter, except itself from
these rules and apply such suitable procedure as shall promote the objectives of the Order.

(pp. 163-164, Rollo)

Petitioner Maceda also claims that there is no substantial evidence on record to support the provisional relief.

We have, in G.R. Nos. 95203-05, previously taken judicial notice of matters and events related to the oil industry, as follows:

. . . (1) as of June 30, 1990, the OPSF has incurred a deficit of P6.1 Billion; (2) the exchange rate has fallen to
P28.00 to $1.00; (3) the country's balance of payments is expected to reach $1 Billion; (4) our trade deficit is at
P2.855 Billion as of the first nine months of the year.

. . . (p. 150, Rollo)

The Solicitor General likewise commented:

Among the pieces of evidence considered by ERB in the grant of the contested provisional relief were: (1)
certified copies of bins of lading issued by crude oil suppliers to the private respondents; (2) reports of the
Bankers Association of the Philippines on the peso-dollar exchange rate at the BAP oil pit; and (3) OPSF status
reports of the Office of Energy Affairs. The ERB was likewise guided in the determination of international crude
oil prices by traditional authoritative sources of information on crude oil and petroleum products, such as Platt's
Oilgram and Petroleum Intelligence Weekly. (p. 158, Rollo)

Thus, We concede ERB's authority to grant the provisional increase in oil price, as We note that the Order of December 5, 1990
explicitly stated:

in the light, therefore, of the rise in crude oil importation costs, which as earlier mentioned, reached an average
of $30.3318 per barrel at $25.551/US $ in September-October 1990; the huge OPSF deficit which, as reported
by the Office of Energy Affairs, has amounted to P5.7 Billion (based on filed claims only and net of the P5 Billion
OPSF) as of September 30, 1990, and is estimated to further increase to over P10 Billion by end December
1990; the decision of the government to discontinue subsidizing oil prices in view of inflationary pressures; the
apparent inadequacy of the proposed additional P5.1 Billion government appropriation for the OPSF and the
sharp drop in the value of the peso in relation to the US dollar to P28/US $, this Board is left with no other
recourse but to grant applicants oil companies further relief by increasing the prices of petroleum products sold
by them. (p. 161, Rollo)

Petitioner Maceda together with petitioner Original (G.R. No. 96349) also claim that the provisional increase involved amounts over
and above that sought by the petitioning oil companies.

The Solicitor General has pointed out that aside from the increase in crude oil prices, all the applications of the respondent oil
companies filed with the ERB covered claims from the OPSF.

We shall thus respect the ERB's Order of December 5, 1990 granting a provisional price increase on petroleum products premised
on the oil companies' OPSF claims, crude cost peso differentials, forex risk for a subsidy on sale to NPC (p. 167, Rollo), since the oil
companies are "entitled to as much relief as the fact alleged constituting the course of action may warrant," (Javellana v. D.O. Plaza
Enterprises, Inc., G.R. No. L-28297, March 30, 1970, 32 SCRA 261 citing Rosales v. Reyes, 25 Phil. 495; Aguilar v. Rubiato, 40
Phil. 470) as follows:

Per Liter

Weighted
 Petron Shell Caltex Average

Crude Cost P3.11 P3.6047 P2.9248 P3.1523

Peso Cost

Diffn'l 2.1747 1.5203 1.5669 1.8123

Forex Risk

Fee -0.1089 -0,0719 -0.0790 -0.0896

Subsidy on

Sales to NPC 0.1955 0.0685 0.0590 0.1203

Total Price

Increase

Applied for P59.3713 P5.1216 P4.4717 P4.9954

Less: September 21 Price

Relief

Actual Price Increase P1.42

Actual Tax Reduction:

Ad Valorem Tax

(per Sept. 1, 1990

price build-up) P1.3333

Specific Tax (per

Oct. 5, 1990 price

build-up) .6264 .7069 2.1269

Net Price Increase

Applied for 2.8685

Nonetheless, it is relevant to point out that on December 10, 1990, the ERB, in response to the President's appeal, brought back the
increases in Premium and Regular gasoline to the levels mandated by the December 5, 1990 Order (P6.9600 and P6.3900,
respectively), as follows:

Product In Pesos Per Liter

OPSF

Premium Gasoline 6.9600

 Regular Gasoline 6.3900

Avturbo 4.9950

Kerosene 1.4100

Diesel Oil 1.4100

Fuel Oil/Feedstock 0.2405

LPG 1.2200

Asphalt 2.5000

Thinner 2.5000

In G.R. No. 96349, petitioner Original additionally claims that if the price increase will be used to augment the OPSF this will
constitute illegal taxation. In the Maceda case, (G.R. Nos. 95203-05, supra) this Court has already ruled that "the Board Order
authorizing the proceeds generated by the increase to be deposited to the OPSF is not an act of taxation but is authorized by
Presidential Decree No. 1956, as amended by Executive Order No. 137.

The petitions of E.O. Original et al. (G.R. No. 96349) and C.S. Povedas, Jr. (G.R. No. 96284), insofar as they question the ERB's
authority under Sec. 8 of E.O. 172, have become moot and academic.

We lament Our helplessness over this second provisional increase in oil price. We have stated that this "is a question best judged
by the political leadership" (G.R. Nos. 95203-05, G.R. Nos. 95119-21, supra). We wish to reiterate Our previous pronouncements
therein that while the government is able to justify a provisional increase, these findings "are not final, and it is up to petitioners to
demonstrate that the present economic picture does not warrant a permanent increase."

In this regard, We also note the Solicitor General's comments that "the ERB is not averse to the idea of a presidential review of its
decision," except that there is no law at present authorizing the same. Perhaps, as pointed out by Justice Padilla, our lawmakers
may see the wisdom of allowing presidential review of the decisions of the ERB since, despite its being a quasi-judicial body, it is
still "an administrative body under the Office of the President whose decisions should be appealed to the President under the
established principle of exhaustion of administrative remedies," especially on a matter as transcendental as oil price increases which
affect the lives of almost an Filipinos.

ACCORDINGLY, the petitions are hereby DISMISSED.

SO ORDERED.

Narvasa, Melencio-Herrera, Feliciano, Gancayco, Bidin, Griño-Aquino and Regalado, JJ., concur.

Davide, J., concurs in the result.

Fernan, C.J., took no part.

27. Basco vs. PAGCOR, G.R. No. 91649, May 14, 1991 Facts: On July 11, 1983, PAGCOR was created under P.D. 1869 to enable
the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law. P.D. 1869
contained a provision (Section 13 par. (2)) which exempts PAGCOR, from paying any "tax of any kind or form, income or otherwise,
as well as fees, charges or levies of whatever nature, whether National or Local." Basco et al. seeks to annul said law alleging that:
It constitutes a waiver of a right prejudicial to a third person with a right recognized by law since it waived the Manila City
government's right to impose taxes and license fees, which is recognized by law; and that the law has intruded into the local
government's right to impose local taxes and license fees which is in contravention of the constitutionally enshrined principle of local
autonomy. ISSUES: Whether or not P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and license
fees; Whether or not P.D. 1869 is in contravention with the Constitution’s principle of local autonomy. RULING: P.D. 1869 is
constitutional. The contention of the petitioners is without merit for the following reasons: P.D. 1869 was enacted pursuant to the
policy of the government to "regulate and centralize thru an appropriate institution all games of chance authorized by existing
franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling
operations in one corporate entity — the PAGCOR, was beneficial not just to the Government but to society in general. It is a
reliable source of much needed revenue for the cash strapped Government. It provided funds for social impact projects and
subjected gambling to "close scrutiny, regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With
the creation of PAGCOR and the direct intervention of the Government, the evil practices and corruptions that go with gambling will
be minimized if not totally eradicated. Public welfare, then, lies at the bottom of the enactment of PD 1896.

Basco vs. PAGCOR

GR 91649 May 14,1991

Facts:

PAGCOR was created by virtue of PD 1067 – A dated January 1, 1977 and granted a franchise under PD 1067 – B.
subsequently. On July 11, 1983, it was created under PD 1869 to enable the government to regulate and centralize all games of
chance authorize by existing franchise or permitted by law. Petitioners contend that the exemption clause in PD 1869 is violative of
the principle of local autonomy.

Issue: is the contention meritorious?

Ruling:

No. LGUs’ has no power to tax instrumentalities of the national government. PAGCOR is a GOCC with an original charter.
All of its’ stocks are owned by the national government. In addition to its’ corporate power it also exercises regulatory powers. It
should be exempt from local taxes otherwise its’ operation might be burdened, impeded or subjected to control by any local
government. Local Government are not sovereign within the state or an imperium in imperio.

G.R. No. 91649 May 14, 1991Basco vs. PAGCOR

H.B. Basco & Associates for petitioners Valmonte Law Offices collaborating counsel for petitionersAguirre, Laborte and Capule for
respondent PAGCOR
Facts:
•
The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067-A dated January 1, 1977 and
was granted a franchise under P.D. 1067-B also dated January 1, 1977"to establish, operate and maintain gambling casinos on land
or water within the territorial jurisdictionof the Philippines."
•
P e t i t i o n e r s f i l e d a n i n s t a n t p e t i t i o n s e e k i n g t o a n n u l t h e P h i l i p p i n e A m u s e m e n t a n d G a m i n g Co
rporation (PAGCOR) Charter — PD 1869, because it is allegedly contrary to morals, public policyand order
•
Petitioners claim that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxesa n d l e g a l f e e s ; t h a t
t h e e x e m p t i o n c l a u s e i n P . D . 1 8 6 9 i s i n v i o l a t i o n o f t h e p r i n c i p l e o f l o c a l autonomy.
o
Section 13 par. (2) of P.D. 1869 exempts PAGCOR, as the franchise holder from paying any"tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever nature, whether National or Local."Issue:
•
Does the local Government of Manila have the power to impose taxes on PAGCOR?Held
•
No, the court rules that The City government of Manila has no power to impose taxes on PAGCOR.Reason:
•
The pri nciple of Local a uton om y does not m ake local governm ents sovereign within t he state; the principle of
local autonomy within the constitution simply means decentralization. It cannot be an“Imperium in imperio” it can only act intra
sovereign, or as an arm of the National Government.
•
PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is
governmental,w h i c h p l a c e s i t i n t h e c a t e g o r y o f a n a g e n c y o r i n s t r u m e n t a l i t y o f t h e
G o v e r n m e n t . B e i n g a n instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes.
•
The power of local government to "impose taxes and fees" is always subject to "limitations" whichCongress may provide by
law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its
"exemption clause" remains as an exception tothe exercise of the power of local governm ents to im pose taxes and
fees. It cannot therefore beviolative but rather is consistent with the principle of local autonomy. Note: other issues were raised
in the case, such as if whether the petitioners have standing in filing the case, but to make the digest fit into one page I just included
the issue which focused that was in accordance to theoutline. Please do read the case in its original when you have the time since
there are explanations to its naturewhich are not included in this digest

Republic of the Philippines

SUPREME COURT
Manila
 EN BANC

G.R. No. 91649 May 14, 1991

ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND LORENZO SANCHEZ,petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent.

H.B. Basco & Associates for petitioners.

Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.

PARAS, J.:

A TV ad proudly announces:

"The new PAGCOR — responding through responsible gaming."

But the petitioners think otherwise, that is why, they filed the instant petition seeking to annul the Philippine Amusement and Gaming
Corporation (PAGCOR) Charter — PD 1869, because it is allegedly contrary to morals, public policy and order, and because —

A. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law. It waived the Manila City
government's right to impose taxes and license fees, which is recognized by law;

B. For the same reason stated in the immediately preceding paragraph, the law has intruded into the local government's
right to impose local taxes and license fees. This, in contravention of the constitutionally enshrined principle of local
autonomy;

C. It violates the equal protection clause of the constitution in that it legalizes PAGCOR — conducted gambling, while
most other forms of gambling are outlawed, together with prostitution, drug trafficking and other vices;

D. It violates the avowed trend of the Cory government away from monopolistic and crony economy, and toward free
enterprise and privatization. (p. 2, Amended Petition; p. 7, Rollo)

In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the declared national policy of the "new restored
democracy" and the people's will as expressed in the 1987 Constitution. The decree is said to have a "gambling objective" and
therefore is contrary to Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the present
Constitution (p. 3, Second Amended Petition; p. 21, Rollo).

The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner Basco being also the Chairman of the
Committee on Laws of the City Council of Manila), can question and seek the annulment of PD 1869 on the alleged grounds
mentioned above.

The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067-A dated January 1, 1977 and
was granted a franchise under P.D. 1067-B also dated January 1, 1977 "to establish, operate and maintain gambling casinos on
land or water within the territorial jurisdiction of the Philippines." Its operation was originally conducted in the well known floating
casino "Philippine Tourist." The operation was considered a success for it proved to be a potential source of revenue to fund
infrastructure and socio-economic projects, thus, P.D. 1399 was passed on June 2, 1978 for PAGCOR to fully attain this objective.

Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate and centralize all
games of chance authorized by existing franchise or permitted by law, under the following declared policy —

Sec. 1. Declaration of Policy. — It is hereby declared to be the policy of the State to centralize and integrate all games of
chance not heretofore authorized by existing franchises or permitted by law in order to attain the following objectives:

(a) To centralize and integrate the right and authority to operate and conduct games of chance into one corporate entity to
be controlled, administered and supervised by the Government.
 (b) To establish and operate clubs and casinos, for amusement and recreation, including sports gaming pools,
(basketball, football, lotteries, etc.) and such other forms of amusement and recreation including games of chance, which
may be allowed by law within the territorial jurisdiction of the Philippines and which will: (1) generate sources of additional
revenue to fund infrastructure and socio-civic projects, such as flood control programs, beautification, sewerage and
sewage projects, Tulungan ng Bayan Centers, Nutritional Programs, Population Control and such other essential public
services; (2) create recreation and integrated facilities which will expand and improve the country's existing tourist
attractions; and (3) minimize, if not totally eradicate, all the evils, malpractices and corruptions that are normally prevalent
on the conduct and operation of gambling clubs and casinos without direct government involvement. (Section 1, P.D.
1869)

To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its Charter's repealing clause, all
laws, decrees, executive orders, rules and regulations, inconsistent therewith, are accordingly repealed, amended or modified.

It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of Internal Revenue and the
Bureau of Customs. In 1989 alone, PAGCOR earned P3.43 Billion, and directly remitted to the National Government a total of P2.5
Billion in form of franchise tax, government's income share, the President's Social Fund and Host Cities' share. In addition,
PAGCOR sponsored other socio-cultural and charitable projects on its own or in cooperation with various governmental agencies,
and other private associations and organizations. In its 3 1/2 years of operation under the present administration, PAGCOR remitted
to the government a total of P6.2 Billion. As of December 31, 1989, PAGCOR was employing 4,494 employees in its nine (9)
casinos nationwide, directly supporting the livelihood of Four Thousand Four Hundred Ninety-Four (4,494) families.

But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is "null and void" for being "contrary to
morals, public policy and public order," monopolistic and tends toward "crony economy", and is violative of the equal protection
clause and local autonomy as well as for running counter to the state policies enunciated in Sections 11 (Personal Dignity and
Human Rights), 12 (Family) and 13 (Role of Youth) of Article II, Section 1 (Social Justice) of Article XIII and Section 2 (Educational
Values) of Article XIV of the 1987 Constitution.

This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most deliberate consideration by the Court,
involving as it does the exercise of what has been described as "the highest and most delicate function which belongs to the judicial
department of the government." (State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146 SCRA 323).

As We enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of the government We need not
be reminded of the time-honored principle, deeply ingrained in our jurisprudence, that a statute is presumed to be valid. Every
presumption must be indulged in favor of its constitutionality. This is not to say that We approach Our task with diffidence or timidity.
Where it is clear that the legislature or the executive for that matter, has over-stepped the limits of its authority under the
constitution, We should not hesitate to wield the axe and let it fall heavily, as fall it must, on the offending statute (Lozano v.
Martinez, supra).

In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice Zaldivar underscored the —

. . . thoroughly established principle which must be followed in all cases where questions of constitutionality as obtain in
the instant cases are involved. All presumptions are indulged in favor of constitutionality; one who attacks a statute
alleging unconstitutionality must prove its invalidity beyond a reasonable doubt; that a law may work hardship does not
render it unconstitutional; that if any reasonable basis may be conceived which supports the statute, it will be upheld and
the challenger must negate all possible basis; that the courts are not concerned with the wisdom, justice, policy or
expediency of a statute and that a liberal interpretation of the constitution in favor of the constitutionality of legislation
should be adopted. (Danner v. Hass, 194 N.W. 2nd534, 539; Spurbeck v. Statton, 106 N.W. 2nd 660, 663; 59 SCRA
66; see also e.g. Salas v. Jarencio, 46 SCRA 734, 739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55
[1978]; and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in Citizens Alliance for Consumer Protection
v. Energy Regulatory Board, 162 SCRA 521, 540)

Of course, there is first, the procedural issue. The respondents are questioning the legal personality of petitioners to file the instant
petition.

Considering however the importance to the public of the case at bar, and in keeping with the Court's duty, under the 1987
Constitution, to determine whether or not the other branches of government have kept themselves within the limits of the
Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of
procedure and has taken cognizance of this petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163
SCRA 371)

With particular regard to the requirement of proper party as applied in the cases before us, We hold that the same is
satisfied by the petitioners and intervenors because each of them has sustained or is in danger of sustaining an
immediate injury as a result of the acts or measures complained of. And even if, strictly speaking they are not covered by
the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its
addressing and resolving the serious constitutional questions raised.
 In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the constitutionality of
several executive orders issued by President Quirino although they were involving only an indirect and general interest
shared in common with the public. The Court dismissed the objection that they were not proper parties and ruled that "the
transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing
aside, if we must technicalities of procedure." We have since then applied the exception in many other cases. (Association
of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).

Having disposed of the procedural issue, We will now discuss the substantive issues raised.

Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of gambling does not mean that the
Government cannot regulate it in the exercise of its police power.

The concept of police power is well-established in this jurisdiction. It has been defined as the "state authority to enact legislation that
may interfere with personal liberty or property in order to promote the general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As
defined, it consists of (1) an imposition or restraint upon liberty or property, (2) in order to foster the common good. It is not capable
of an exact definition but has been, purposely, veiled in general terms to underscore its all-comprehensive embrace. (Philippine
Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386).

Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough
room for an efficient and flexible response to conditions and circumstances thus assuming the greatest benefits. (Edu v.
Ericta, supra)

It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the charter. Along with the taxing power
and eminent domain, it is inborn in the very fact of statehood and sovereignty. It is a fundamental attribute of government that has
enabled it to perform the most vital functions of governance. Marshall, to whom the expression has been credited, refers to it
succinctly as the plenary power of the state "to govern its citizens". (Tribe, American Constitutional Law, 323, 1978). The police
power of the State is a power co-extensive with self-protection and is most aptly termed the "law of overwhelming necessity." (Rubi
v. Provincial Board of Mindoro, 39 Phil. 660, 708) It is "the most essential, insistent, and illimitable of powers." (Smith Bell & Co. v.
National, 40 Phil. 136) It is a dynamic force that enables the state to meet the agencies of the winds of change.

What was the reason behind the enactment of P.D. 1869?

P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an appropriate institution all games
of chance authorized by existing franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently proved,
regulating and centralizing gambling operations in one corporate entity — the PAGCOR, was beneficial not just to the Government
but to society in general. It is a reliable source of much needed revenue for the cash strapped Government. It provided funds for
social impact projects and subjected gambling to "close scrutiny, regulation, supervision and control of the Government" (4th
Whereas Clause, PD 1869). With the creation of PAGCOR and the direct intervention of the Government, the evil practices and
corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies at the bottom of the enactment
of PD 1896.

Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees; that the
exemption clause in P.D. 1869 is violative of the principle of local autonomy. They must be referring to Section 13 par. (2) of P.D.
1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as
fees, charges or levies of whatever nature, whether National or Local."

(2) Income and other taxes. — a) Franchise Holder: No tax of any kind or form, income or otherwise as well as fees,
charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this franchise from
the Corporation; nor shall any form or tax or charge attach in any way to the earnings of the Corporation, except a
franchise tax of five (5%) percent of the gross revenues or earnings derived by the Corporation from its operations under
this franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of
taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal,
provincial or national government authority (Section 13 [2]).

Their contention stated hereinabove is without merit for the following reasons:

(a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes (Icard v. City of Baguio, 83 Phil.
870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must
plainly show an intent to confer that power or the municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power
to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the
"inherent power to tax" (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445).

(b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere
creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which has the power to "create and abolish municipal
corporations" due to its "general legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541).
Congress, therefore, has the power of control over Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if
Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the
power.

(c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local
governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested
exclusively on the National Government, thus:

Sec. 1. Any provision of law to the contrary notwithstanding, the authority of chartered cities and other local governments
to issue license, permit or other form of franchise to operate, maintain and establish horse and dog race tracks, jai-alai
and other forms of gambling is hereby revoked.

Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish, horse and dog race tracks, jai-alai and
other forms of gambling shall be issued by the national government upon proper application and verification of the
qualification of the applicant . . .

Therefore, only the National Government has the power to issue "licenses or permits" for the operation of gambling. Necessarily, the
power to demand or collect license fees which is a consequence of the issuance of "licenses or permits" is no longer vested in the
City of Manila.

(d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or
controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In
addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers thus:

Sec. 9. Regulatory Power. — The Corporation shall maintain a Registry of the affiliated entities, and shall exercise all the
powers, authority and the responsibilities vested in the Securities and Exchange Commission over such affiliating entities
mentioned under the preceding section, including, but not limited to amendments of Articles of Incorporation and By-Laws,
changes in corporate term, structure, capitalization and other matters concerning the operation of the affiliated entities, the
provisions of the Corporation Code of the Philippines to the contrary notwithstanding, except only with respect to original
incorporation.

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the
category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local
government.

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch
v. Marland, 4 Wheat 316, 4 L Ed. 579)

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

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

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

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

(e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D. 1869. This is a pointless
argument. Article X of the 1987 Constitution (on Local Autonomy) provides:

Sec. 5. Each local government unit shall have the power to create its own source of revenue and to levy taxes, fees, and
other charges subject to such guidelines and limitation as the congress may provide, consistent with the basic policy on
local autonomy. Such taxes, fees and charges shall accrue exclusively to the local government. (emphasis supplied)
The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law.
Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its
"exemption clause" remains as an exception to the exercise of the power of local governments to impose taxes and fees. It cannot
therefore be violative but rather is consistent with the principle of local autonomy.

Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization" (III Records of the 1987
Constitutional Commission, pp. 435-436, as cited in Bernas, The Constitution of the Republic of the Philippines, Vol. II, First Ed.,
1988, p. 374). It does not make local governments sovereign within the state or an "imperium in imperio."

Local Government has been described as a political subdivision of a nation or state which is constituted by law and has
substantial control of local affairs. In a unitary system of government, such as the government under the Philippine
Constitution, local governments can only be an intra sovereign subdivision of one sovereign nation, it cannot be
an imperium in imperio. Local government in such a system can only mean a measure of decentralization of the function
of government. (emphasis supplied)

As to what state powers should be "decentralized" and what may be delegated to local government units remains a matter of policy,
which concerns wisdom. It is therefore a political question. (Citizens Alliance for Consumer Protection v. Energy Regulatory Board,
162 SCRA 539).

What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State concern and hence, it is the sole
prerogative of the State to retain it or delegate it to local governments.

As gambling is usually an offense against the State, legislative grant or express charter power is generally necessary to
empower the local corporation to deal with the subject. . . . In the absence of express grant of power to enact, ordinance
provisions on this subject which are inconsistent with the state laws are void. (Ligan v. Gadsden, Ala App. 107 So. 733
Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99, 25 PAC 974, 22 Am St. Rep. 280, 11
LRA 480, as cited in Mc Quinllan Vol. 3 Ibid, p. 548, emphasis supplied)

Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution, because "it legalized PAGCOR —
conducted gambling, while most gambling are outlawed together with prostitution, drug trafficking and other vices" (p. 82, Rollo).

We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores the well-accepted meaning of the
clause "equal protection of the laws." The clause does not preclude classification of individuals who may be accorded different
treatment under the law as long as the classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law
does not have to operate in equal force on all persons or things to be conformable to Article III, Section 1 of the Constitution (DECS
v. San Diego, G.R. No. 89572, December 21, 1989).

The "equal protection clause" does not prohibit the Legislature from establishing classes of individuals or objects upon which
different rules shall operate (Laurel v. Misa, 43 O.G. 2847). The Constitution does not require situations which are different in fact or
opinion to be treated in law as though they were the same (Gomez v. Palomar, 25 SCRA 827).

Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection is not clearly explained in the
petition. The mere fact that some gambling activities like cockfighting (P.D 449) horse racing (R.A. 306 as amended by RA 983),
sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are legalized under certain conditions, while others are
prohibited, does not render the applicable laws, P.D. 1869 for one, unconstitutional.

If the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to
which it might have been applied. (Gomez v. Palomar, 25 SCRA 827)

The equal protection clause of the 14th Amendment does not mean that all occupations called by the same name must be
treated the same way; the state may do what it can to prevent which is deemed as evil and stop short of those cases in
which harm to the few concerned is not less than the harm to the public that would insure if the rule laid down were made
mathematically exact. (Dominican Hotel v. Arizona, 249 US 2651).

Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away from monopolies and crony
economy and toward free enterprise and privatization" suffice it to state that this is not a ground for this Court to nullify P.D. 1869. If,
indeed, PD 1869 runs counter to the government's policies then it is for the Executive Department to recommend to Congress its
repeal or amendment.

The judiciary does not settle policy issues. The Court can only declare what the law is and not what the law should
be.1âwphi1 Under our system of government, policy issues are within the domain of the political branches of government
and of the people themselves as the repository of all state power. (Valmonte v. Belmonte, Jr., 170 SCRA 256).
On the issue of "monopoly," however, the Constitution provides that:

Sec. 19. The State shall regulate or prohibit monopolies when public interest so requires. No combinations in restraint of
trade or unfair competition shall be allowed. (Art. XII, National Economy and Patrimony)

It should be noted that, as the provision is worded, monopolies are not necessarily prohibited by the Constitution. The state must still
decide whether public interest demands that monopolies be regulated or prohibited. Again, this is a matter of policy for the
Legislature to decide.

On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12 (Family) and 13 (Role of Youth) of Article II;
Section 13 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution, suffice it to state
also that these are merely statements of principles and, policies. As such, they are basically not self-executing, meaning a law
should be passed by Congress to clearly define and effectuate such principles.

In general, therefore, the 1935 provisions were not intended to be self-executing principles ready for enforcement through
the courts. They were rather directives addressed to the executive and the legislature. If the executive and the legislature
failed to heed the directives of the articles the available remedy was not judicial or political. The electorate could express
their displeasure with the failure of the executive and the legislature through the language of the ballot. (Bernas, Vol. II, p.
2)

Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387; Salas v. Jarencio, 48 SCRA
734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore, for PD 1869 to be nullified, it must be shown
that there is a clear and unequivocal breach of the Constitution, not merely a doubtful and equivocal one. In other words, the
grounds for nullity must be clear and beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition this Court to declare
a law, or parts thereof, unconstitutional must clearly establish the basis for such a declaration. Otherwise, their petition must fail.
Based on the grounds raised by petitioners to challenge the constitutionality of P.D. 1869, the Court finds that petitioners have failed
to overcome the presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D. 1869 remains a wise
legislation considering the issues of "morality, monopoly, trend to free enterprise, privatization as well as the state principles on
social justice, role of youth and educational values" being raised, is up for Congress to determine.

As this Court held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521 —

Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in its favor the presumption of
validity and constitutionality which petitioners Valmonte and the KMU have not overturned. Petitioners have not
undertaken to identify the provisions in the Constitution which they claim to have been violated by that statute. This Court,
however, is not compelled to speculate and to imagine how the assailed legislation may possibly offend some provision of
the Constitution. The Court notes, further, in this respect that petitioners have in the main put in question the wisdom,
justice and expediency of the establishment of the OPSF, issues which are not properly addressed to this Court and
which this Court may not constitutionally pass upon. Those issues should be addressed rather to the political departments
of government: the President and the Congress.

Parenthetically, We wish to state that gambling is generally immoral, and this is precisely so when the gambling resorted to is
excessive. This excessiveness necessarily depends not only on the financial resources of the gambler and his family but also on his
mental, social, and spiritual outlook on life. However, the mere fact that some persons may have lost their material fortunes, mental
control, physical health, or even their lives does not necessarily mean that the same are directly attributable to gambling. Gambling
may have been the antecedent, but certainly not necessarily the cause. For the same consequences could have been preceded by
an overdose of food, drink, exercise, work, and even sex.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.

Fernan, C.J., Narvasa, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Bidin, Sarmiento, Griño-Aquino, Medialdea, Regalado and Davide,
Jr., JJ., concur.

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC. v. CITY OF BUTUAN

G.R. No. 22814 August 28, 1968

FACTS: The City of Butuan enacted Ordinance No. 110 which was subsequently amended by Ordinance No. 122. Ordinance No.
110 as amended, imposes a tax on any person, association, etc. of P0.10 per case of 24 bottles of Pepsi- Cola and the plaintiff
Pepsi-Cola paid under protest. The plaintiff filed a complaint for the recovery of the amount paid under protest on the ground that
Ordinance No. 110 is illegal, that the tax imposed is excessive and that it is unconstitutional. Plaintiff maintains that the ordinance is
null and void because it is unjust and discriminatory.

ISSUE:

Whether or not the ordinance in question is violative of the uniformity required by the Constitution?

RULING:

Yes. Only sales by “agents or consignees” of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on
behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the City of Butuan, would be exempt from the disputed tax. The
classification to be valid and reasonable must be: 1) based upon substantial distinctions; 2)germane to the purpose of the
ordinance; 3) applicable, not only to present conditions, but also to future conditions substantially identical to those present; and 4)
applicable equally to all those who belong to the same class. These conditions are not fully met by the ordinance in question.

Pepsi Cola Bottiling Co. vs City of Butuan (1968)

February 15, 2013 markerwins Tax Law

Facts: Ordinance 110 was enacted by the City of Butuan imposing a tax of P0.10 per case of 24 bottles of softdrinks or carbonated
drinks. The tax was imposed upon dealers engeged in selling softdrinks or carbonated drinks. When Ordinance 110, the tax was
imposed upon an agent or consignee of any person, association, partnership, company or corporation engaged in selling softdrinks
or carbonated drinks, with “agent or consignee” being particularly defined on the inserted provision Section 3-A. In effect, merchants
engaged in the sale of softdrinks, etc. are not subject to the tax unless they are agents or consignees of another dealer who must be
one engaged in business outside the City. Pepsi-Cola Bottling Co. filed suit to recover sums paid by it to the city pursuant to the
Ordinance, which it claims to be null and void.

Issue: Whether the Ordinance is discriminatory.

Held: The Ordinance, as amended, is discriminatory since only sales by “agents or consignees” of outside dealers would be subject
to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales , and even if
the same exceeded those made by said agents or consignees of producers or merchants established outside the city, would be
exempt from the tax. The classification made in the exercise of the authority to tax, to be valid must be reasonable, which would be
satisfied if the classification is based upon substantial distinctions which makes real differences; these are germane to the purpose
of legislation or ordinance; the classification applies not only to present conditions but also to future conditions substantially identical
to those of the present; and the classification applies equally to all those who belong to the same class. These conditions are not
fully met by the ordinance in question.

PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN

24 SCRA 789
GR No. L-22814, August 28, 1968

"The classification made in the exercise of power to tax, to be valid, must be reasonable ."

FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it under protest, to the City of Butuan, and collected by the
latter, pursuant to its Municipal Ordinance No. 110 which plaintiff assails as null and void because it partakes of the nature of an import
tax, amounts to double taxation, highly unjust and discriminatory, excessive, oppressive and confiscatory, and constitutes an invlaid
delegation of the power to tax. The ordinance imposes taxes for every case of softdrinks, liquors and other carbonated beverages,
regardless of the volume of sales, shipped to the agents and/or consignees by outside dealers or any person or company having its
actual business outside the City.

ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?

HELD: Yes. The tax levied is discriminatory. Even if the burden in question were regarded as a tax on the sale of said beverages, it
would still be invalid, as discriminatory, and hence, violative of the uniformity required by the Constitution and the law therefor, since
only sales by "agents or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf
of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees
of producers or merchants established outside the City of Butuan, would be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality under all
circumstances, or negate the authority to classify the objects of taxation. The classification made in the exercise of this authority, to
be valid, must, however, be reasonable and this requirement is not deemed satisfied unless: (1) it is based upon substantial distinctions
which make real differences; (2) these are germane to the purpose of the legislation or ordinance; (3) the classification applies, not
only to present conditions, but, also, to future conditions substantially identical to those of the present; and (4) the classification applies
equally to all those who belong to the same class.

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC. vs. CITY OF BUTUAN

[G.R. No. L-22814. August 28, 1968.]
FACTS:
Plaintiff Pepsi-Cola Bottling Company of the Philippines, Inc. seeks to recover the sums paid by it to the City
of Butuan and collected by the latter pursuant to its Municipal Ordinance No. 110, as amended by
Municipal Ordinance No. 122, which plaintiff assails as null and void,and to prevent the enforcement thereof.Plaintiff m aintains,
am ong others, that the dispu t ed ordi nance is null and voi d because:(1) it part akes of the nature of an im port
ta x; (4) it is highl y unj ust an d discrim inatory; and (5)S e c t i o n 2 o f R e p u b l i c A c t
N o . 2 2 6 4 , u p o n t h e a u t h o r i t y o f w h i c h i t w a s e n a c t e d , i s a n unconstitutional delegation of
legislative powers.
ISSUE:
W h e t h e r p l a i n t i f f i s c o r r e c t i n m a i n t a i n i n g t h a t O r d i n a n c e N o . 1 1 0 , a s a m e n d e d b y Ordinance No.
122, is null and void..
HELD:
Y e s , w i t h r e s p e c t t o t h e f i r s t a n d f o u r t h o b j e c t i o n s b y p l a i n t i f f , b u t n o t t o t h e l a s t objection.The
gene ral p rinciple agai nst del egation of legislative powers , in consequence of thetheory of separation of powers, is
subject to one well-established exception, namely:
legislative powers may be delegated to local governments — to which said theory does not apply — inrespect of matters of local
concern.The first and the fourth objections merit serious consideration. Ordinance 110 of the Cityof Butuan, as am ended by
Ordin ance No. 1 22, im poses a ta x of P0.10 per case of 24 bottles
of s o f t d r i n k s o r c a r b o n a t e d d r i n k s o n l y u p o n " a n y a g e n t a n d / o r c o n s i g n e e o f a n y
p e r s o n , association, partnership, company or corporation engaged in selling . . . soft drinks or carbonateddrinks."
Viewed from this angle, the tax partakes of the nature of an import duty which isbeyond defendant's authority to impose by
express provision of law
.
[Sec. 2(i), RA 2264]
For, as a consequence of such measure, merchants engaged in the sale thereof are not subject tothe tax unl ess they are
agents and/ or consign ees of anothe r deal er, who, in the very nature of t h i n g s , m u s t b e o n e
e n g a g e d i n b u s i n e s s o u t s i d e t h e C i t y . B e s i d e s , t h e t a x w o u l d n o t b e applicable to such agent and/or
consignee, if less than 1,000 cases of soft drinks are consigned or shipped to him every month. When we consider, also that the tax
"shall be based and computedfrom the cargo m anifest or bill of lading . . . showi ng the num ber of cases" — not
sold — butrecei ved b y the ta xpa ye r, the intention to lim it the application of the ordinance to soft
drinks brought into the city from outside thereof becomes apparent

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-22814 August 28, 1968

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant,

vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, defendants-appellees.

Sabido, Sabido and Associates for plaintiff-appellant.

The City Attorney of Butuan City for defendants-appellees.

CONCEPCION, C.J.:

Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing plaintiff's complaint, with costs.

Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and principal place of business in
Quezon City. The defendants are the City of Butuan, its City Mayor, the members of its municipal board and its City Treasurer.
Plaintiff — seeks to recover the sums paid by it to the City of Butuan — hereinafter referred to as the City and collected by the latter,
pursuant to its Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122, both series of 1960, which plaintiff
assails as null and void, and to prevent the enforcement thereof. Both parties submitted the case for decision in the lower court upon
a stipulation to the effect:

1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the "Pepsi-Cola" soft drinks for sale
to customers in the City of Butuan and all the municipalities in the Province of Agusan. These "Pepsi-Cola Cola" soft
drinks are bottled in Cebu City and shipped to the Butuan City warehouse of plaintiff for distribution and sale in the City of
Butuan and all municipalities of Agusan. .
 2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was subsequently amended by
Ordinance No. 122 and effective November 28, 1960. A copy of Ordinance No. 110, Series of 1960 and Ordinance No.
122 are incorporated herein as Exhibits "A" and "B", respectively.

3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per case of 24 bottles of
Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63 from August 16 to December 31, 1960 and the
amount of P9,250.40 from January 1 to July 30, 1961.

4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of P14,177.03 paid under protest and
those that if may later on pay until the termination of this case on the ground that Ordinance No. 110 as amended of the
City of Butuan is illegal, that the tax imposed is excessive and that it is unconstitutional.

5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has prepared a form to be
accomplished by the plaintiff for the computation of the tax. A copy of the form is enclosed herewith as Exhibit "C".

6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to July 30, 1961 of its warehouse
in Butuan City is incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and Loss Statement, the defendants
claim that the plaintiff is not entitled to a depreciation of P3,052.63 but only P1,202.55 in which case the profit of plaintiff
will be increased from P1,254.44 to P3,104.52. The plaintiff differs only on the claim of depreciation which the company
claims to be P3,052.62. This is in accordance with the findings of the representative of the undersigned City Attorney who
verified the records of the plaintiff.

7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was increased to P1.92 which price
is uniform throughout the Philippines. Said increase was made due to the increase in the production cost of its
manufacture.

8. That the parties reserve the right to submit arguments on the constitutionality and illegality of Ordinance No. 110, as
amended of the City of Butuan in their respective memoranda.

xxx xxx x x x1äwphï1.ñët

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the purview thereof. Section 2 provides
for the payment by "any agent and/or consignee" of any dealer "engaged in selling liquors, imported or local, in the City," of taxes at
specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and carbonated beverages therein
named, and "all other soft drinks or carbonated drinks." Section 3-A, defines the meaning of the term "consignee or agent" for
purposes of the ordinance. Section 4 provides that said taxes "shall be paid at the end of every calendar month." Pursuant to
Section 5, the taxes "shall be based and computed from the cargo manifest or bill of lading or any other record showing the number
of cases of soft drinks, liquors or all other soft drinks or carbonated drinks received within the month." Sections 6, 7 and 8 specify
the surcharge to be added for failure to pay the taxes within the period prescribed and the penalties imposable for "deliberate and
willful refusal to pay the tax mentioned in Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill
of lading or cargo manifest or record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the ordinance
applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold within" the City. Section 10 of the ordinance
provides that the revenue derived therefrom "shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the General
Fund and 20% for the School Fund."

Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax; (2) it amounts
to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2 of
Republic Act No. 2264, upon the authority of which it was enacted, is an unconstitutional delegation of legislative powers.

The second and last objections are manifestly devoid of merit. Indeed — independently of whether or not the tax in question, when
considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on which we need not and do not
express any opinion - double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as part thereof,
the injunction against double taxation found in the Constitution of the United States and of some States of the Union. 1 Then, again,
the general principle against delegation of legislative powers, in consequence of the theory of separation of powers 2 is subject to
one well-established exception, namely: legislative powers may be delegated to local governments — to which said theory does not
apply3 — in respect of matters of local concern.

The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or carbonated drinks — in the
production and sale of which plaintiff is engaged — or less than P0.0042 per bottle, is manifestly too small to be excessive,
oppressive, or confiscatory.

The first and the fourth objections merit, however, serious consideration. In this connection, it is noteworthy that the tax prescribed in
section 3 of Ordinance No. 110, as originally approved, was imposed upon dealers "engaged in selling" soft drinks or carbonated
drinks. Thus, it would seem that the intent was then to levy a tax upon the sale of said merchandise. As amended by Ordinance No.
122, the tax is, however, imposed only upon "any agent and/or consignee of any person, association, partnership, company or
corporation engaged in selling ... soft drinks or carbonated drinks." And, pursuant to section 3-A, which was inserted by said
Ordinance No. 122:

... — Definition of the Term Consignee or Agent. — For purposes of this Ordinance, a consignee of agent shall mean any
person, association, partnership, company or corporation who acts in the place of another by authority from him or one
entrusted with the business of another or to whom is consigned or shipped no less than 1,000 cases of hard liquors or soft
drinks every month for resale, either retail or wholesale.

As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax, unless they are
agents and/or consignees of another dealer, who, in the very nature of things, must be one engaged in business outside the City.
Besides, the tax would not be applicable to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or
shipped to him every month. When we consider, also, that the tax "shall be based and computed from the cargo manifest or bill of
lading ... showing the number of cases" — not sold — but "received" by the taxpayer, the intention to limit the application of the
ordinance to soft drinks and carbonated drinks brought into the City from outside thereof becomes apparent. Viewed from this angle,
the tax partakes of the nature of an import duty, which is beyond defendant's authority to impose by express provision of law.4

Even however, if the burden in question were regarded as a tax on the sale of said beverages, it would still be invalid, as
discriminatory, and hence, violative of the uniformity required by the Constitution and the law therefor, since only sales by "agents or
consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of
producers or merchants established outside the City of Butuan, would be exempt from the disputed tax.

It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality under all
circumstances, or negate the authority to classify the objects of taxation. 5 The classification made in the exercise of this authority, to
be valid, must, however, be reasonable6 and this requirement is not deemed satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are germane to the purpose of the legislation or ordinance; (3) the classification
applies, not only to present conditions, but, also, to future conditions substantially identical to those of the present; and (4) the
classification applies equally all those who belong to the same class.7

These conditions are not fully met by the ordinance in question.8 Indeed, if its purpose were merely to levy a burden upon the sale of
soft drinks or carbonated beverages, there is no reason why sales thereof by sealers other than agents or consignees of producers
or merchants established outside the City of Butuan should be exempt from the tax.

WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling Ordinance No. 110, as
amended by Ordinance No. 122, and sentencing the City of Butuan to refund to plaintiff herein the amounts collected from and paid
under protest by the latter, with interest thereon at the legal rate from the date of the promulgation of this decision, in addition to the
costs, and defendants herein are, accordingly, restrained and prohibited permanently from enforcing said Ordinance, as amended. It
is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. 1äwphï1.ñët

28. LOZADA vs. COMMISSIONER, 120 SCRA 337 Facts: Petitioner Lozada claims that he is a taxpayer and a bonafide elector of
Cebu City and a transient voter of Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa; while
petitioner Romeo B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus the calling of a special election as
mandated by the 1973 Constitution. As reason for their petition, petitioners allege that they are "... deeply concerned about their
duties as citizens and desirous to uphold the constitutional mandate and rule of law ...; that they have filed the instant petition on
their own and in behalf of all other Filipinos since the subject matters are of profound and general interest. " The respondent
COMELEC, represented by counsel, opposes the petition alleging, substantially, that 1) petitioners lack standing to file the instant
petition for they are not the proper parties to institute the action; 2) this Court has no jurisdiction to entertain this petition; and 3)
Section 5(2), Article VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa. Issue: Whether or not petitioners
lack standing to file the instant petition for they are not the proper parties to institute the action. RULING: As taxpayers, petitioners
may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the
inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the constitutional provision above cited,
and therefore, involves no expenditure of public funds. It is only when an act complained of, which may include a legislative
enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed. What the
case at bar seeks is one that entails expenditure of public funds which may be illegal because it would be spent for a purpose that of
calling a special election which, as will be shown, has no authority either in the Constitution or a statute. As voters, neither have
petitioners the requisite interest or personality to qualify them to maintain and prosecute the present petition. The unchallenged rule
is that the person who impugns the validity of a statute must have a personal and substantial interest in the case such that he has
sustained, or will sustain, direct injury as a result of its enforcement. In the case before Us, the alleged inaction of the COMELEC to
call a special election to fill-up the existing vacancies in the Batasan Pambansa, standing alone, would adversely affect only the
generalized interest of all citizens. Petitioners' standing to sue may not be predicated upon an interest of the kind alleged here,
which is held in common by all members of the public because of the necessarily abstract nature of the injury supposedly shared by
all citizens. Concrete injury, whether actual or threatened, is that indispensable element of a dispute which serves in part to cast it in
a form traditionally capable of judicial resolution. When the asserted harm is a "generalized grievance" shared in substantially equal
measure by all or a large class of citizens, that harm alone normally does not warrant exercise of jurisdiction. As adverted to earlier,
petitioners have not demonstrated any permissible personal stake, for petitioner Lozada’s interest as an alleged candidate and as a
voter are not sufficient to confer standing. Petitioner Lozada does not only fail to inform the Court of the region he wants to be a
candidate but makes indiscriminate demand that special election be called throughout the country.

Lozada vs. COMELEC

G.R. No. L-59068 January 27, 1983

FACTS:

This is a petition for mandamus filed by Jose Mari Eulalio C. Lozada and Romeo B. Igot as a representative suit for and in behalf of
those who wish to participate in the election irrespective of party affiliation, to compel the respondent COMELEC to call a special
election to fill up existing vacancies numbering twelve (12) in the Interim Batasan Pambansa.

Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient voter of Quezon City, Metro
Manila, who desires to run for the position in the Batasan Pambansa; while petitioner Romeo B. Igot alleges that, as a taxpayer, he
has standing to petition by mandamus the calling of a special election as mandated by the 1973 Constitution.

The respondent COMELEC, represented by counsel, opposes the petition alleging, substantially, that petitioners lack standing to file
the instant petition for they are not the proper parties to institute the action

ISSUE:

As taxpayers, may the petitioners file the instant petition?

RULING:

As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The
act complained of is the inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the
constitutional provision above cited, and therefore, involves no expenditure of public funds. It is only when an act complained of,
which may include a legislative enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer suit
may be allowed

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-59068 January 27, 1983

JOSE MARI EULALIO C. LOZADA and ROMEO B. IGOT, petitioners,

vs.
THE COMMISSION ON ELECTIONS, respondent.

DE CASTRO, J.:

This is a petition for mandamus filed by Jose Mari Eulalio C. Lozada and Romeo B. Igot as a representative suit for and in behalf of
those who wish to participate in the election irrespective of party affiliation, to compel the respondent COMELEC to call a special
election to fill up existing vacancies numbering twelve (12) in the Interim Batasan Pambansa. The petition is based on Section 5(2),
Article VIII of the 1973 Constitution which reads:

(2) In case a vacancy arises in the Batasang Pambansa eighteen months or more before a regular election, the
Commission on Election shall call a special election to be held within sixty (60) days after the vacancy occurs to
elect the Member to serve the unexpired term.
Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient voter of Quezon City, Metro
Manila, who desires to run for the position in the Batasan Pambansa; while petitioner Romeo B. Igot alleges that, as a taxpayer, he
has standing to petition by mandamus the calling of a special election as mandated by the 1973 Constitution. As reason for their
petition, petitioners allege that they are "... deeply concerned about their duties as citizens and desirous to uphold the constitutional
mandate and rule of law ...; that they have filed the instant petition on their own and in behalf of all other Filipinos since the subject
matters are of profound and general interest. "

The respondent COMELEC, represented by counsel, opposes the petition alleging, substantially, that 1) petitioners lack standing to
file the instant petition for they are not the proper parties to institute the action; 2) this Court has no jurisdiction to entertain this
petition; and 3) Section 5(2), Article VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa.

The petition must be dismiss.

As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The
act complained of is the inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the
constitutional provision above cited, and therefore, involves no expenditure of public funds. It is only when an act complained of,
which may include a legislative enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer suit
may be allowed. 1 What the case at bar seeks is one that entails expenditure of public funds which may be illegal because it would
be spent for a purpose that of calling a special election which, as will be shown, has no authority either in the Constitution or a
statute.

As voters, neither have petitioners the requisite interest or personality to qualify them to maintain and prosecute the present petition.
The unchallenged rule is that the person who impugns the validity of a statute must have a personal and substantial interest in the
case such that he has sustained, or will sustain, direct injury as a result of its enforcement. 2 In the case before Us, the alleged
inaction of the COMELEC to call a special election to fill-up the existing vacancies in the Batasan Pambansa, standing alone, would
adversely affect only the generalized interest of all citizens. Petitioners' standing to sue may not be predicated upon an interest of
the kind alleged here, which is held in common by all members of the public because of the necessarily abstract nature of the injury
supposedly shared by all citizens. Concrete injury, whether actual or threatened, is that indispensable element of a dispute which
serves in part to cast it in a form traditionally capable of judicial resolution. 3 When the asserted harm is a "generalized grievance"
shared in substantially equal measure by all or a large class of citizens, that harm alone normally does not warrant exercise of
jurisdiction. 4 As adverted to earlier, petitioners have not demonstrated any permissible personal stake, for petitioner Lozada's
interest as an alleged candidate and as a voter is not sufficient to confer standing. Petitioner Lozada does not only fail to inform the
Court of the region he wants to be a candidate but makes indiscriminate demand that special election be called throughout the
country. Even his plea as a voter is predicated on an interest held in common by all members of the public and does not
demonstrate any injury specially directed to him in particular.

II

The Supreme Court's jurisdiction over the COMELEC is only to review by certiorari the latter's decision, orders or rulings. This is as
clearly provided in Article XI IC Section 11 of the New Constitution which reads:

Any decision, order, or ruling of the Commission may be brought to the Supreme Court on certiorari by the
aggrieved party within thirty days from his receipt of a copy thereof.

There is in this case no decision, order or ruling of the COMELEC which is sought to be reviewed by this Court under its certiorari
jurisdiction as provided for in the aforequoted provision which is the only known provision conferring jurisdiction or authority on the
Supreme Court over the COMELEC. It is not alleged that the COMELEC was asked by petitioners to perform its alleged duty under
the Constitution to call a special election, and that COMELEC has issued an order or resolution denying such petition.

Even from the standpoint of an action for mandamus, with the total absence of a showing that COMELEC has unlawfully neglected
the performance of a ministerial duty, or has refused on being demanded, to discharge such a duty; and as demonstrated above, it
is not shown, nor can it ever be shown, that petitioners have a clear right to the holding of a special election. which is equally the
clear and ministerial duty of COMELEC to respect, mandamus will not lie. 5 The writ will not issue in doubtful cases. 6

It is obvious that the holding of special elections in several regional districts where vacancies exist, would entail huge expenditure of
money. Only the Batasan Pambansa can make the necessary appropriation for the purpose, and this power of the Batasan
Pambansa may neither be subject to mandamus by the courts much less may COMELEC compel the Batasan to exercise its power
of appropriation. From the role Batasan Pambansa has to play in the holding of special elections, which is to appropriate the funds
for the expenses thereof, it would seem that the initiative on the matter must come from said body, not the COMELEC, even when
the vacancies would occur in the regular not interim Batasan Pambansa. The power to appropriate is the sole and exclusive
prerogative of the legislative body, the exercise of which may not be compelled through a petition for mandamus. What is more, the
provision of Section 5(2), Article VIII of the Constitution was intended to apply to vacancies in the regular National Assembly, now
Batasan Pambansa, not to the Interim Batasan Pambansa, as will presently be shown.

III

Perhaps the strongest reason why the aforecited provision of the Constitution is not intended to apply to the Interim National
Assembly as originally envisioned by the 1973 Constitution is the fact that as passed by the Constitutional Convention, the Interim
National Assembly was to be composed by the delegates to the Constitutional Convention, as well as the then incumbent President
and Vice-President, and the members of the Senate and House of Representatives of Congress under the 1935 Constitution. With
such number of representatives representing each congressional district, or a province, not to mention the Senators, there was felt
absolutely no need for filing vacancies occurring in the Interim National Assembly, considering the uncertainty of the duration of its
existence. What was in the mind of the Constitutional Convention in providing for special elections to fill up vacancies is
the regular National Assembly, because a province or representative district would have only one representative in the said National
Assembly.

Even as presently constituted where the representation in the Interim Batasan Pambansa is regional and sectoral, the need to fill up
vacancies in the Body is neither imperative nor urgent. No district or province would ever be left without representation at all, as to
necessitate the filling up of vacancies in the Interim Batasan Pambansa. There would always be adequate representation for every
province which only forms part of a certain region, specially considering that the Body is only transitory in character.

The unmistakable intent of the Constitutional Convention as adverted to is even more positively revealed by the fact that the
provision of Section 5(2) of Article VIII of the New Constitution is in the main body of the said Constitution, not in the transitory
provisions in which all matters relating to the Interim Batasan Pambansa are found. No provision outside of Article VIII on the
"Transitory Provisions" has reference or relevance to the Interim Batasan Pambansa.

Also under the original provision of the Constitution (Section 1, Article XVII-Transitory Provisions), the Interim National Assembly
had only one single occasion on which to call for an election, and that is for the election of members of the regular National
Assembly.1äwphï1.ñët The Constitution could not have at that time contemplated to fill up vacancies in the Interim National
Assembly the composition of which, as already demonstrated, would not raise any imperious necessity of having to call special
elections for that purpose, because the duration of its existence was neither known or pre-determined. It could be for a period so
brief that the time prescriptions mentioned in Section 5(2), Article VIII of the Constitution cannot be applicable.

The foregoing observations make it indubitably clear that the aforementioned provision for calling special elections to fill up
vacancies apply only to the regular Batasan Pambansa. This is evident from the language thereof which speaks of a vacancy in the
Batasan Pambansa, " which means the regular Batasan Pambansa as the same words "Batasan Pambansa" found in all the many
other sections of Article VIII, undoubtedly refer to the regular Batasan, not the interim one. A word or phrase used in one part of a
Constitution is to receive the same interpretation when used in every other part, unless it clearly appears, from the context or
otherwise, that a different meaning should be applied. 7

WHEREFORE, the petition is hereby dismissed.

SO ORDERED.

Aquino, Concepcion Jr., Guerrero, Plana, Escolin Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Fernando, CJ., Makasiar, and Melencio-Herrera, JJ., concurs in the result.

Teehankee, J., took no part.

Abad Santos, J., I reserve my vote.

GONZALES vs. MARCOS

65 SCRA 624
GR No. L-31685 July 31, 1975
"With the absence of any pecuniary or monetary interest owing from the public, a taxpayer may not have the right to question the
legality of an issuance creating a trust for the benefit of the people but purely funded by charity."

FACTS: The petitioner questioned the validity of EO No. 30 creating the Cultural Center of the Philippines, having as its estate the
real and personal property vested in it as well as donations received, financial commitments that could thereafter be collected, and
gifts that may be forthcoming in the future. It was likewise alleged that the Board of Trustees did accept donations from the private
sector and did secure from the Chemical Bank of New York a loan of $5 million guaranteed by the National Investment &
Development Corporation as well as $3.5 million received from President Johnson of the United States in the concept of war
damage funds, all intended for the construction of the Cultural Center building estimated to cost P48 million. The petition was denied
by the trial court arguing that with not a single centavo raised by taxation, and the absence of any pecuniary or monetary interest of
petitioner that could in any wise be prejudiced distinct from those of the general public.

ISSUE: Has a taxpayer the capacity to question the validity of the issuance in this case?

HELD: No. It was therein pointed out as "one more valid reason" why such an outcome was unavoidable that "the funds
administered by the President of the Philippines came from donations [and] contributions [not] by taxation." Accordingly, there was
that absence of the "requisite pecuniary or monetary interest." The stand of the lower court finds support in judicial precedents. This
is not to retreat from the liberal approach followed in Pascual v. Secretary of Public Works, foreshadowed by People v. Vera, where
the doctrine of standing was first fully discussed. It is only to make clear that petitioner, judged by orthodox legal learning, has not
satisfied the elemental requisite for a taxpayer's suit. Moreover, even on the assumption that public funds raised by taxation were
involved, it does not necessarily follow that such kind of an action to assail the validity of a legislative or executive act has to be
passed upon. This Court, as held in the recent case of Tan v. Macapagal, "is not devoid of discretion as to whether or not it should
be entertained." The lower court thus did not err in so viewing the situation.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-31685 July 31, 1975

RAMON A. GONZALES, petitioner,

vs.
IMELDA R. MARCOS, as Chairman of the Cultural Center of the Philippines, Father HORACIO DE LA COSTA, I. P.
SOLIONGCO, ERNESTO RUFINO, ANTONIO MADRIGAL, and ANDRES SORIANO, as Members thereof, respondents.

Ramon A. Gonzales in his own behalf.

Acting Solicitor General Hugo E. Gutierrez; Jr. and Assistant Solicitor General Reynato S. Puno for respondent Imelda R. Marcos.

Siguion Reyna, Montecillo, Beto and Ongsiako for respondents.

FERNANDO, J.:

It was the novelty of the constitutional question raised, there being an imputation by petitioner Ramon A. Gonzales of an
impermissible encroachment by the President of the Philippines on the legislative prerogative, that led this Tribunal to give due
course to an appeal by certiorari from an order of dismissal by the Court of First Instance of Manila. 1 More specifically, the issue
centered on the validity of the creation in Executive Order No. 30 of a trust for the benefit of the Filipino people under the name and
style of the Cultural Center of the Philippines entrusted with the task to construct a national theatre, a national music hall, an arts
building and facilities, to awaken our people's consciousness in the nation's cultural heritage and to encourage its assistance in the
preservation, promotion, enhancement and development thereof, with the Board of Trustees to be appointed by the President, the
Center having as its estate the real and personal property vested in it as well as donations received, financial commitments that
could thereafter be collected, and gifts that may be forthcoming in the future. 2 It was likewise alleged that the Board of Trustees did
accept donations from the private sector and did secure from the Chemical Bank of New York a loan of $5 million guaranteed by the
National Investment & Development Corporation as well as $3.5 million received from President Johnson of the United States in the
concept of war damage funds, all intended for the construction of the Cultural Center building estimated to cost P48 million. The
Board of Trustees has as its Chairman the First Lady, Imelda Romualdez Marcos, who is named as the principal respondent. 3 In an
order of dismissal by the then Judge, now Justice of the Court of Appeals, Jose G. Bautista of a suit for prohibition filed in the Court
of First Instance of Manila, stress was laid on the funds administered by the Center as coming from donations and contributions,
with not a single centavo raised by taxation, and the absence of any pecuniary or monetary interest of petitioner that could in any
wise be prejudiced distinct from those of the general public. Moreover, reference was made to the admission by petitioner of the
desirability of the objective of Executive Order No. 30, his objection arising from the alleged illegality of its issuance. 4

There was a motion of respondents to file a motion to dismiss this appeal by certiorari, and it was granted in a resolution of March 5,
1970. Such a pleading was submitted to this Court twelve days later, where it was contended that Executive Order No. 30
represented the legitimate exercise of executive power, there being no invasion of the legislative domain and that it was
supplementary to rather than a disregard of Republic Act No. 4165 creating the National Commission on Culture. In this exhaustive
motion to dismiss, the point was likewise raised that petitioner did not have the requisite personality to contest as a taxpayer the
validity of the executive order in question, as the funds held by the Cultural Center came from donations and contributions, not one
centavo being raised by taxation.5 Thereafter, a manifestation was filed by the then Solicitor General, now Associate Justice, Felix
Q. Antonio, adopting "the Motion to Dismiss the Petition dated February 25, 1970, filed by respondents with this Honorable
Court." 6 There was an opposition to such motion to dismiss on the part of petitioner. 7 That was the status of the case, there being
no further pleadings filed except two motions for extension of time to file answer submitted by the Solicitor General and granted by
this Court, when on July 22, 1975, there was a second motion to dismiss on the part of respondents through the Acting Solicitor
General Hugo E. Gutierrez Jr. and Assistant Solicitor General Reynato S. Puno. It is therein set forth: "(1) As stated in the petition
itself its undeniable quintessence is [the allegation of] "an executive usurpation of legislative powers, hence, respondents in
enforcing the same, are acting without jurisdiction, hence, are restrainable by prohibition." ... (2) On October 5, 1972, Presidential
Decree No. 15 ... was promulgated creating the Cultural Center of the Philippines, defining its objectives, powers and functions and
other purposes. Section 4, thereof was amended by Presidential Decree No. 179 ... enacted on April 26, 1973. It is submitted that it
is now moot and academic to discuss the constitutionality of Executive Order No. 30 considering the promulgation of PD Nos. 15
and 179, done by the President in the exercise of legislative powers under martial law. Executive Order No. 30 has ceased to exist
while PD Nos. 15 and 179 meet all the constitutional arguments raised in the petition at bar." 8

It would thus appear that the petition cannot succeed. There is no justification for setting aside the order of dismissal.
Notwithstanding the exhaustive and scholarly pleadings submitted by petitioner on his own behalf, the burden of persuasion to
warrant a reversal of the action of the lower court was not met. Both on procedural and substantive grounds, a case for prohibition
was not made out, notwithstanding the valiant efforts of petitioner. With this latest manifestation, that Executive Order No. 30 had
been superseded by Presidential Decree Nos. 15 and 179, the moot and academic character of this appeal by certiorari became
rather obvious. To repeat, the petition must fail.

1. It may not be amiss though to consider briefly both the procedural and substantive grounds that led to the lower court's order of
dismissal. It was therein pointed out as "one more valid reason" why such an outcome was unavoidable that "the funds administered
by the President of the Philippines came from donations [and] contributions [not] by taxation." Accordingly, there was that absence
of the "requisite pecuniary or monetary interest." 9 The stand of the lower court finds support in judicial precedents. 10 This is not to
retreat from the liberal approach followed in Pascual v. Secretary of Public Works, 11 foreshadowed by People v. Vera, 12 where the
doctrine of standing was first fully discussed. It is only to make clear that petitioner, judged by orthodox legal learning, has not
satisfied the elemental requisite for a taxpayer's suit. Moreover, even on the assumption that public funds raised by taxation were
involved, it does not necessarily follow that such kind of an action to assail the validity of a legislative or executive act has to be
passed upon. This Court, as held in the recent case of Tan v. Macapagal, 13 "is not devoid of discretion as to whether or not it should
be entertained." 14 The lower court thus did not err in so viewing the situation.

2. Nor was the lower court any more impressed by the contention that there was an encroachment on the legislative prerogative
discernible in the issuance of Executive Order No. 30. It first took note of the exchange of diplomatic notes between the Republic of
the Philippines and the United States as to the use of a special fund coming from the latter for a Philippine cultural development
project. Then, as set forth in the order of dismissal, it explained why no constitutional objection could be validly interposed. Thus:
"When the President, therefore, acted by disposing of a matter of general concern (Section 63, Rev. Adm. Code) in accord with the
constitutional injunction to promote arts and letters (Section 4, Article XIV, Constitution of the Philippines) and issued Executive
Order No. 30, he simply carried out the purpose of the trust in establishing the Cultural Center of the Philippines as the
instrumentality through which this agreement between the two governments would be realized. Needless to state, the President
alone cannot and need not personally handle the duties of a trustee for and in behalf of the Filipino people in relation with this trust.
He can do this by means of an executive order by creating as he did, a group of persons, who would receive and administer the
trust estate, responsible to the President. As head of the State, as chief executive, as spokesman in domestic and foreign affairs, in
behalf of the estate as parens patriae, it cannot be successfully questioned that the President has authority to implement for the
benefit of the Filipino people by creating the Cultural Center consisting of private citizens to administer the private contributions and
donations given not only by the United States government but also by private persons." 15

There is impressive juridical support for the stand taken by the lower court. Justice Malcolm in Government of the Philippine Islands
v. Springer 16 took pains to emphasize: "Just as surely as the duty of caring for governmental property is neither judicial nor
legislative in character is it as surely executive." 17 It Would be an unduly narrow or restrictive view of such a principle if the public
funds that accrued by way of donation from the United States and financial contributions for the Cultural Center project could not be
legally considered as "governmental property." They may be acquired under the concept of dominium, the state as a persona in law
not being deprived of such an attribute, thereafter to be administered by virtue of its prerogative of imperium. 18 What is a more
appropriate agency for assuring that they be not wasted or frittered away than the Executive, the department precisely entrusted
with management functions? It would thus appear that for the President to refrain from taking positive steps and await the action of
the then Congress could be tantamount to dereliction of duty. He had to act; time was of the essence. Delay was far from conducive
to public interest. It was as simple as that. Certainly then, it could be only under the most strained construction of executive power to
conclude that in taking the step he took, he transgressed on terrain constitutionally reserved for Congress.

This is not to preclude legislative action in the premises. While to the Presidency under the 1935 Constitution was entrusted the
responsibility for administering public property, the then Congress could provide guidelines for such a task. Relevant in this
connection is the excerpt from an opinion of Justice Jackson in Youngstown Sheet & Tube Co. v. Sawyer: 19 "When the President
acts in absence of either a congressional grant or denial of authority, he can only rely upon his own independent powers, but there
is a zone of twilight in which he and Congress may have concurrent authority, or in which its distribution is uncertain. Therefore,
congressional inertia, indifference or quiescence may sometimes, at least as a practical matter, enable, if not invite, measures on
independent presidential responsibility. In this area, any actual test of power is likely to depend on the imperative of events and
contemporary imponderables rather than on abstract theories of law." 20 To vary the phraseology, to recall Thomas Reed Powell, if
Congress would continue to keep its peace notwithstanding the action taken by the executive department, it may be considered as
silently vocal. In plainer language, it could be an instance of silence meaning consent. The Executive Order assailed was issued on
June 25, 1966. Congress until the time of the filing of the petition on August 26, 1969 remained quiescent. Parenthetically, it may be
observed that petitioner waited until almost the day of inaugurating the Cultural Center on September 11, 1969 before filing his
petition in the lower court. However worthy of commendation was his resolute determination to keep the Presidency within the
bounds of its competence, it cannot be denied that the remedy, if any, could be supplied by Congress asserting itself in the
premises. Instead, there was apparent conformity on its part to the way the President saw fit to administer such governmental
property.

3. The futility of this appeal by certiorari becomes even more apparent with the issuance of Presidential Decree No. 15 on October
5, 1972. As contended by the Solicitor General, the matter, as of that date, became moot and academic. Executive Order No. 30
was thus superseded. The institution known as the Cultural Center is other than that assailed in this suit. In that sense a coup de
grace was administered to this proceeding. The labored attempt of petitioner could thus be set at rest. This particular litigation is at
an end. There is, too, relevance in the observation that the aforesaid decree is part of the law of the land. So the Constitution
provides. 21

4. It only remains to be added that respondents as trustees lived up fully to the weighty responsibility entrusted to them. The task
imposed on them was performed with competence, fidelity, and dedication. That was to be expected. From the inception of the
Marcos Administration, the First Lady has given unsparingly of herself in the encouragement and support of literary, musical, and
artistic endeavors and in the appreciation of our rich and diverse cultural heritage. The rest of the then Board of Trustees, named as
the other respondents, were equally deserving of their being chosen for this worthy project. One of them, the late I.P Soliongco, was
in his lifetime one of the most gifted men of letters. Father Horacio de la Costa is a historian and scholar of international repute.
Respondents Ernesto Rufino, Antonio Madrigal and Andres Soriano, all men of substance, have contributed in time and money to
civic efforts. It is not surprising then that the Cultural Center became a reality, the massive and imposing structure constructed at a
shorter period and at a lower cost than at first thought possible. What is of even greater significance, with a portion thereof being
accessible at modest admission prices, musical and artistic performances of all kinds are within reach of the lower-income groups.
Only thus may meaning be imparted to the Constitutional provision that arts and letters shall be under State patronage. 22 For
equally important as the encouragement and support for talented Filipinos with a creative spark is the diffusion of the opportunity for
the rest of their countrymen to savour the finer things in life. Who knows, if state efforts along these lines are diligently pursued, that
what was said by Justice Holmes about France could apply to the Philippines. Thus: "We have not that respect for art that is one of
the glories of France." 23 In justice to petitioner Gonzales, it may be noted that he did not question the wisdom or soundness of the
goal of having a Cultural Center or the disbursement of the funds by respondents. It is the absence of statutory authority that
bothered him. The lower court did not see things in the same light. It is easily understandable why, as the preceding discussion has
made clear, it cannot be said that such a conclusion suffered from legal infirmity. What is more, with the issuance of Presidential
Decree No. 15, the suit, to repeat, has assumed a moot and academic character.

WHEREFORE, this appeal by certiorari to review the lower court's order of dismissal dated December 4, 1969 is dismissed.

No costs.

Makalintal, C.J., Barredo, Esguerra, Muñoz Palma, Aquino, Concepcion Jr. and Martin JJ., concur.

Castro and Makasiar, JJ., took no part.

Teehankee and Antonio, JJ., are on leave.

29. CHAVEZ vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), G. R. No. 130716, May 19, 1999 Facts:
Movants Ma. Imelda Marcos-Manotoc, Ferdinand R. Marcos II and Irene MarcosAraneta allege that they are parties and signatories
to the General and Supplemental Agreements dated December 28, 1993, which this Court, in its Decision promulgated on
December 9, 1998, declared "NULL AND VOID for being contrary to law and the Constitution." As such, they claim to "have a legal
interest in the matter in litigation, or in the success of either of the parties or an interest against both as to warrant their intervention."
They add that their exclusion from the instant case resulted in a denial of their constitutional rights to due process and to equal
protection of the laws. They also raise the "principle of hierarchical administration of justice" to impugn the Court's cognizance of
petitioner's direct action before it. Issue: Whether or not Movants Ma. Imelda Marcos-Manotoc, Ferdinand R. Marcos II and Irene
Marcos-Araneta have a legal interest in the matter in litigation. RULING: The assailed Decision has become final and executory; the
original parties have not filed any motion for reconsideration, and the period for doing so has long lapsed. Indeed, the movants are
now legally barred from seeking leave to participate in this proceeding. Movants claim that their exclusion from the proceeding
regarding the Agreements to which they were parties and signatories was a denial of "their property right to contract without due
process of law." We rule that the movants are merely incidental, not indispensable, parties to the instant case. Being contractors to
the General and Supplemental Agreements involving their supposed properties, they claim that their interests are affected by the
petition. However, as exhaustively discussed in the assailed Decision, the Agreements undeniably contain terms an condition that
are clearly contrary to the Constitution and the laws and are not subject to compromise. Such terms and conditions cannot be
granted by the PCGG to anyone, not just to movants. Being so, no argument of the contractors will make such illegal and
unconstitutional stipulations pass the test of validity. The void agreement will not be rendered operative by the parties' alleges
performance (partial or full) of their respective prestations. A contract that violates the Constitution and the law is null and void
abintio and vests no rights and creates no obligations. It produces no legal effect at all.In legal terms, the movants have really no
interest to protect or right to assert in this proceeding. Contrary to their allegations, no infraction upon their rights has been
committed. The original petition of Francisco I. Chavez sought to enforce a constitutional right against the Presidential Commission
on Good Government (PCGG) and to determine whether the latter has been acting within the bounds of its authority. In the process
of adjudication, there is no need to call on each and every party whom said agency has contracted with.

34. Pascual vs. Secretary of Public Works, 110 Phil 331 Facts:A law was enacted in 1953 containing a provision for the
construction,reconstruction, repair, extension and improvement of Pasig feeder road terminalswithin Antonio Subdivision owned by
Senator Jose C. Zulueta. Zulueta “donated” saidparcels of land to the Government 5 months after the enactment of the law, on
thecondition that if the Government violates such condition the lands would revert toZulueta. The provincial governor of Rizal,
Wenceslao Pascual, questioned the validity of the donation and the Constitutionality of the particular provision, it being
anappropriation not for a public purpose. Issue: Is the appropriation valid? RULING: No. The appropriation of amount for the
construction on a land owned byprivate individual is invalid imposition since it results in the promotion of privateenterprise, it benefits
the property of a particular individual. The provision that theland thereafter be donated to the government does not cure this defect.
The rule isthat if the public advantage or benefit is merely incidental in the promotion of aparticular enterprise, such defect shall
render the law invalid. On the other hand, if what is incidental is the promotion of a private enterprise, the tax law shall bedeemed
“for public purpose”.

36. Gaston vs. Republic Planter, 158 SCRA 626 Facts: Petitioners are sugar producers and planters and millers filed a MANDAMUS
to implement the privatization of Republic Planters Bank, and for the transfer of the shares in the government bank to sugar
producers and planters. (because they are allegedly the true beneficial owners of the bank since they pay P1.00 per picul of sugar
from the proceeds of sugar producers as STABILIZATION FEES). The shares are currently held by Philsucom / Sugar Regulatory
Admin. The Solgen countered that the stabilization fees are considered government funds and that the transfer of shares to from
Philsucom to the sugar producers would be irregular. Issues: What is the nature of the P1.00 stabilization fees collected from sugar
producers? Are they funds held in trust for them, or are they public funds? Are the shares in the bank (paid using these fees) owned
by the government Philsucom or privately by the different sugar planters from whom such fees were collected? RULING: PUBLIC
FUNDS. While it is true that the collected fees were used to buy shares in RPB, it did not collect said fees for the account of sugar
producers. The stabilization fees were charged on sugar produced and milled which ACCRUED TO PHILSUCOM, under PD 338.
The fees collected ARE IN THE NATURE OF A TAX., which is within the power of the state to impose FOR THE PROMOTION OF
THE SUGAR INDUSTRY. They constitute sugar liens. The collections accrue to a SPECIAL FUNDS. It is levied not purely for
taxation, but for regulation, to provide means TO STABILIZE THE SUGAR INDUSTRY. The levy is primarily an exercise of police
powers. The fact that the State has taken money pursuant to law is sufficient to constitute them as STATE FUNDS, even though
held for a special purpose. Having been levied for a special purpose, the revenues are treated as a special fund, administered in
trust for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance will be transferred to the general
funds of gov’t. It is a special fund since the funds are deposited in PNB, not in the National Treasury. The sugar planters are NOT
BENEFICIAL OWNERS. The money is collected from them only because they it is also they who are to be benefited from the
expenditure of funds derived from it. The investing of the funds in RPB is not alien to the purpose since the Bank is a commodity
bank for sugar, conceived for the sugar industry’ growth and development. Revenues derived from taxes cannot be used purely for
private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the ENTIRE
SUGAR INDUSTRY, and all its components, stabilization of domestic and foreign markets, since the sugar industry is of vital
importance to the country’s economy and national interest.

Commissioner of Internal Revenue vs. British Overseas Airways Corporation And Court Of Tax Appeals, 149 SCRA 395 Facts:
British Overseas Airways Corp (BOAC) is a 100% British Governmentowned corporation engaged in international airline business
and is a member of the Interline Air Transport Association, and thus, it operates air transportation services and sells transportation
tickets over the routes of the other airline members. From 1959 to 1972, BOAC had no landing rights for traffic purposes in the
Philippines and thus, did not carry passengers and/or cargo to or from the Philippines but maintained a general sales agent in the
Philippines - Warner Barnes & Co. Ltd. and later, Qantas Airways - which was responsible for selling BOAC tickets covering
passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency income taxes against BOAC. Issue: Whether
the revenue derived by BOAC from ticket sales in the Philippines, constitute income of BOAC from Philippine sources, and
accordingly taxable. RULING: The source of an income is the property, activity, or service that produced the income. For the source
of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the
Philippines. Herein, the sale of tickets in the Philippines is the activity that produced the income. the tickets exchanged hands here
and payment for fares were also made here in the Philippine currency. The situs of the source of payments is the Philippines. The
flow of wealth proceeded from, and occurred within Philippine territory, enjoying the protection accorded by the Philippine
government. In consideration of such protection, the flow of wealth should share the burden of supporting the government. PD 68, in
relation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources. The 2 1/2% tax on gross
billings is an income tax. If it had been intended as an excise tax or percentage tax, it would have been placed under Title V of the
Tax Code covering taxes on business.
42. Iloilo Bottlers, Inc. vs. City Of Iloilo, GR No. L-52019, 19 August 1988 Facts: Iloilo Bottlers, Inc. (IBI), engaged in selling Pepsi-
Cola and 7-up softdrinks, has its bottling plant in Pavia, Iloilo since July 1968, but is selling softdrinks in Iloilo City. On 11 January
1960, City of Iloilo enacted Ordinance No. 5 series of 1960, as amended. Said ordinance imposes a P0.10 municipal tax for every
case of 24 bottles (P0.015 for every case of 24 bottles if price is not more than P0.05) on persons, firms or corporations engaged in
the distribution, manufacture, and bottling of softdrinks within the city’s jurisdiction. As to distributors, they are taxed regardless of
where their plant may be situated. From January 1972, IBI has been paying said tax under protest. Iloilo City later assessed and
demanded IBI to pay back taxes, which IBI also paid under protest. On 12 July 1972, it filed before CFI of Iloilo a suit to recover
payments amounting to P3,329.20. CFI favored IBI, ruling that it is not liable under said tax ordinance and directing City of Iloilo to
pay P3,329.20 and the amounts paid subsequently after the filing of the complaint. Upon appeal, CA certified the case to the
Supreme Court. Issue: Whether Iloilo Bottlers, Inc. is liable under Iloilo City’s tax ordinance that imposes a municipal license tax on
distributors of softdrinks. RULING: YES, Iloilo Bottlers, Inc. is liable to pay said municipal tax. IBI is engaged in selling separate from
its principal business of manufacturing. To hold IBI liable to pay municipal tax, SC endeavored to prove that it is engaged in selling
separate from its principal business of manufacturing so as to fall under the category “distributors” in the provision of the tax
ordinance. SC found that “[in] the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which
went directly to customers in the different places in lloilo province. Sales transactions with customers were entered into and sales
were perfected and consummated by route salesmen. Truck sales were made independently of transactions in the main office.” IBI’s
sales are within the jurisdiction of Iloilo City and are thus taxable. SC held that “the tax imposed under Ordinance No. 5 is an excise
tax.., [that imposed] on the privilege of distributing, manufacturing or bottling softdrinks. Being [such], it can be levied by the taxing
authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority…. Specifically,
the situs of the act of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of
the activities may be taxed in Iloilo City.” As IBI indeed made sales in Iloilo City as explained above, SC declared it liable to pay
municipal tax under the tax ordinance.

Chavez v. PCGG, 299 SCRA 744FACTS: Petitioner asks this Court to defne the nature and the extent o± the people’sconstitutional
right to in±ormation on matters o± public concern. Petitioner, invoking hisconstitutional right to in±ormation and the correlative duty
o± the state to disclose publiclyall its transactions involving the national interest, demands that respondents make publicany and all
negotiations and agreements pertaining to PCGG’s task o± recovering theMarcoses’ ill-gotten wealth.ISSUE: Are the negotiations
leading to a settlement on ill-gotten wealth o± the Marcoseswithin the scope o± the constitutional guarantee o± access to
in±ormation?HELD: Yes. Considering the intent o± the ±ramers o± the Constitution, it is incumbent uponthe PCGG and its o²cers,
as well as other government representatives, to disclosesu²cient public in±ormation on any proposed settlement they have decided
to take up withthe ostensible owners and holders o± ill-gotten wealth. Such in±ormation, though, mustpertain to defnite propositions
o± the government, not necessarily to intra-agency or inter-agency recommendations or communications during the stage when
common assertionsare still in the process o± being ±ormulated or are in the “exploratory” stage. There is aneed, o± course, to
observe the same restrictions on disclosure o± in±ormation in general --such as on matters involving national security, diplomatic or
±oreign relations, intelligenceand other classifed in±ormation

Republic of the Philippines

SUPREME COURT
Manila

SPECIAL FIRST DIVISION

G.R. No. 130716 May 19, 1999

FRANCISCO I. CHAVEZ, petitioner,

vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) and MAGTANGGOL GUNIGUNDO, (in his capacity as
chairman of the PCGG), respondents, GLORIA A. JOPSON, CELNAN A. JOPSON, SCARLET A. JOPSON, and TERESA A.
JOPSON, petitioners-in-intervention.

RESOLUTION

PANGANIBAN, J.:

Before the Court are (1) a "Motion for Leave to Intervene with Motion for Leave to File the Attached Partial Motion for
Reconsideration . . ." and (2) "Partial Motion for Reconsideration," both filed on January 22, 1999, as well as movants' Memorandum
of Authorities filed on March 16, 1999.
Movants Ma. Imelda Marcos-Manotoc, Ferdinand R. Marcos II and Irene Marcos-Araneta allege that they are parties and
signatories 1 to the General and Supplemental Agreements dated December 28, 1993, which this Court, in its Decision promulgated
on December 9, 1998, declared "NULL AND VOID for being contrary to law and the Constitution." As such, they claim to "have a
legal interest in the matter in litigation, or in the success of either of the parties or an interest against both as to warrant their
intervention." They add that their exclusion from the instant case resulted in a denial of their constitutional rights to due process and
to equal protection of the laws. They also raise the "principle of hierarchical administration of justice" to impugn the Court's
cognizance of petitioner's direct action before it.

The motions are not meritorious.

Intervention Not Allowed

After Final Judgment

First, we cannot allow the Motion for Leave to Intervene at this late stage of the proceedings. Section 2, Rule 19 of the Rules of
Court, provides that a motion to intervene should be filed "before rendition of judgment . . ." Our Decision was promulgated
December 9, 1998, while movants came to us only on January 22, 1999. Intervention can no longer be allowed in a case already
terminated by the final judgment. 2

Second, they do not even offer any valid plausible excuse for such late quest to assert their alleged rights. Indeed, they may have
no cogent reason at all. As Petitioner Chavez asserts, 3 the original petition, which was filed on October 3, 1997, was well-
publicized. So were its proceedings, particularly the oral arguments heard on March 16, 1998. Movants have long been back in the
mainstream of Philippine political and social life. Indeed, they could not (and in fact did not) even feign unawareness of the petition
prior to its disposition.

Third, the assailed Decision has become final and executory; the original parties have not filed any motion for reconsideration, and
the period for doing so has long lapsed. Indeed, the movants are now legally barred from seeking leave to participate in this
proceeding. Nevertheless, we shall tackle their substantive arguments, most of which have been taken up in said Decision, so as to
finally dispose any allegation, even in the remote future, of lack of due process or violation of the right to equal protection.

No Denial of Due Process

Movants claim that their exclusion from the proceeding regarding the Agreements to which they were parties and signatories was a
denial of "their property right to contract without due process of law."

We rule that the movants are merely incidental, not indispensable, parties to the instant case. Being contractors to the General and
Supplemental Agreements involving their supposed properties, they claim that their interests are affected by the petition. However,
as exhaustively discussed in the assailed Decision, the Agreements undeniably contain terms an condition that are clearly contrary
to the Constitution and the laws and are not subject to compromise. Such terms and conditions cannot be granted by the PCGG to
anyone, not just to movants. Being so, no argument of the contractors will make such illegal and unconstitutional stipulations pass
the test of validity. 4 The void agreement will not be rendered operative by the parties' alleges performance (partial or full) of their
respective prestations. A contract that violates the Constitution and the law is null and void ab intio and vests no rights and creates
no obligations. It produces no legal effect at all. 5 In legal terms, the movants have really no interest to protect or right to assert in
this proceeding. Contrary to their allegations, no infraction upon their rights has been committed.

The original petition of Francisco I. Chavez sought to enforce a constitutional right against the Presidential Commission on Good
Government (PCGG) and to determine whether the latter has been acting within the bounds of its authority. In the process of
adjudication, there is no need to call on each and every party whom said agency has contracted with.

In any event, we are now ruling on the merits of the arguments raised by movants; hence, they can no longer complain of not having
been heard in this proceeding.

Petition Treated as an Exception to

the Principle of Hierarchical

Administration of Justice

Movants allege that despite petitioner's own statement that he did not intended "to stop or delay . . . the proceedings involving the
subject agreements as an incident before the Sandiganbayan," this Court ruled the validity of the said Agreements. They submit that
it thereby preempted the Sandiganbayan and rendered moot the three-year proceedings so far undertaken by the latter court
regarding the same. Movants pray that the proceedings before the anti-graft court be allowed to take their due course, consistent
with the principle of the hierarchical administration of justice.

This matter has been discussed and ruled upon in the assailed Decision. Movants have not raised any new argument that has not
been taken up. In any event, we wish to point out that the principle of the hierarchy of the courts generally applies to cases involving
factual question. The oft-repeated justification for invoking it is that such cases do not only impose upon the precious time of the
Court but, more important, inevitably result in their delayed adjudication. Often, such cases have to be remanded or referred to the
lower court as the proper forum or as better equipped t resolve to the issues, since the Supreme Court is not a trier of
facts. 6 Inasmuch as the petition at bar involves only constitutional and legal questions concerning public interest, the Court resolved
to exercise primary jurisdiction on the matter.

Moreover, in taking jurisdiction over the Chavez petition, the Court actually avoided unnecessary delays and expenses in the
resolution of the ill-gotten wealth cases, which have been pending for about twelve years now. With this Decision, the
Sandiganbayan may now more speedily resolves the merits of Civil Case No. 141. Finally, it is an elementary rule that this Court
may at its sound discretion suspend procedural rules in the interest of substantial justice. 7

Petition Sought to Define

Scope of Right to Information

Movants insist that there was "nothing "secret" or "furtive" about the agreements as to warrant their compulsory disclosure by the
Honorable Court . . .." They submit that when they filed their Motion for Approval of Compromise Agreements before the
Sandiganbayan, they practically "opened to public scrutiny the agreements and everything else related thereto."

In our Decision, we have already discussed this point and, hence, shall no longer belabor it. Suffice it to say that in our Decision, we
ruled that the Chavez petition was not confined to the conclude terms contained in the Agreements, but likewise concerned other
ongoing and future negotiations and agreement, perfected or not. It sought a precise interpretation of the scope of the twin
constitutional provisions on "public transactions." It was therefore not endered moot and academic simply by the public disclosure of
the subject Agreements.

Alleged Partial Implementation

of Agreements Immaterial

The movants also claim that PCGG's grant to their mother of access rights to one of their sequestered properties may be equivalent
to an implied ratification of the Agreements. As we have ruled, the subject Agreements are null and void for being contrary to the
Constitution and the laws. Being null and void, they are not subject to ratification. 8Neither will they acquire validity through the
passage of time. 9

Petition Presented Actual

Case and Judicial Question

We reiterate that mandamus, over which this Court has original jurisdiction, is proper recourse for a citizen to enforce a public right
and to compel the performance of a public duty, most especially when mandated by the Constitution. As aptly pointed out by Mr.
Justice Jose C. Vitug, 10 "procedural rules . . . [are] not cogent reasons to deny to the Court its taking cognizance of the case."

There is no political question involved here. The power and the authority of the PCGG to compromise is not the issue. In fact, we
have not prohibited or restrained it from doing so. But when the compromise entered into palpably violated the Constitution and the
laws, this Court is duty-bound to strike it down as null and void. Clearly, by violating the Constitution and the laws, the PCGG
gravely abused its discretion. 11

In sum, we hold that the motions are procedurally flawed and that, at this late stage, intervention can no longer be allowed.
Moreover, movants are not indispensable parties to this suit which principally assails the constitutionality and legality of PCGG's
exercise of its discretion. In any event, the Court has ruled on the merits of movants' claims. Hence, they can no longer complain,
however remotely, of deprivation of due process or of equal protection of the law.

WHEREFORE, the motions are hereby DENIED for lack of merit. Let the Decision of this Court, dated December 9, 1998, be now
entered.1âwphi1.nêt

SO ORDERED.
Davide, Jr., CJ., Melo, Vitug and Quisumbing, JJ., concur.

Pascual vs. Secretary of Public Works

110 SCRA 331

Facts:

Petitioner seeks to declare RA 920 as unconstitutional as as declaring the donation by Sen. Zulueta as invalid. RA 920
contained an item appropriating ₱85,000 which the petitioner alleged that it was for the construction of roads improving the private
property of Zulueta. He alleges that the said law was not for a public purpose.

Issue: Is R.A. 920 unconstitutional?

Ruling:

Yes. R.A. 920 is an invalid imposition, since it results in promotion of a private enterprise as it benefit the property of a
private individual. The provision that the land thereafter be donated to the government has not cure the defect. The rule is that if the
public advantage or benefit is merely incidental in promotion of a particular enterprise, such defect shall render the law invalid. On
the other hand, if what is incidental is the promotion of a private enterprise the tax law shall be deemed for a public purpose.

Osmeña vs. Orbos

220 SCRA 703

Facts:

Petitioner seeks to have Sec.8, paragraph 1 C of PD 1956, as amended by EO 137 declared unconstitutional for being
undue and invalid delegation of legislative power to the Energy regulatory Board. Under the assailed law, the ERB is given the
authority to impose additional amounts on petroleum products and to impose additional amounts to augment the resources of the
fund. He argue that the money collected pursuant to PD 1956 must be treated as a special fund, not as a trust account or a trust
fund, and that if a special tax is collected for a special purpose it shall be treated as a special fund to be used only for the purpose
indicated.

Issue: is there undue delegation of legislative power?

Ruling:

No. for a valid delegation of power, it is essential that the law delegating the power must be 1. Complete in itself, that it
must set forth the policy to be executed by the delegate 2. It must fix the standard – limits of which are sufficiently determinate or
determined – to which the delegate must conform. While the funds may be referred to as taxes, they are enacted in the exercise of
the police power of the state. The fund remains subject to the review and accounting of the COA. These measures comply with the
constitutional description of a special fund.

PASCUAL vs. SECRETARY OF PUBLIC WORKS

110 PHIL 331
GR No. L-10405, December 29, 1960

"A law appropriating the public revenue is invalid if the public advantage or benefit, derived from such expenditure, is merely incidental
in the promotion of a particular enterprise."

FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with injunction, upon the ground that RA No.
920, which apropriates funds for public works particularly for the construction and improvement of Pasig feeder road terminals. Some
of the feeder roads, however, as alleged and as contained in the tracings attached to the petition, were nothing but projected and
planned subdivision roads, not yet constructed within the Antonio Subdivision, belonging to private respondent Zulueta, situated at
Pasig, Rizal; and which projected feeder roads do not connect any government property or any important premises to the main
highway. The respondents' contention is that there is public purpose because people living in the subdivision will directly be benefitted
from the construction of the roads, and the government also gains from the donation of the land supposed to be occupied by the
streets, made by its owner to the government.

ISSUE: Should incidental gains by the public be considered "public purpose" for the purpose of justifying an expenditure of the
government?

HELD: No. It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose. It
is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the
magnitude of the interest to be affected nor the degree to which the general advantage of the community, and thus the public welfare,
may be ultimately benefited by their promotion. Incidental to the public or to the state, which results from the promotion of private
interest and the prosperity of private enterprises or business, does not justify their aid by the use public money.
 The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public
interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve
the public
110 Phil. 331 – Political Law – Appropriation For Private Use Not Allowed
In 1953, Republic Act No. 920 was passed. This law appropriated P85,000.00 “for the construction, reconstruction, repair, extension
and improvement Pasig feeder road terminals”. Wenceslao Pascual, then governor of Rizal, assailed the validity of the law. He claimed
that the appropriation was actually going to be used for private use for the terminals sought to be improved were part of the Antonio
Subdivision. The said Subdivision is owned by Senator Jose Zulueta who was a member of the same Senate that passed and
approved the same RA. Pascual claimed that Zulueta misrepresented in Congress the fact that he owns those terminals and that his
property would be unlawfully enriched at the expense of the taxpayers if the said RA would be upheld. Pascual then prayed that the
Secretary of Public Works and Communications be restrained from releasing funds for such purpose. Zulueta, on the other hand,
perhaps as an afterthought, donated the said property to the City of Pasig.
ISSUE: Whether or not the appropriation is valid.
HELD: No, the appropriation is void for being an appropriation for a private purpose. The subsequent donation of the property to the
government to make the property public does not cure the constitutional defect. The fact that the law was passed when the said
property was still a private property cannot be ignored. “In accordance with the rule that the taxing power must be exercised for public
purposes only, money raised by taxation can be expanded only for public purposes and not for the advantage of private
individuals.” Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to Zulueta, the result
is that said appropriation sought a private purpose, and, hence, was null and void

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-10405 December 29, 1960

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-appellant,

vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees.

Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.

Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.:

Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing the above entitled case
and dissolving the writ of preliminary injunction therein issued, without costs.

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for declaratory relief, with
injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works", approved on June 20,
1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and
improvement" of Pasig feeder road terminals (Gen. Roxas — Gen. Araneta — Gen. Lucban — Gen. Capinpin — Gen. Segundo —
Gen. Delgado — Gen. Malvar — Gen. Lim)"; that, at the time of the passage and approval of said Act, the aforementioned feeder
roads were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . .
situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near Shaw Boulevard, not far
away from the intersection between the latter and Highway 54), which projected feeder roads "do not connect any government
property or any important premises to the main highway"; that the aforementioned Antonio Subdivision (as well as the lands on
which said feeder roads were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time of the
passage and approval of said Act, was a member of the Senate of the Philippines; that on May, 1953, respondent Zulueta,
addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the municipality of
Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the condition "that the donor would submit a
plan of the said roads and agree to change the names of two of them"; that no deed of donation in favor of the municipality of Pasig
was, however, executed; that on July 10, 1953, respondent Zulueta wrote another letter to said council, calling attention to the
approval of Republic Act. No. 920, and the sum of P85,000.00 appropriated therein for the construction of the projected feeder
roads in question; that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District Engineer of Rizal,
who, up to the present "has not made any endorsement thereon" that inasmuch as the projected feeder roads in question were
private property at the time of the passage and approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for
the construction, reconstruction, repair, extension and improvement of said projected feeder roads, was illegal and, therefore,
void ab initio"; that said appropriation of P85,000.00 was made by Congress because its members were made to believe that the
projected feeder roads in question were "public roads and not private streets of a private subdivision"'; that, "in order to give a
semblance of legality, when there is absolutely none, to the aforementioned appropriation", respondents Zulueta executed on
December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of donation — copy of which is
annexed to the petition — of the four (4) parcels of land constituting said projected feeder roads, in favor of the Government of the
Republic of the Philippines; that said alleged deed of donation was, on the same date, accepted by the then Executive Secretary;
that being subject to an onerous condition, said donation partook of the nature of a contract; that, such, said donation violated the
provision of our fundamental law prohibiting members of Congress from being directly or indirectly financially interested in any
contract with the Government, and, hence, is unconstitutional, as well as null and void ab initio, for the construction of the projected
feeder roads in question with public funds would greatly enhance or increase the value of the aforementioned subdivision of
respondent Zulueta, "aside from relieving him from the burden of constructing his subdivision streets or roads at his own expense";
that the construction of said projected feeder roads was then being undertaken by the Bureau of Public Highways; and that, unless
restrained by the court, the respondents would continue to execute, comply with, follow and implement the aforementioned illegal
provision of law, "to the irreparable damage, detriment and prejudice not only to the petitioner but to the Filipino nation."

Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the alleged deed of
donation of the feeder roads in question be "declared unconstitutional and, therefor, illegal"; that a writ of injunction be issued
enjoining the Secretary of Public Works and Communications, the Director of the Bureau of Public Works and Highways and Jose
C. Zulueta from ordering or allowing the continuance of the above-mentioned feeder roads project, and from making and securing
any new and further releases on the aforementioned item of Republic Act No. 920, and the disbursing officers of the Department of
Public Works and Highways from making any further payments out of said funds provided for in Republic Act No. 920; and that
pending final hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned parties respondent from
making and securing any new and further releases on the aforesaid item of Republic Act No. 920 and from making any further
payments out of said illegally appropriated funds.

Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that the petition did
"not state a cause of action". In support to this motion, respondent Zulueta alleged that the Provincial Fiscal of Rizal, not its
provincial governor, should represent the Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said
respondent is " not aware of any law which makes illegal the appropriation of public funds for the improvements of . . . private
property"; and that, the constitutional provision invoked by petitioner is inapplicable to the donation in question, the same being a
pure act of liberality, not a contract. The other respondents, in turn, maintained that petitioner could not assail the appropriation in
question because "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is necessarily involved" and
petitioner "has not shown that he has a personal and substantial interest" in said Act "and that its enforcement has caused or will
cause him a direct injury."

Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29, 1953, holding that,
since public interest is involved in this case, the Provincial Governor of Rizal and the provincial fiscal thereof who represents him
therein, "have the requisite personalities" to question the constitutionality of the disputed item of Republic Act No. 920; that "the
legislature is without power appropriate public revenues for anything but a public purpose", that the instructions and improvement of
the feeder roads in question, if such roads where private property, would not be a public purpose; that, being subject to the following
condition:

The within donation is hereby made upon the condition that the Government of the Republic of the Philippines will use the
parcels of land hereby donated for street purposes only and for no other purposes whatsoever; it being expressly
understood that should the Government of the Republic of the Philippines violate the condition hereby imposed upon it,
the title to the land hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C. ZULUETA.
(Emphasis supplied.)

which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden by the Constitution"
and consequently "illegal", for Article 1409 of the Civil Code of the Philippines, declares in existence and void from the very
beginning contracts "whose cause, objector purpose is contrary to law, morals . . . or public policy"; that the legality of said donation
may not be contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and that, accordingly,
the appropriation in question "should be upheld" and the case dismissed.

At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions to dismiss, which as
much, are deemed to have admitted hypothetically the allegations of fact made in the petition of appellant herein. According to said
petition, respondent Zulueta is the owner of several parcels of residential land situated in Pasig, Rizal, and known as the Antonio
Subdivision, certain portions of which had been reserved for the projected feeder roads aforementioned, which, admittedly, were
private property of said respondent when Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction,
repair, extension and improvement" of said roads, was passed by Congress, as well as when it was approved by the President on
June 20, 1953. The petition further alleges that the construction of said roads, to be undertaken with the aforementioned
appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of the burden of constructing his subdivision
streets or roads at his own expenses, 1and would "greatly enhance or increase the value of the subdivision" of said respondent. The
lower court held that under these circumstances, the appropriation in question was "clearly for a private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent Zulueta contended, in his
motion to dismiss that:

A law passed by Congress and approved by the President can never be illegal because Congress is the source of all laws
. . . Aside from the fact that movant is not aware of any law which makes illegal the appropriation of public funds for the
improvement of what we, in the meantime, may assume as private property . . . (Record on Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature of the Government established under
the Constitution of the Republic of the Philippines and the system of checks and balances underlying our political structure.
Moreover, it is refuted by the decisions of this Court invalidating legislative enactments deemed violative of the Constitution or
organic laws. 3

As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to Ruling Case Law, is this:

It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose. . . .
It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and
not the magnitude of the interest to be affected nor the degree to which the general advantage of the community, and thus
the public welfare, may be ultimately benefited by their promotion. Incidental to the public or to the state, which results
from the promotion of private interest and the prosperity of private enterprises or business, does not justify their aid by the
use public money. (25 R.L.C. pp. 398-400; Emphasis supplied.)

The rule is set forth in Corpus Juris Secundum in the following language:

In accordance with the rule that the taxing power must be exercised for public purposes only, discussed suprasec. 14,
money raised by taxation can be expended only for public purposes and not for the advantage of private individuals. (85
C.J.S. pp. 645-646; emphasis supplied.)

Explaining the reason underlying said rule, Corpus Juris Secundum states:

Generally, under the express or implied provisions of the constitution, public funds may be used only for public purpose.
The right of the legislature to appropriate funds is correlative with its right to tax, and, under constitutional provisions
against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof
to another purpose, no appropriation of state funds can be made for other than for a public purpose.

xxx xxx xxx

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote
the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals
might incidentally serve the public. (81 C.J.S. pp. 1147; emphasis supplied.)

Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound, are a necessary
corollary to our democratic system of government, which, as such, exists primarily for the promotion of the general welfare. Besides,
reflecting as they do, the established jurisprudence in the United States, after whose constitutional system ours has been patterned,
said views and jurisprudence are, likewise, part and parcel of our own constitutional law.lawphil.net

This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground that petitioner may
not contest the legality of the donation above referred to because the same does not affect him directly. This conclusion is,
presumably, based upon the following premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of the
aforementioned appropriation; (2) that the latter may not be annulled without a previous declaration of unconstitutionality of the said
donation; and (3) that the rule set forth in Article 1421 of the Civil Code is absolute, and admits of no exception. We do not agree
with these premises.

The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events occurring, or
acts performed, subsequently thereto, unless the latter consists of an amendment of the organic law, removing, with retrospective
operation, the constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for the projected feeder
roads in question, the legality thereof depended upon whether said roads were public or private property when the bill, which, latter
on, became Republic Act 920, was passed by Congress, or, when said bill was approved by the President and the disbursement of
said sum became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which the projected feeder
roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose,
and hence, was null and void. 4 The donation to the Government, over five (5) months after the approval and effectivity of said Act,
made, according to the petition, for the purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did
not cure its aforementioned basic defect. Consequently, a judicial nullification of said donation need not precede the declaration of
unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For instance, the creditors of a
party to an illegal contract may, under the conditions set forth in Article 1177 of said Code, exercise the rights and actions of the
latter, except only those which are inherent in his person, including therefore, his right to the annulment of said contract, even
though such creditors are not affected by the same, except indirectly, in the manner indicated in said legal provision.

Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in consequence of
its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws providing for the disbursement of public
funds, 5upon the theory that "the expenditure of public funds by an officer of the State for the purpose of administering
an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the request of a taxpayer. 6Although
there are some decisions to the contrary, 7the prevailing view in the United States is stated in the American Jurisprudence as
follows:

In the determination of the degree of interest essential to give the requisite standing to attack the constitutionality of a
statute, the general rule is that not only persons individually affected, but also taxpayers, have sufficient interest in
preventing the illegal expenditure of moneys raised by taxation and may therefore question the constitutionality of statutes
requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)

However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S. 447), insofar
as federal laws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to its Federal Government is different
from that of a taxpayer of a municipal corporation to its government. Indeed, under the composite system of government existing in
the U.S., the states of the Union are integral part of the Federation from an international viewpoint, but, each state enjoys internally
a substantial measure of sovereignty, subject to the limitations imposed by the Federal Constitution. In fact, the same was made by
representatives of each state of the Union, not of the people of the U.S., except insofar as the former represented the people of the
respective States, and the people of each State has, independently of that of the others, ratified said Constitution. In other words,
the Federal Constitution and the Federal statutes have become binding upon the people of the U.S. in consequence of an act of,
and, in this sense, through the respective states of the Union of which they are citizens. The peculiar nature of the relation between
said people and the Federal Government of the U.S. is reflected in the election of its President, who is chosen directly, not by the
people of the U.S., but by electors chosen by each State, in such manner as the legislature thereof may direct (Article II, section 2,
of the Federal Constitution).lawphi1.net

The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of the Philippines, on the
other, is not identical to that obtaining between the people and taxpayers of the U.S. and its Federal Government. It is closer, from a
domestic viewpoint, to that existing between the people and taxpayers of each state and the government thereof, except that the
authority of the Republic of the Philippines over the people of the Philippines is more fully direct than that of the states of the Union,
insofar as the simple and unitary type of our national government is not subject to limitations analogous to those imposed by the
Federal Constitution upon the states of the Union, and those imposed upon the Federal Government in the interest of the Union. For
this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating local or state public
funds — which has been upheld by the Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) — has greater application in
the Philippines than that adopted with respect to acts of Congress of the United States appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the Province of Tayabas, two
(2) taxpayers thereof were allowed to intervene for the purpose of contesting the price being paid to the owner thereof, as unduly
exorbitant. It is true that in Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government
was not permitted to question the constitutionality of an appropriation for backpay of members of Congress. However, in
Rodriguez vs. Treasurer of the Philippines and Barredo vs.Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we
entertained the action of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the same.
Moreover, the reason that impelled this Court to take such position in said two (2) cases — the importance of the issues therein
raised — is present in the case at bar. Again, like the petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely
a taxpayer. The Province of Rizal, which he represents officially as its Provincial Governor, is our most populated political
subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, in the Philippines.

Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioners action in contesting
the appropriation and donation in question; that this action should not have been dismissed by the lower court; and that the writ of
preliminary injunction should have been maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court for further proceedings
not inconsistent with this decision, with the costs of this instance against respondent Jose C. Zulueta. It is so ordered.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David, Paredes, and Dizon, JJ., concur.

GASTON v. REPUBLIC PLANTERS BANK (1988)

Melencio-Herrera, J.Other respondents:

Phil Sugar Commission (PhilSuCom)- formerly the gov

’
t office that regulates the sugar industry.

Sugar Regulatory Cadmin (SRA)- superceded PhilSuCom under EO 18 (abolished PhilSuCom but existence ofPhilSuCom was to
continue for 3 more yrs for the purpose of prosecuting and defending suits)FACTS:

Petitioners are sugar producers, planters and millers. They, in their individual capacities and in representation of otherssugar
producers, planters, and millers (bec they are numerous that it is impracticable to bring them all to court althoughthe subject matter
of the controversy is of common interest to all of them whether parties in the action or not)
(so, classsuit?)
pray for a writ of mandamus:
“
to implement the privatization of Republic Planters Bank by the distribution of theshares of stock in the Bank (now still held in the
name of the Philippine Sugar Commission), to the sugar producers,planters, and millers, who are the true beneficial owners of the
common and preferred shares with a total investment ofP290mil, the investment funded by the deduction of P1.00 per picul from
sugar proceeds of the sugar producers.
o
The deduction started in 1978, as a Stabilization Fund, pursuant to PD 388.

Respondent Bank does not take issue with petitioners because it has no interest to be affected by the ruling. It welcomesthe
Petition since it will finally settle the issue of legal ownership of the shares of stock.

However, other respondents

’
arguments:
o
That no trust (
funds in trust for them
) results from Sec 7 of PD 388;
o
That the stabilization fees collected are considered government funds under the Government Auditing Code;
o
That the transfer of shares of stock from PhilSuCom to the sugar producers would be irregular, if not illegal
o
That the suit is barred by laches.ISSUES:

Accdg to the case, the SolGen aptly summarized the basic issues:1. Whether the stabilization fees collected pursuant to PD 388
are funds in trust for them or public funds2. Whether shares of stock in the Bank paid for with the stabilization fees belong to
PhilSuCom or to the diff sugarplanters/millersHELD:1. Not in trust for
them, they are public funds.2. They belong to PhilSuComRATIO:
General rule: Presumptive trust arises where, and only where, such may be reasonably presumed to be the intention of
theparties

Sec 7 of PD 388 does provide that the stabilization fees collected "shall be administered in trust by the Commission."However, a
resulting trust in the petitioners
’
favor cannot be said to have ensued because the presumptive intention of theparties is
not reasonably ascertainable from the language of the statute
.

The
doctrine of resulting trusts is founded on the presumed intention of the parties
; and as a
general rule
, it ariseswhere, and only where, such may be reasonably presumed to be the intention of the parties, as determined from the
factsand circumstances existing at the time of the transaction out of which it is sought to be established.
No implied trust can be deduced from the imposition of the levy.

The essential idea of an implied trust involves a certain antagonism between the cestui que trust and the trustee evenwhen the trust
has not arisen out of fraud or any transaction of a fraudulent or immoral character.

It is not shown from the statute itself that PhilSuCom imposed on itself the obligation of holding the stabilization fund forthe benefit
of the sugar producers.

It must be categorically demonstrated that the very administrative agency which is the source of such regulation wouldplace a
burden on itself.
Petitioners use the history of the Bank as a basis for the creation of the trust.
Petitioners cannot rely on the history of theBank.
They say that at the beginning, the Bank was owned by the Roman-Rojas Group. Because it underwent difficulties early1978,
Benedicto, then Chairman of PhilSuCom, proposed to the Central Bank for the rehabilitation of the Bank.

The Central Bank agreed, subject to the infusion of fresh capital by the Benedicto Group.

Petitioners say that this infusion of capital was accomplished, not by Benedicto, but by PhilSuCom, which set aside theproceeds of
the P1.00 per picul stabilization fund to pay for its subscription in shares of stock of the Bank.

Petitioners argue that all shares were placed in PhilSuCom

’
s name only out of convenience and necessity and that theyare the true and beneficial owners.

SC says: That could have been clarified by the Trust Agreement between PhilSuCom (as "Trustor") and the Bank (as"Trustee") by
stating there that PhilSuCom holds the shares for and in behalf of the sugar producers, the sugar prducers"being the true and
beneficial owners."

The Agreement, however, did not get off the ground because it failed to receive the approval of the PhilSuCom
Board ofCommissioners.

d2015member

Neither did the SRA approve the Agreement.

SC agrees with opinion of the Commission on Audit that PhilSuCom owns the stocks.
Fees collected are in the nature of a tax.

The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for thepromotion of the
sugar industry (
Lutz vs. Araneta)

They constitute sugar liens (Sec. 7[b], PD 388).

The collections accrue to a "Special Fund," a "Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and
Stabilization Fund.
”

The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to providemeans for
the stabilization of the sugar industry.
The levy is primarily in the exercise of the police power of the State(Lutz vs. Araneta).

The protection of a large industry constituting one of the great sources of the state's wealth and therefore affecting thewelfare of a
great portion of the population is affected to such an extent by public interests as to be within the police powerof the sovereign.

The stabilization fees are levied by the State upon sugar millers, planters, and producers for a special purpose
—
that of"financing the growth and development of the sugar industry and all its components, stabilization of the domestic
marketincluding the foreign market the fact that the State has taken possession of moneys pursuant to law is sufficient toconstitute
them state funds, even though they are held for a special purpose.

Levied for a special purpose, the revenues are to be treated as a special fund to be
“
administered in trust
”
(PD 388) forthe purpose intended. Once the purpose has been fulfilled or abandoned, the balance, is to be transferred to the
generalfunds of the Government. That is the essence of the trust intended.
Stabilization fund is a special fund.

This is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the PhilippineTreasury,
moneys from which may be paid out only in pursuance of an appropriation made by law (1987 Consti, Art VI,Sec. 29(1)]
 That the fees were collected from them and were used to the purchase of shares of stock in the Bank do not convert thefunds into a
trust for their benefit nor make them the beneficial owners of the shares bought.

It is only rational that the fees be collected from them since it is also they who are to be benefited from the expenditure ofthe funds
derived from it.

Also, 1/2 of the amount levied is to be utilized for the "payment of salaries and wages of personnel of PHILSUCOM"thereby
immediately negating the claim that the entire amount levied is in trust for sugar producers, planters. and millers.To rule in
petitioners' favor would contravene the general principle that revenues derived from taxes cannot be used for purelyprivate
purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the entiresugar
industry including the foreign market, the industry being of vital importance to the country's economy and to national interest.
Writ of Mandamus denied, Petition dismissed

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-77194 March 15, 1988
VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR VILLANUEVA, JOSE ABELLO, REMO RAMOS,
CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER LACSON, TITO TAGARAO, EDUARDO SUATENGCO,
AUGUSTO LLAMAS, RODOLFO SIASON, PACIFICO MAGHARI, JR., JOSE JAMANDRE, AURELIO GAMBOA, ET
AL., petitioners,
vs.
REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR REGULATORY ADMINISTRATION,
respondents, ANGEL H. SEVERINO, JR., GLICERIO JAVELLANA, GLORIA P. DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and
NATIONAL FEDERATION OF SUGARCANE PLANTERS, intervenors.

MELENCIO-HERRERA, J.:
Petitioners are sugar producers, sugarcane planters and millers, who have come to this Court in their individual capacities and in
representation of other sugar producers, planters and millers, said to be so numerous that it is impracticable to bring them all before
the Court although the subject matter of the present controversy is of common interest to all sugar producers, whether parties in this
action or not.
Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the government office tasked with the function of
regulating and supervising the sugar industry until it was superseded by its co-respondent Sugar Regulatory Administration (SRA,
for brevity) under Executive Order No. 18 on May 28, 1986. Although said Executive Order abolished the PHILSUCOM, its
existence as a juridical entity was mandated to continue for three (3) more years "for the purpose of prosecuting and defending suits
by or against it and enables it to settle and close its affairs, to dispose of and convey its property and to distribute its assets."
Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking corporation.
Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their sugarcane in different mill districts of Negros
Occidental, were allowed to intervene by the Court, since they have common cause with petitioners and respondents having
interposed no objection to their intervention. Subsequently, on January 14,1988, the National Federation of Sugar Planters (NFSP)
also moved to intervene, which the Court allowed on February 16,1988.
Petitioners and Intervenors have come to this Court praying for a Writ of mandamus commanding respondents:
TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC PLANTERS BANK BY THE
TRANSFER AND DISTRIBUTION OF THE SHARES OF STOCK IN THE SAID BANK; NOW HELD BY AND
STILL CARRIED IN THE NAME OF THE PHILIPPINE SUGAR COMMISSION, TO THE SUGAR
PRODUCERS, PLANTERS AND MILLERS, WHO ARE THE TRUE BENEFICIAL OWNERS OF THE 761,416
COMMON SHARES VALUED AT P36,548.000.00, AND 53,005,045 PREFERRED SHARES (A, B & C) WITH
A TOTAL PAR VALUE OF P254,424,224.72, OR A TOTAL INVESTMENT OF P290,972,224.72, THE SAID
INVESTMENT HAVING BEEN FUNDED BY THE DEDUCTION OF Pl.00 PER PICUL FROM SUGAR
PROCEEDS OF THE SUGAR PRODUCERS COMMENCING THE YEAR 1978-79 UNTIL THE PRESENT AS
STABILIZATION FUND PURSUANT TO P.D. # 388.
Respondent Bank does not take issue with either petitioners or its correspondents as it has no beneficial or equitable interest that
may be affected by the ruling in this Petition, but welcomes the filing of the Petition since it will settle finally the issue of legal
ownership of the questioned shares of stock.
Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition arguing that no trust results from Section 7 of P.D.
No. 388; that the stabilization fees collected are considered government funds under the Government Auditing Code; that the
transfer of shares of stock from PHILSUCOM to the sugar producers would be irregular, if not illegal; and that this suit is barred by
laches.
The Solicitor General aptly summarizes the basic issues thus: (1) whether the stabilization fees collected from sugar planters and
millers pursuant to Section 7 of P.D. No. 388 are funds in trust for them, or public funds; and (2) whether shares of stock in
respondent Bank paid for with said stabilization fees belong to the PHILSUCOM or to the different sugar planters and millers from
whom the fees were collected or levied.
P. D. No. 388, promulgated on February 2,1974, which created the PHILSUCOM, provided for the collection of a Stabilization Fund
as follows:
SEC. 7. Capitalization, Special Fund of the Commission, Development and Stabilization Fund. — There is
hereby established a fund for the commission for the purpose of financing the growth and development of the
sugar industry and all its components, stabilization of the domestic market including the foreign market to
be administered in trust by the Commission and deposited in the Philippine National Bank derived in the
manner herein below cited from the following sources:
 a. Stabilization fund shall be collected as provided for in the various provisions of this Decree.
b. Stabilization fees shall be collected from planters and millers in the amount of Two (P2.00) Pesos for every
picul produced and milled for a period of five years from the approval of this Decree and One (Pl.00) Peso for
every picul produced and milled every year thereafter.
Provided: That fifty (P0.50) centavos per picul of the amount levied on planters, millers and traders under
Section 4(c) of this Decree will be used for the payment of salaries and wages of personnel, fringe benefits and
allowances of officers and employees for the purpose of accomplishing and employees for the purpose of
accomplishing the efficient performance of the duties of the Commission.
Provided, further: That said amount shall constitute a lien on the sugar quedan and/or warehouse receipts and
shall be paid immediately by the planters and mill companies, sugar centrals and refineries to the Commission.
(paragraphing and bold supplied).
Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be administered in trust by the Commission."
However, while the element of an intent to create a trust is present, a resulting trust in favor of the sugar producers, millers and
planters cannot be said to have ensued because the presumptive intention of the parties is not reasonably ascertainable from the
language of the statute itself.
The doctrine of resulting trusts is founded on the presumed intention of the parties; and as a general rule, it
arises where, and only where such may be reasonably presumed to be the intention of the parties, as
determined from the facts and circumstances existing at the time of the transaction out of which it is sought to
be established (89 C.J.S. 947).
No implied trust in favor of the sugar producers either can be deduced from the imposition of the levy. "The essential Idea of an
implied trust involves a certain antagonism between the cestui que trust and the trustee even when the trust has not arisen out of
fraud nor out of any transaction of a fraudulent or immoral character (65 CJ 222). It is not clearly shown from the statute itself that
the PHILSUCOM imposed on itself the obligation of holding the stabilization fund for the benefit of the sugar producers. It must be
categorically demonstrated that the very administrative agency which is the source of such regulation would place a burden on itself
(Batchelder v. Central Bank of the Philippines, L-25071, July 29,1972,46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640
[1954]).
Neither can petitioners place reliance on the history of respondents Bank. They recite that at the beginning, the Bank was owned by
the Roman-Rojas Group. Because it underwent difficulties early in the year 1978, Mr. Roberto S. Benedicto, then Chairman of the
PHILSUCOM, submitted a proposal to the Central Bank for the rehabilitation of the Bank. The Central Bank acted favorably on the
proposal at the meeting of the Monetary Board on March 31, 1978 subject to the infusion of fresh capital by the Benedicto Group.
Petitioners maintain that this infusion of fresh capital was accomplished, not by any capital investment by Mr. Benedicto, but by
PHILSUCOM, which set aside the proceeds of the P1.00 per picul stabilization fund to pay for its subscription in shares of stock of
respondent Bank. It is petitioners' submission that all shares were placed in PHILSUCOM's name only out of convenience and
necessity and that they are the true and beneficial owners thereof.
In point of fact, we cannot see our way clear to upholding petitioners' position that the investment of the proceeds from the
stabilization fund in subscriptions to the capital stock of the Bank were being made for and on their behalf. That could have been
clarified by the Trust Agreement, dated May 28, 1986, entered into between PHILSUCOM, as "Trustor" acting through Mr. Fred J.
Elizalde as Officer-in-Charge, and respondent RPB- Trust Department' as "Trustee," acknowledging that PHILSUCOM holds said
shares for and in behalf of the sugar producers," the latter "being the true and beneficial owners thereof." The Agreement, however,
did not get off the ground because it failed to receive the approval of the PHILSUCOM Board of Commissioners as required in the
Agreement itself.
The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of the adverse opinion of the SRA, Resident
Auditor, dated June 25,1986, which was aimed by the Chairman of the Commission on Audit, on January 26,1987.
On February 19, 1987, the SRA, resolved to revoke the Trust Agreement "in the light of the ruling of the Commission on Audit that
the aforementioned Agreement is of doubtful validity."
From the legal standpoint, we find basis for the opinion of the Commission on Audit reading:
That the government, PHILSUCOM or its successor-in-interest, Sugar Regulatory Administration, in particular,
owns and stocks. While it is true that the collected stabilization fees were set aside by PHILSUCOM to pay its
subscription to RPB, it did not collect said fees for the account of the sugar producers. That stabilization fees
are charges/levies on sugar produced and milled which accrued to PHILSUCOM under PD 338, as amended. ...
The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the
sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to
a "Special Fund," a "Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization Fund"
created under Section 6 of Commonwealth Act 567. 1 The tax collected is not in a pure exercise of the taxing power. It is levied with
a regulatory purpose, to provide means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police
power of the State (Lutz vs. Araneta, supra.).
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. (Johnson vs. State ex rel. Marey,
128 So. 857, cited in Lutz vs. Araneta, supra).
The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose — that of
"financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including
the foreign market the fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state
funds, even though they are held for a special purpose (Lawrence vs. American Surety Co., 263 Mich 586, 249 ALR 535, cited in 42
Am. Jur. Sec. 2, p. 718). Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be,
in the language of the statute, "administered in trust' for the purpose intended. Once the purpose has been fulfilled or abandoned,
the balance, if any, is to be transferred to the general funds of the Government. That is the essence of the trust intended (See 1987
Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution, Article VI, Sec. 23(l]). 2
The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited in the Philippine
National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made
by law (1987) Constitution, Article VI, Sec. 29[1],1973 Constitution, Article VIII, Sec. 18[l]).
That the fees were collected from sugar producers, planters and millers, and that the funds were channeled to the purchase of
shares of stock in respondent Bank do not convert the funds into a trust fired for their benefit nor make them the beneficial owners of
the shares so purchased. It is but rational that the fees be collected from them since it is also they who are to be benefited from the
expenditure of the funds derived from it. The investment in shares of respondent Bank is not alien to the purpose intended because
of the Bank's character as a commodity bank for sugar conceived for the industry's growth and development. Furthermore, of note is
the fact that one-half, (1/2) or PO.50 per picul, of the amount levied under P.D. No. 388 is to be utilized for the "payment of salaries
and wages of personnel, fringe benefits and allowances of officers and employees of PHILSUCOM" thereby immediately negating
the claim that the entire amount levied is in trust for sugar, producers, planters and millers.
To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot be used for purely
private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the entire
sugar industry, "and all its components, stabilization of the domestic market," including the foreign market the industry being of vital
importance to the country's economy and to national interest.
WHEREFORE, the Writ of mandamus is denied and the Petition hereby dismissed. No costs.
This Decision is immediately executory.
SO ORDERED.
Teehankee, C.J., Yap, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Cortes and Griño-
Aquino, JJ., concur.
Fernan, J., took no part.