[G.R. No. 119286.

October 13, 2004]

PASEO REALTY & DEVELOPMENT CORPORATION, petitioner, vs. COURT OF

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

DECISION
TINGA, J.:

The changes in the reportorial requirements and payment schedules of corporate

income taxes from annual to quarterly have created problems, especially on the matter
of tax refunds. In this case, the Court is called to resolve the question of whether
[1]

alleged excess taxes paid by a corporation during a taxable year should be refunded or
credited against its tax liabilities for the succeeding year.
Paseo Realty and Development Corporation, a domestic corporation engaged in the
lease of two (2) parcels of land at Paseo de Roxas in Makati City, seeks a review of
the Decision of the Court of Appeals dismissing its petition for review of the
[2]

resolution of the Court of Tax Appeals (CTA) which, in turn, denied its claim for refund.
[3]

The factual antecedents are as follows:

[4]

On April 16, 1990, petitioner filed its Income Tax Return for the calendar year 1989 declaring a
gross income of P1,855,000.00, deductions of P1,775,991.00, net income of P79,009.00, an
income tax due thereon in the amount of P27,653.00, prior years excess credit of P146,026.00,
and creditable taxes withheld in 1989 of P54,104.00 or a total tax credit of P200,130.00 and
credit balance of P172,477.00.

On November 14, 1991, petitioner filed with respondent a claim for the refund of excess
creditable withholding and income taxes for the years 1989 and 1990 in the aggregate amount
of P147,036.15.

On December 27, 1991 alleging that the prescriptive period for refunds for 1989 would expire on
December 30, 1991 and that it was necessary to interrupt the prescriptive period, petitioner filed
with the respondent Court of Tax Appeals a petition for review praying for the refund
of P54,104.00 representing creditable taxes withheld from income payments of petitioner for the
calendar year ending December 31, 1989.

On February 25, 1992, respondent Commissioner filed an Answer and by way of special and/or
affirmative defenses averred the following: a) the petition states no cause of action for failure to
allege the dates when the taxes sought to be refunded were paid; b) petitioners claim for refund is
still under investigation by respondent Commissioner; c) the taxes claimed are deemed to have
been paid and collected in accordance with law and existing pertinent rules and regulations; d)
petitioner failed to allege that it is entitled to the refund or deductions claimed; e) petitioners
contention that it has available tax credit for the current and prior year is gratuitous and does
not ipso facto warrant the refund; f) petitioner failed to show that it has complied with the
provision of Section 230 in relation to Section 204 of the Tax Code.

After trial, the respondent Court rendered a decision ordering respondent Commissioner to
refund in favor of petitioner the amount of P54,104.00, representing excess creditable
withholding taxes paid for January to July1989.

Respondent Commissioner moved for reconsideration of the decision, alleging that

the P54,104.00 ordered to be refunded has already been included and is part and parcel of
the P172,477.00 which petitioner automatically applied as tax credit for the succeeding taxable
year 1990.

In a resolution dated October 21, 1993 Respondent Court reconsidered its decision of July 29,
1993 and dismissed the petition for review, stating that it has overlooked the fact that the
petitioners 1989 Corporate Income Tax Return (Exh. A) indicated that the amount of P54,104.00
subject of petitioners claim for refund has already been included as part and parcel of
the P172,477.00 which the petitioner automatically applied as tax credit for the succeeding
taxable year 1990.

Petitioner filed a Motion for Reconsideration which was denied by respondent Court on March
10, 1994. [5]

Petitioner filed a Petition for Review dated April 3, 1994 with the Court of Appeals.
[6]

Resolving the twin issues of whether petitioner is entitled to a refund of P54,104.00

representing creditable taxes withheld in 1989 and whether petitioner applied such
creditable taxes withheld to its 1990 income tax liability, the appellate court held that
petitioner is not entitled to a refund because it had already elected to apply the total
amount of P172,447.00, which includes the P54,104.00 refund claimed, against its
income tax liability for 1990. The appellate court elucidated on the reason for its
dismissal of petitioners claim for refund, thus:

In the instant case, it appears that when petitioner filed its income tax return for the year 1989, it
filled up the box stating that the total amount of P172,477.00 shall be applied against its income
tax liabilities for the succeeding taxable year.

Petitioner did not specify in its return the amount to be refunded and the amount to be applied as
tax credit to the succeeding taxable year, but merely marked an x to the box indicating to be
applied as tax credit to the succeeding taxable year. Unlike what petitioner had done when it filed
its income tax return for the year 1988, it specifically stated that out of the P146,026.00 the entire
refundable amount, only P64,623.00 will be made available as tax credit, while the amount
of P81,403.00 will be refunded.

In its 1989 income tax return, petitioner filled up the box to be applied as tax credit to succeeding
taxable year, which signified that instead of refund, petitioner will apply the total amount
of P172,447.00, which includes the amount of P54,104.00 sought to be refunded, as tax credit for
its tax liabilities in 1990. Thus, there is really nothing left to be refunded to petitioner for the year
1989. To grant petitioners claim for refund is tantamount to granting twice the refund herein
sought to be refunded, to the prejudice of the Government.

The Court of Appeals denied petitioners Motion for Reconsideration dated [7]

November 8, 1994 in its Resolution dated February 21, 1995 because the motion
[8]

merely restated the grounds which have already been considered and passed upon in
its Decision. [9]

Petitioner thus filed the instant Petition for Review dated April 14, 1995 arguing that
[10]

the evidence presented before the lower courts conclusively shows that it did not apply
the P54,104.00 to its 1990 income tax liability; that the Decision subject of the instant
petition is inconsistent with a final decision of the Sixteenth Division of the appellate
[11]

court in C.A.-G.R. Sp. No. 32890 involving the same parties and subject matter; and
that the affirmation of the questioned Decision would lead to absurd results in the
manner of claiming refunds or in the application of prior years excess tax credits.
The Office of the Solicitor General (OSG) filed a Comment dated May 16, 1996 on
[12]

behalf of respondents asserting that the claimed refund of P54,104.00 was, by

petitioners election in its Corporate Annual Income Tax Return for 1989, to be applied
against its tax liability for 1990. Not having submitted its tax return for 1990 to show
whether the said amount was indeed applied against its tax liability for 1990, petitioners
election in its tax return stands. The OSG also contends that petitioners election to
apply its overpaid income tax as tax credit against its tax liabilities for the succeeding
taxable year is mandatory and irrevocable.
On September 2, 1997, petitioner filed a Reply dated August 31, 1996 insisting that
[13]

the issue in this case is not whether the amount of P54,104.00 was included as tax
credit to be applied against its 1990 income tax liability but whether the same amount
was actually applied as tax credit for 1990. Petitioner claims that there is no need to
show that the amount of P54,104.00 had not been automatically applied against its
1990 income tax liability because the appellate courts decision in C.A.-G.R. Sp. No.
32890 clearly held that petitioner charged its 1990 income tax liability against its tax
credit for 1988 and not 1989. Petitioner also disputes the OSGs assertion that the
taxpayers election as to the application of excess taxes is irrevocable averring that there
is nothing in the law that prohibits a taxpayer from changing its mind especially if
subsequent events leave the latter no choice but to change its election.
The OSG filed a Rejoinder dated March 5, 1997 stating that petitioners 1988 tax
[14]

return shows a prior years excess credit of P81,403.00, creditable tax withheld
of P92,750.00 and tax due of P27,127.00. Petitioner indicated that the prior years
excess credit of P81,403.00 was to be refunded, while the remaining amount
of P64,623.00 (P92,750.00 - P27,127.00) shall be considered as tax credit for 1989.
However, in its 1989 tax return, petitioner included the P81,403.00 which had already
been segregated for refund in the computation of its excess credit, and specified that
the full amount of P172,479.00 (P81,403.00 + P64,623.00 + P54,104.00 - P27,653.00 )
 ** ***
be considered as its tax credit for 1990. Considering that it had obtained a favorable
ruling for the refund of its excess credit for 1988 in CA-G.R. SP. No. 32890, its
remaining tax credit for 1989 should be the excess credit to be applied against its 1990
tax liability. In fine, the OSG argues that by its own election, petitioner can no longer ask
for a refund of its creditable taxes withheld in 1989 as the same had been applied
against its 1990 tax due.
In its Resolution dated July 16, 1997, the Court gave due course to the petition and
[15]

required the parties to simultaneously file their respective memoranda within 30 days
from notice. In compliance with this directive, petitioner submitted
its Memorandum dated September 18, 1997 in due time, while the OSG filed
[16]

its Memorandum dated April 27, 1998 only on April 29, 1998 after several extensions.
[17]

The petition must be denied.

As a matter of principle, it is not advisable for this Court to set aside the conclusion
reached by an agency such as the CTA which is, by the very nature of its functions,
dedicated exclusively to the study and consideration of tax problems and has
necessarily developed an expertise on the subject, unless there has been an abuse or
improvident exercise of its authority. [18]

This interdiction finds particular application in this case since the CTA, after careful
consideration of the merits of the Commissioner of Internal Revenues motion for
reconsideration, reconsidered its earlier decision which ordered the latter to refund the
amount of P54,104.00 to petitioner. Its resolution cannot be successfully assailed based,
as it is, on the pertinent laws as applied to the facts.
Petitioners 1989 tax return indicates an aggregate creditable tax of P172,477.00,
representing its 1988 excess credit of P146,026.00 and 1989 creditable tax
of P54,104.00 less tax due for 1989, which it elected to apply as tax credit for the
succeeding taxable year. According to petitioner, it successively utilized this amount
[19]

when it obtained refunds in CTA Case No. 4439 (C.A.-G.R. Sp. No. 32300) and CTA
Case No. 4528 (C.A.-G.R. Sp. No. 32890), and applied its 1990 tax liability, leaving a
balance of P54,104.00, the amount subject of the instant claim for
refund. Represented mathematically, petitioner accounts for its claim in this wise:
[20]

P172,477.00 Amount indicated in petitioners 1989 tax return to be applied as tax credit for the
succeeding taxable year

- 25,623.00 Claim for refund in CTA Case No. 4439 (C.A.-G.R. Sp. No. 32300)

P146,854.00 Balance as of April 16, 1990

- 59,510.00 Claim for refund in CTA Case No. 4528 (C.A.-G.R. Sp. No. 32890)

P87,344.00 Balance as of January 2, 1991

- 33,240.00 Income tax liability for calendar year 1990 applied as of April 15, 1991
 P54,104.00 Balance as of April 15, 1991 now subject of the instant claim for refund [21]

Other than its own bare allegations, however, petitioner offers no proof to the effect
that its creditable tax of P172,477.00 was applied as claimed above. Instead, it anchors
its assertion of entitlement to refund on an alleged finding in C.A.-G.R. Sp. No.
32890 involving the same parties to the effect that petitioner charged its 1990 income
[22]

tax liability to its tax credit for 1988 and not its 1989 tax credit. Hence, its excess
creditable taxes withheld of P54,104.00 for 1989 was left untouched and may be
refunded.
Note should be taken, however, that nowhere in the case referred to by petitioner
did the Court of Appeals make a categorical determination that petitioners tax liability for
1990 was applied against its 1988 tax credit. The statement adverted to by petitioner
was actually presented in the appellate courts decision in CA-G.R. Sp No. 32890 as part
of petitioners own narration of facts. The pertinent portion of the decision reads:

It would appear from petitioners submission as follows:

xxx since it has already applied to its prior years excess credit of P81,403.00 (which petitioner
wanted refunded when it filed its 1988 Income Tax Return on April 14, 1989) the income tax
liability for 1988 of P28,127.00 and the income tax liability for 1989 of P27,653.00, leaving a
balance refundable of P25,623.00 subject of C.T.A. Case No. 4439, the P92,750.00 (P64,623.00
plus P28,127.00, since this second amount was already applied to the amount refundable
of P81,403.00) should be the refundable amount. But since the taxpayer again used part of it to
satisfy its income tax liability of P33,240.00 for 1990, the amount refundable was P59,510.00,
which is the amount prayed for in the claim for refund and also in the petitioner (sic) for review.

That the present claim for refund already consolidates its claims for refund for 1988, 1989, and
1990, when it filed a claim for refund of P59,510.00 in this case (CTA Case No. 4528). Hence,
the present claim should be resolved together with the previous claims. [23]

The confusion as to petitioners entitlement to a refund could altogether have been

avoided had it presented its tax return for 1990. Such return would have shown whether
petitioner actually applied its 1989 tax credit of P172,477.00, which includes
the P54,104.00 creditable taxes withheld for 1989 subject of the instant claim for refund,
against its 1990 tax liability as it had elected in its 1989 return, or at least, whether
petitioners tax credit of P172,477.00 was applied to its approved refunds as it claims.
The return would also have shown whether there remained an excess credit
refundable to petitioner after deducting its tax liability for 1990. As it is, we only have
petitioners allegation that its tax due for 1990 was P33,240.00 and that this was applied
against its remaining tax credits using its own first in, first out method of computation.
It would have been different had petitioner not included the P54,104.00 creditable
taxes for 1989 in the total amount it elected to apply against its 1990 tax liabilities. Then,
all that would have been required of petitioner are: proof that it filed a claim for refund
within the two (2)-year prescriptive period provided under Section 230 of the NIRC;
evidence that the income upon which the taxes were withheld was included in its return;
and to establish the fact of withholding by a copy of the statement (BIR Form No. 1743.1)
issued by the payor to the payee showing the amount paid and the amount of tax
[24]

withheld therefrom. However, since petitioner opted to apply its aggregate excess
credits as tax credit for 1990, it was incumbent upon it to present its tax return for 1990
to show that the claimed refund had not been automatically credited and applied to its
1990 tax liabilities.
The grant of a refund is founded on the assumption that the tax return is
valid, i.e., that the facts stated therein are true and correct. Without the tax return, it is
[25]

error to grant a refund since it would be virtually impossible to determine whether the
proper taxes have been assessed and paid.
Why petitioner failed to present such a vital piece of evidence confounds the Court.
Petitioner could very well have attached a copy of its final adjustment return for 1990
when it filed its claim for refund on November 13, 1991. Annex B of its Petition for
Review dated December 26, 1991 filed with the CTA, in fact, states that its annual tax
[26]

return for 1990 was submitted in support of its claim. Yet, petitioners tax return for 1990
is nowhere to be found in the records of this case.
Had petitioner presented its 1990 tax return in refutation of respondent
Commissioners allegation that it did not present evidence to prove that its claimed
refund had already been automatically credited against its 1990 tax liability, the CTA
would not have reconsidered its earlier Decision. As it is, the absence of petitioners
1990 tax return was the principal basis of the CTAs Resolution reconsidering its
earlier Decision to grant petitioners claim for refund.
Petitioner could even still have attached a copy of its 1990 tax return to its petition
for review before the Court of Appeals. The appellate court, being a trier of facts, is
authorized to receive it in evidence and would likely have taken it into account in its
disposition of the petition.
In BPI-Family Savings Bank v. Court of Appeals, although petitioner failed to
[27]

present its 1990 tax return, it presented other evidence to prove its claim that it did not
apply and could not have applied the amount in dispute as tax credit. Importantly,
petitioner therein attached a copy of its final adjustment return for 1990 to its motion for
reconsideration before the CTA buttressing its claim that it incurred a net loss and is
thus entitled to refund. Considering this fact, the Court held that there is no reason for
the BIR to withhold the tax refund.
In this case, petitioners failure to present sufficient evidence to prove its claim for
refund is fatal to its cause. After all, it is axiomatic that a claimant has the burden of
proof to establish the factual basis of his or her claim for tax credit or refund. Tax
refunds, like tax exemptions, are construed strictly against the taxpayer. [28]

Section 69, Chapter IX, Title II of the National Internal Revenue Code of the
Philippines (NIRC) provides:
Sec. 69. Final Adjustment Return.Every corporation liable to tax under Section 24 shall file a
final adjustment return covering the total net income for the preceding calendar or fiscal year. If
the sum of the quarterly tax payments made during the said taxable year is not equal to the total
tax due on the entire taxable net income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income
taxes paid, the refundable amount shown on its final adjustment return may be credited
against the estimated quarterly income tax liabilities for the taxable quarters of the
succeeding taxable year. [Emphasis supplied]

Revenue Regulation No. 10-77 of the Bureau of Internal Revenue clarifies:

SEC. 7. Filing of final or adjustment return and final payment of income tax. A final or an
adjustment return on B.I.R. Form No. 1702 covering the total taxable income of the corporation
for the preceding calendar or fiscal year shall be filed on or before the 15 th day of the fourth
month following the close of the calendar or fiscal year. The return shall include all the items of
gross income and deductions for the taxable year. The amount of income tax to be paid shall be
the balance of the total income tax shown on the final or adjustment return after deducting
therefrom the total quarterly income taxes paid during the preceding first three quarters of the
same calendar or fiscal year.

Any excess of the total quarterly payments over the actual income tax computed and shown in
the adjustment or final corporate income tax return shall either (a) be refunded to the corporation,
or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the
succeeding taxable year. The corporation must signify in its annual corporate adjustment
return its intention whether to request for refund of the overpaid income tax or claim for
automatic credit to be applied against its income tax liabilities for the quarters of the
succeeding taxable year by filling up the appropriate box on the corporate tax return (B.I.R.
Form No. 1702). [Emphasis supplied]

As clearly shown from the above-quoted provisions, in case the corporation is

entitled to a refund of the excess estimated quarterly income taxes paid, the refundable
amount shown on its final adjustment return may be credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding year. The
carrying forward of any excess or overpaid income tax for a given taxable year is limited
to the succeeding taxable year only.
In the recent case of AB Leasing and Finance Corporation v. Commissioner of
Internal Revenue, where the Court declared that [T]he carrying forward of any excess
[29]

or overpaid income tax for a given taxable year then is limited to the succeeding taxable
year only, we ruled that since the case involved a claim for refund of overpaid taxes for
1993, petitioner could only have applied the 1993 excess tax credits to its 1994 income
tax liabilities. To further carry-over to 1995 the 1993 excess tax credits is violative of
Section 69 of the NIRC.
In this case, petitioner included its 1988 excess credit of P146,026.00 in the
computation of its total excess credit for 1989. It indicated this amount, plus the 1989
creditable taxes withheld of P54,104.00 or a total of P172,477.00, as its total excess
credit to be applied as tax credit for 1990. By its own disclosure, petitioner effectively
combined its 1988 and 1989 tax credits and applied its 1990 tax due of P33,240.00
against the total, and not against its creditable taxes for 1989 only as allowed by Section
69. This is a clear admission that petitioners 1988 tax credit was incorrectly and illegally
applied against its 1990 tax liabilities.
Parenthetically, while a taxpayer is given the choice whether to claim for refund or
have its excess taxes applied as tax credit for the succeeding taxable year, such
election is not final. Prior verification and approval by the Commissioner of Internal
Revenue is required. The availment of the remedy of tax credit is not absolute and
mandatory. It does not confer an absolute right on the taxpayer to avail of the tax credit
scheme if it so chooses. Neither does it impose a duty on the part of the government to
sit back and allow an important facet of tax collection to be at the sole control and
discretion of the taxpayer. [30]

Contrary to petitioners assertion however, the taxpayers election, signified by the

ticking of boxes in Item 10 of BIR Form No. 1702, is not a mere technical exercise. It
aids in the proper management of claims for refund or tax credit by leading tax
authorities to the direction they should take in addressing the claim.
The amendment of Section 69 by what is now Section 76 of Republic Act No.
8424 emphasizes that it is imperative to indicate in the tax return or the final adjustment
[31]

return whether a tax credit or refund is sought by making the taxpayers choice
irrevocable. Section 76 provides:

SEC. 76. Final Adjustment Return.Every corporation liable to tax under Section 27 shall file a
final adjustment return covering the total taxable income for the preceding calendar or fiscal year.
If the sum of the quarterly tax payments made during the said taxable year is not equal to the
total tax due on the entire taxable income of that year, the corporation shall either:

(A) Pay the balance of the tax still due; or

(B) Carry-over the excess credit; or

(C) Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly
income taxes paid, the excess amount shown on its final adjustment return may be carried over
and credited against the estimated quarterly income tax liabilities for the taxable quarters of the
succeeding taxable years. Once the option to carry-over and apply the excess quarterly
income tax against income tax due for the taxable quarters of the succeeding taxable years
has been made, such option shall be considered irrevocable for that taxable period and no
application for cash refund or issuance of a tax credit certificate shall be allowed
therefore. [Emphasis supplied]

As clearly seen from this provision, the taxpayer is allowed three (3) options if the
sum of its quarterly tax payments made during the taxable year is not equal to the total
tax due for that year: (a) pay the balance of the tax still due; (b) carry-over the excess
credit; or (c) be credited or refunded the amount paid. If the taxpayer has paid excess
quarterly income taxes, it may be entitled to a tax credit or refund as shown in its final
adjustment return which may be carried over and applied against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding taxable years.
However, once the taxpayer has exercised the option to carry-over and to apply the
excess quarterly income tax against income tax due for the taxable quarters of the
succeeding taxable years, such option is irrevocable for that taxable period and no
application for cash refund or issuance of a tax credit certificate shall be allowed.
Had this provision been in effect when the present claim for refund was filed,
petitioners excess credits for 1988 could have been properly applied to its 1990 tax
liabilities. Unfortunately for petitioner, this is not the case.
Taxation is a destructive power which interferes with the personal and property
rights of the people and takes from them a portion of their property for the support of the
government. And since taxes are what we pay for civilized society, or are the lifeblood of
the nation, the law frowns against exemptions from taxation and statutes granting tax
exemptions are thus construed strictissimi juris against the taxpayer and liberally in
favor of the taxing authority. A claim of refund or exemption from tax payments must be
clearly shown and be based on language in the law too plain to be mistaken. Elsewise
stated, taxation is the rule, exemption therefrom is the exception. [32]

WHEREFORE, the instant petition is DENIED. The challenged decision of the Court
of Appeals is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, and Callejo, Sr., JJ., concur.
Chico-Nazario, J., on leave.
FELS ENERGY, INC., G.R. No. 168557
Petitioner,

-versus-

THE PROVINCE OF BATANGAS and

THE OFFICE OF THE PROVINCIAL
ASSESSOR OF BATANGAS,
Respondents.
x----------------------------------------------------x
NATIONAL POWER CORPORATION, G.R. No. 170628
Petitioner,
Present:

YNARES-SANTIAGO, J.,
- versus - Chairperson,
AUSTRIA-MARTINEZ,
CALLEJO, SR. and
LOCAL BOARD OF ASSESSMENT CHICO-NAZARIO, JJ.
APPEALS OF BATANGAS, LAURO C.
ANDAYA, in his capacity as the Assessor
of the Province of Batangas, and the Promulgated:
PROVINCE OF BATANGAS represented
by its Provincial Assessor, February 16, 2007
Respondents.
x--------------------------------------------------------------------------------------------x

DECISION

CALLEJO, SR., J.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628,
which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation
(NPC), respectively. The first is a petition for review on certiorariassailing the August 25,
2004 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its
Resolution[2] dated June 20, 2005; the second, also a petition for review on certiorari,
challenges the February 9, 2005 Decision[3] and November 23, 2005 Resolution[4] of the CA
in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of prescription.
The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30
MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract,
denominated as an Energy Conversion Agreement[5] (Agreement), was for a period of five
years. Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all
taxes, import duties, fees, charges and other levies imposed by the National Government of
the Republic of the Philippines or any agency or instrumentality thereof to
which POLAR may be or become subject to or in relation to the performance of their
obligations under this agreement (other than (i) taxes imposed or calculated on the basis of the
net income of POLAR and Personal Income Taxes of its employees and (ii) construction
permit fees, environmental permit fees and other similar fees and charges) and (b) all real
estate taxes and assessments, rates and other charges in respect of the Power Barges.[6]

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The
NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the
Agreement.

On August 7, 1995, FELS received an assessment of real property taxes on the power
barges from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which
likewise covered those due for 1994, amounted to P56,184,088.40 per annum. FELS referred
the matter to NPC, reminding it of its obligation under the Agreement to pay all real estate
taxes. It then gave NPC the full power and authority to represent it in any conference
regarding the real property assessment of the Provincial Assessor.

In a letter[7] dated September 7, 1995, NPC sought reconsideration of the Provincial

Assessors decision to assess real property taxes on the power barges. However, the motion
was denied on September 22, 1995, and the Provincial Assessor advised NPC to pay the
assessment.[8] This prompted NPC to file a petition with the Local Board of Assessment
Appeals (LBAA) for the setting aside of the assessment and the declaration of the barges as
non-taxable items; it also prayed that should LBAA find the barges to be taxable, the
Provincial Assessor be directed to make the necessary corrections.[9]

In its Answer to the petition, the Provincial Assessor averred that the barges were real
property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation, informing the
LBAA that the Department of Finance (DOF) had rendered an opinion[10] dated May 20, 1996,
where it is clearly stated that power barges are not real property subject to real property
assessment.
On August 26, 1996, the LBAA rendered a Resolution[11] denying the petition.
The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate
tax in the amount of P56,184,088.40, for the year 1994.

SO ORDERED.[12]

The LBAA ruled that the power plant facilities, while they may be classified as movable or
personal property, are nevertheless considered real property for taxation purposes because
they are installed at a specific location with a character of permanency. The LBAA also
pointed out that the owner of the bargesFELS, a private corporationis the one being taxed, not
NPC. A mere agreement making NPC responsible for the payment of all real estate taxes and
assessments will not justify the exemption of FELS; such a privilege can only be granted to
NPC and cannot be extended to FELS. Finally, the LBAA also ruled that the petition was
filed out of time.

Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals
(CBAA).

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and
Warrant by Distraint[13] over the power barges, seeking to collect real property taxes
amounting to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially
served to FELS on November 8, 1996. It then filed a Motion to Lift Levy dated November 14,
1996, praying that the Provincial Assessor be further restrained by the CBAA from enforcing
the disputed assessment during the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order[14] lifting the levy and distraint on the
properties of FELS in order not to preempt and render ineffectual, nugatory and illusory any
resolution or judgment which the Board would issue.

Meantime, the NPC filed a Motion for Intervention[15] dated August 7, 1998 in the
proceedings before the CBAA. This was approved by the CBAA in an
Order[16] dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit bond to
guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event
that the judgment be unfavorable to them). The bonds were duly approved by the CBAA.

On April 6, 2000, the CBAA rendered a Decision[17] finding the power barges exempt from
real property tax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of

the Province of Batangas is hereby reversed. Respondent-appellee Provincial Assessor of
the Province of Batangas is hereby ordered to drop subject property under ARP/Tax
Declaration No. 018-00958 from the List of Taxable Properties in the Assessment Roll. The
Provincial Treasurer of Batangas is hereby directed to act accordingly.

SO ORDERED.[18]

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC;
since they are actually, directly and exclusively used by it, the power barges are covered by
the exemptions under Section 234(c) of R.A. No. 7160.[19] As to the other jurisdictional issue,
the CBAA ruled that prescription did not preclude the NPC from pursuing its claim for tax
exemption in accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a
motion for reconsideration, which was opposed by FELS and NPC.

In a complete volte face, the CBAA issued a Resolution[20] on July 31, 2001reversing
its earlier decision. The fallo of the resolution reads:

WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.

(b) The petition of FELS, as well as the intervention of NPC, is dismissed.

 (c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby
affirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.

SO ORDERED.[21]

FELS and NPC filed separate motions for reconsideration, which were timely opposed
by the Provincial Assessor. The CBAA denied the said motions in a
Resolution[22] dated October 19, 2001.

Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP
No. 67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.

On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R.

SP No. 67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a
Resolution[23] dated February 12, 2002, the appellate court directed NPC to re-file its motion
for consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter petition
who should resolve the request for reconsideration.

NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth
Division of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the
petition on the ground of prescription. The decretal portion of the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and the assailed
Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment
Appeals are AFFIRMED.

SO ORDERED.[24]

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal
of the appellate courts decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court,
docketed as G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP No.
67490. The petition was, however, denied in this Courts Resolution [25] of November 8, 2004,
for NPCs failure to sufficiently show that the CA committed any reversible error in the
challenged decision. NPC filed a motion for reconsideration, which the Court denied with
finality in a Resolution[26] dated January 19, 2005.

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that
the right to question the assessment of the Provincial Assessor had already prescribed upon
the failure of FELS to appeal the disputed assessment to the LBAA within the period
prescribed by law. Since FELS had lost the right to question the assessment, the right of the
Provincial Government to collect the tax was already absolute.

NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of
the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a
Resolution[27] dated November 23, 2005.

The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier
denied for lack of merit in a Resolution[28] dated June 20, 2005.

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this
Court, raising the following issues:
A.
Whether power barges, which are floating and movable, are personal properties and therefore,
not subject to real property tax.

B.
Assuming that the subject power barges are real properties, whether they are exempt from real
estate tax under Section 234 of the Local Government Code (LGC).

C.
Assuming arguendo that the subject power barges are subject to real estate tax, whether or not
it should be NPC which should be made to pay the same under the law.

D.
Assuming arguendo that the subject power barges are real properties, whether or not the same
is subject to depreciation just like any other personal properties.

E.
Whether the right of the petitioner to question the patently null and void real property tax
assessment on the petitioners personal properties is imprescriptible.[29]
 On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No.
170628), indicating the following errors committed by the CA:

I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO
THE LBAA WAS FILED OUT OF TIME.

II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER
BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.

III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE
ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH
LAW.[30]

Considering that the factual antecedents of both cases are similar, the Court ordered the
consolidation of the two cases in a Resolution[31] dated March 8, 2006.

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit
their respective Memoranda within 30 days from notice. Almost a year passed but the parties
had not submitted their respective memoranda. Considering that taxesthe lifeblood of our
economyare involved in the present controversy, the Court was prompted to dispense with the
said pleadings, with the end view of advancing the interests of justice and avoiding further
delay.

In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-
barred. FELS argues that when NPC moved to have the assessment reconsidered
on September 7, 1995, the running of the period to file an appeal with the LBAA was tolled.
For its part, NPC posits that the 60-day period for appealing to the LBAA should be reckoned
from its receipt of the denial of its motion for reconsideration.

Petitioners contentions are bereft of merit.

 Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of
1991, provides:

SECTION 226. Local Board of Assessment Appeals. Any owner or person having
legal interest in the property who is not satisfied with the action of the provincial, city or
municipal assessor in the assessment of his property may, within sixty (60) days from the date
of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of
the province or city by filing a petition under oath in the form prescribed for the purpose,
together with copies of the tax declarations and such affidavits or documents submitted in
support of the appeal.

We note that the notice of assessment which the Provincial Assessor sent to FELS on August
7, 1995, contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days from the date of
receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a petition
under oath on the form prescribed for the purpose, together with copies of ARP/Tax
Declaration and such affidavits or documents submitted in support of the appeal.[32]

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC
opted to file a motion for reconsideration of the Provincial Assessors decision, a remedy not
sanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or action of the
provincial, city or municipal assessor in the assessment of the property. It follows then that
the determination made by the respondent Provincial Assessor with regard to the taxability of
the subject real properties falls within its power to assess properties for taxation purposes
subject to appeal before the LBAA.[33]

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and
CA-G.R. SP No. 67491. The two divisions of the appellate court cited the case of Callanta v.
Office of the Ombudsman,[34] where we ruled that under Section 226 of R.A. No 7160,[35] the
last action of the local assessor on a particular assessment shall be the notice of assessment; it
is this last action which gives the owner of the property the right to appeal to the LBAA. The
procedure likewise does not permit the property owner the remedy of filing a motion for
reconsideration before the local assessor. The pertinent holding of the Court in Callanta is as
follows:

x x x [T]he same Code is equally clear that the aggrieved owners should have brought
their appeals before the LBAA. Unfortunately, despite the advice to this effect contained in
their respective notices of assessment, the owners chose to bring their requests for a
review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow
this procedure would indeed invite corruption in the system of appraisal and assessment. It
conveniently courts a graft-prone situation where values of real property may be initially set
unreasonably high, and then subsequently reduced upon the request of a property owner. In
the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact
can conveniently take place. Such occasion for mischief must be prevented and excised from
our system.[36]

For its part, the appellate court declared in CA-G.R. SP No. 67491:

x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to
the owner or lawful possessor of real property of its revised assessed value, the former shall
no longer have any jurisdiction to entertain any request for a review or readjustment. The
appropriate forum where the aggrieved party may bring his appeal is the LBAA as provided
by law. It follows ineluctably that the 60-day period for making the appeal to the LBAA runs
without interruption. This is what We held in SP 67490 and reaffirm today in SP 67491.[37]

To reiterate, if the taxpayer fails to appeal in due course, the right of

the local government to collect the taxes due with respect to the taxpayers property becomes
absolute upon the expiration of the period to appeal.[38] It also bears stressing that the
taxpayers failure to question the assessment in the LBAA renders the assessment of the local
assessor final, executory and demandable, thus, precluding the taxpayer from questioning the
correctness of the assessment, or from invoking any defense that would reopen the question
of its liability on the merits.[39]

In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having
been filed out of time; the CBAA and the appellate court were likewise correct in affirming
the dismissal. Elementary is the rule that the perfection of an appeal within the period
therefor is both mandatory and jurisdictional, and failure in this regard renders the decision
final and executory.[40]
 In the Comment filed by the Provincial Assessor, it is asserted that the instant petition
is barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where
there was a final determination on the issue of prescription), effectively precludes the claims
herein; and that the filing of the instant petition after an adverse judgment in G.R. No. 165113
constitutes forum shopping.

FELS maintains that the argument of the Provincial Assessor is completely misplaced
since it was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It
avers that it did not participate in the aforesaid proceeding, and the Supreme Court never
acquired jurisdiction over it. As to the issue of forum shopping, petitioner claims that no
forum shopping could have been committed since the elements of litis pendentia or res
judicata are not present.

We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon
two grounds embodied in various maxims of common law, namely: (1) public policy and
necessity, which makes it to the interest of the
State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on
the individual of being vexed twice for the same cause nemo debet bis vexari et eadem causa.
A conflicting doctrine would subject the public peace and quiet to the will and dereliction of
individuals and prefer the regalement of the litigious disposition on the part of suitors to the
preservation of the public tranquility and happiness.[41] As we ruled in Heirs of Trinidad De
Leon Vda. de Roxas v. Court of Appeals:[42]

x x x An existing final judgment or decree rendered upon the merits,

without fraud or collusion, by a court of competent jurisdiction acting upon a
matter within its authority is conclusive on the rights of the parties and their
privies. This ruling holds in all other actions or suits, in the same or any other
judicial tribunal of concurrent jurisdiction, touching on the points or matters in
issue in the first suit.

xxx

Courts will simply refuse to reopen what has been decided. They will not allow the
same parties or their privies to litigate anew a question once it has been considered and
decided with finality. Litigations must end and terminate sometime and somewhere. The
effective and efficient administration of justice requires that once a judgment has become final,
 the prevailing party should not be deprived of the fruits of the verdict by subsequent suits on
the same issues filed by the same parties.

This is in accordance with the doctrine of res judicata which has the following
elements: (1) the former judgment must be final; (2) the court which rendered it had
jurisdiction over the subject matter and the parties; (3) the judgment must be on the merits;
and (4) there must be between the first and the second actions, identity of parties, subject
matter and causes of action. The application of the doctrine of res judicata does not require
absolute identity of parties but merely substantial identity of parties. There is substantial
identity of parties when there is community of interest or privity of interest between a
party in the first and a party in the second case even if the first case did not implead the
latter.[43]

To recall, FELS gave NPC the full power and authority to represent it in any
proceeding regarding real property assessment. Therefore, when petitioner NPC filed its
petition for review docketed as G.R. No. 165113, it did so not only on its behalf but also on
behalf of FELS. Moreover, the assailed decision in the earlier petition for review filed in this
Court was the decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was
the petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the
principle of privity of interest. In fine, FELS and NPC are substantially identical parties as to
warrant the application of res judicata.FELSs argument that it is not bound by the erroneous
petition filed by NPC is thus unavailing.

On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping
exists when, as a result of an adverse judgment in one forum, a party seeks another and
possibly favorable judgment in another forum other than by appeal or special civil action
or certiorari. There is also forum shopping when a party institutes two or more actions or
proceedings grounded on the same cause, on the gamble that one or the other court would
make a favorable disposition.[44]

Petitioner FELS alleges that there is no forum shopping since the elements of res
judicata are not present in the cases at bar; however, as already discussed, res judicatamay be
properly applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos.
168557 and 170628 after the petition for review in G.R. No. 165116. Indeed, petitioners went
from one court to another trying to get a favorable decision from one of the tribunals which
allowed them to pursue their cases.
 It must be stressed that an important factor in determining the existence of forum
shopping is the vexation caused to the courts and the parties-litigants by the filing of similar
cases to claim substantially the same reliefs.[45] The rationale against forum shopping is that a
party should not be allowed to pursue simultaneous remedies in two different fora. Filing
multiple petitions or complaints constitutes abuse of court processes, which tends to degrade
the administration of justice, wreaks havoc upon orderly judicial procedure, and adds to the
congestion of the heavily burdened dockets of the courts.[46]

Thus, there is forum shopping when there exist: (a) identity of parties, or at least such
parties as represent the same interests in both actions, (b) identity of rights asserted and relief
prayed for, the relief being founded on the same facts, and (c) the identity of the two
preceding particulars is such that any judgment rendered in the pending case, regardless of
which party is successful, would amount to res judicata in the other.[47]

Having found that the elements of res judicata and forum shopping are present in the
consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for
the peace and contentment of petitioners, we shall shed light on the merits of the case.

As found by the appellate court, the CBAA and LBAA power barges are real property
and are thus subject to real property tax. This is also the inevitable conclusion, considering
that G.R. No. 165113 was dismissed for failure to sufficiently show any reversible error. Tax
assessments by tax examiners are presumed correct and made in good faith, with the taxpayer
having the burden of proving otherwise.[48]Besides, factual findings of administrative bodies,
which have acquired expertise in their field, are generally binding and conclusive upon the
Court; we will not assume to interfere with the sensible exercise of the judgment of men
especially trained in appraising property. Where the judicial mind is left in doubt, it is a
sound policy to leave the assessment undisturbed.[49] We find no reason to depart from this
rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et
al.,[50] a power company brought an action to review property tax assessment. On the citys
motion to dismiss, the Supreme Court of New
York held that the barges on which were mounted gas turbine power plants designated to
generate electrical power, the fuel oil barges which supplied fuel oil to the power plant barges,
and the accessory equipment mounted on the barges were subject to real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that [d]ocks and structures
which, though floating, are intended by their nature and object to remain at a fixed place on a
river, lake, or coast are considered immovable property. Thus, power barges are categorized
as immovable property by destination, being in the nature of machinery and other implements
intended by the owner for an industry or work which may be carried on in a building or on a
piece of land and which tend directly to meet the needs of said industry or work.[51]

Petitioners maintain nevertheless that the power barges are exempt from real estate tax
under Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively
used by petitioner NPC, a government- owned and controlled corporation engaged in the
supply, generation, and transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable
properties is petitioner FELS, which in fine, is the entity being taxed by the local
government. As stipulated under Section 2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all
the fixtures, fittings, machinery and equipment on the Site used in connection with the Power
Barges which have been supplied by it at its own cost. POLAR shall operate, manage and
maintain the Power Barges for the purpose of converting Fuel of NAPOCOR into
electricity.[52]

It follows then that FELS cannot escape liability from the payment of realty taxes by
invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads:

SECTION 234. Exemptions from Real Property Tax. The following are exempted
from payment of the real property tax:

xxx

(c) All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or controlled corporations engaged in the
 supply and distribution of water and/or generation and transmission of electric
power; x x x

Indeed, the law states that the machinery must be actually, directly and exclusively
used by the government owned or controlled corporation; nevertheless, petitioner FELS still
cannot find solace in this provision because Section 5.5, Article 5 of the Agreement provides:

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to
the supply of the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it
will operate the Power Barges to convert such Fuel into electricity in accordance with Part A
of Article 7.[53]

It is a basic rule that obligations arising from a contract have the force of law between
the parties. Not being contrary to law, morals, good customs, public order or public policy,
the parties to the contract are bound by its terms and conditions.[54]

Time and again, the Supreme Court has stated that taxation is the rule and exemption is
the exception.[55] The law does not look with favor on tax exemptions and the entity that
would seek to be thus privileged must justify it by words too plain to be mistaken and too
categorical to be misinterpreted.[56] Thus, applying the rule of strict construction of laws
granting tax exemptions, and the rule that doubts should be resolved in favor of provincial
corporations, we hold that FELS is considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it
shall be responsible for the payment of all real estate taxes and assessments, does not justify
the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The
covenant is between FELS and NPC and does not bind a third person not privy thereto, in this
case, the Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted
in the local governments deprivation of revenues. The power to tax is an incident of
sovereignty and is unlimited in its magnitude, acknowledging in its very nature no perimeter
so that security against its abuse is to be found only in the responsibility of the legislature
which imposes the tax on the constituency who are to pay for it.[57] The right of local
government units to collect taxes due must always be upheld to avoid severe tax erosion. This
consideration is consistent with the State policy to guarantee the autonomy of local
governments[58] and the objective of the Local Government Code that they enjoy genuine and
meaningful local autonomy to empower them to achieve their fullest development as self-
reliant communities and make them effective partners in the attainment of national goals.[59]

In conclusion, we reiterate that the power to tax is the most potent instrument to raise
the needed revenues to finance and support myriad activities of the local government units for
the delivery of basic services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people.[60]

WHEREFORE, the Petitions are DENIED and the assailed Decisions and
Resolutions AFFIRMED.

SO ORDERED.
 [G.R. No. 120082. September 11, 1996]

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. HON.

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

DECISION
DAVIDE, JR., J.:

For review under Rule 45 of the Rules of Court on a pure question of law are the
decision of 22 March 1995[1] of the Regional Trial Court (RTC) of Cebu City, Branch 20,
dismissing the petition for declaratory relief in Civil Case No. CEB-16900,
entitled Mactan Cebu International Airport Authority vs. City of Cebu, and its order of 4
May 1995[2]denying the motion to reconsider the decision.
We resolved to give due course to this petition for it raises issues dwelling on the
scope of the taxing power of local government units and the limits of tax exemption
privileges of government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in the instant petition as
follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of
Republic Act No. 6958, mandated to principally undertake the economical, efficient and
effective control, management and supervision of the Mactan International Airport in the
Province of Cebu and the Lahug Airport in Cebu City, x x x and such other airports as may be
established in the Province of Cebu x x x (Sec. 3, RA 6958). It is also mandated to:

a) encourage, promote and develop international and domestic air traffic in the Central Visayas
and Mindanao regions as a means of making the regions centers of international trade and
tourism, and accelerating the development of the means of transportation and communication in
the country; and,

b) upgrade the services and facilities of the airports and to formulate internationally acceptable
standards of airport accommodation and service.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its Charter:

Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions, agencies and instrumentalities x x x.
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the
Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land
belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M,
918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-A), located at Barrio Apas and Barrio
Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79.

Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor
the aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also
asserted that it is an instrumentality of the government performing governmental functions, citing
Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers
of local government units:

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

a) x x x

xxx

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

Respondent City refused to cancel and set aside petitioners realty tax account, insisting that the
MCIAA is a government-controlled corporation whose tax exemption privilege has been
withdrawn by virtue of Sections 193 and 234 of the Local Government Code that took effect
on January 1, 1992:

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

xxx

Section 234. Exemptions from Real Property Taxes. x x x

(a) x x x

xxx

(e) x x x
Except as provided herein, any exemption from payment of real property tax previously granted
to, or presently enjoyed by all persons, whether natural or juridical, including government-owned
or controlled corporations are hereby withdrawn upon the effectivity of this Code.

As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the
latter was compelled to pay its tax account under protest and thereafter filed a Petition for
Declaratory Relief with the Regional Trial Court of Cebu, Branch 20, on December 29,
1994. MCIAA basically contended that the taxing powers of local government units do not
extend to the levy of taxes or fees of any kind on an instrumentality of the national government.
Petitioner insisted that while it is indeed a government-owned corporation, it nonetheless stands
on the same footing as an agency or instrumentality of the national government by the very
nature of its powers and functions.

Respondent City, however, asserted that MCIAA is not an instrumentality of the government but
merely a government-owned corporation performing proprietary functions. As such, all
exemptions previously granted to it were deemed withdrawn by operation of law, as provided
under Sections 193 and 234 of the Local Government Code when it took effect on January 1,
1992.[3]

The petition for declaratory relief was docketed as Civil Case No. CEB-16900.
In its decision of 22 March 1995,[4] the trial court dismissed the petition in light of its
findings, to wit:

A close reading of the New Local Government Code of 1991 or RA 7160 provides the express
cancellation and withdrawal of exemption of taxes by government-owned and controlled
corporation per Sections after the effectivity of said Code on January 1, 1992, to wit: [proceeds
to quote Sections 193 and 234]

Petitioners claimed that its real properties assessed by respondent City Government of Cebu are
exempted from paying realty taxes in view of the exemption granted under RA 6958 to pay the
same (citing Section 14 of RA 6958).

However, RA 7160 expressly provides that All general and special laws, acts, city charters,
decrees [sic], executive orders, proclamations and administrative regulations, or part of parts
thereof which are inconsistent with any of the provisions of this Code are hereby repealed or
modified accordingly. (/f/, Section 534, RA 7160).

With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption
provided for in RA 6958 creating petitioner had been expressly repealed by the provisions of the
New Local Government Code of 1991.

So that petitioner in this case has to pay the assessed realty tax of its properties effective after
January 1, 1992 until the present.
This Courts ruling finds expression to give impetus and meaning to the overall objectives of the
New Local Government Code of 1991, RA 7160. It is hereby declared the policy of the State that
the territorial and political subdivisions of the State shall enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities and
make them more effective partners in the attainment of national goals. Toward this end, the State
shall provide for a more responsive and accountable local government structure instituted
through a system of decentralization whereby local government units shall be given more powers,
authority, responsibilities, and resources. The process of decentralization shall proceed from the
national government to the local government units. x x x[5]

Its motion for reconsideration having been denied by the trial court in its 4 May 1995
order, the petitioner filed the instant petition based on the following assignment of errors:
I. RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS VESTED
WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN THE SAME
CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT.
II. RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY REAL
PROPERTY TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that although it is a government-
owned or controlled corporation, it is mandated to perform functions in the same
category as an instrumentality of Government. An instrumentality of Government is one
created to perform governmental functions primarily to promote certain aspects of the
economic life of the people.[6] Considering its task not merely to efficiently operate and
manage the Mactan-Cebu International Airport, but more importantly, to carry out the
Government policies of promoting and developing the Central Visayas and Mindanao
regions as centers of international trade and tourism, and accelerating the development
of the means of transportation and communication in the country,[7] and that it is an
attached agency of the Department of Transportation and Communication (DOTC),[8] the
petitioner may stand in [sic] the same footing as an agency or instrumentality of the
national government. Hence, its tax exemption privilege under Section 14 of its Charter
cannot be considered withdrawn with the passage of the Local Government Code of
1991 (hereinafter LGC) because Section 133 thereof specifically states that the `taxing
powers of local government units shall not extend to the levy of taxes or fees or charges
of any kind on the national government, its agencies and instrumentalities.
As to the second assigned error, the petitioner contends that being an
instrumentality of the National Government, respondent City of Cebu has no power nor
authority to impose realty taxes upon it in accordance with the aforesaid Section 133 of
the LGC, as explained in Basco vs. Philippine Amusement and Gaming Corporation:[9]

Local governments have no power to tax instrumentalities of the National

Government. PAGCOR is a government owned or controlled corporation with an original charter,
PD 1869. All of its shares of stock are owned by the National Government. . . .

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

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

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

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

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. (underscoring supplied)

It then concludes that the respondent Judge cannot therefore correctly say that the
questioned provisions of the Code do not contain any distinction between a government
corporation performing governmental functions as against one performing merely
proprietary ones such that the exemption privilege withdrawn under the said Code
would apply to all government corporations. For it is clear from Section 133, in relation
to Section 234, of the LGC that the legislature meant to exclude instrumentalities of the
national government from the taxing powers of the local government units.
In its comment, respondent City of Cebu alleges that as a local government unit and
a political subdivision, it has the power to impose, levy, assess, and collect taxes within
its jurisdiction. Such power is guaranteed by the Constitution[10] and enhanced further by
the LGC. While it may be true that under its Charter the petitioner was exempt from the
payment of realty taxes,[11] this exemption was withdrawn by Section 234 of the LGC. In
response to the petitioners claim that such exemption was not repealed because being
an instrumentality of the National Government, Section 133 of the LGC prohibits local
government units from imposing taxes, fees, or charges of any kind on it, respondent
City of Cebu points out that the petitioner is likewise a government-owned corporation,
and Section 234 thereof does not distinguish between government-owned or controlled
corporations performing governmental and purely proprietary functions. Respondent
City of Cebu urges this Court to apply by analogy its ruling that the Manila International
Airport Authority is a government-owned corporation,[12] and to reject the application
of Basco because it was promulgated . . . before the enactment and the signing into law
of R.A. No. 7160, and was not, therefore, decided in the light of the spirit and intention
of the framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its
range, acknowledging in its very nature no limits, so that security against its abuse is to
be found only in the responsibility of the legislature which imposes the tax on the
constituency who are to pay it. Nevertheless, effective limitations thereon may be
imposed by the people through their Constitutions.[13] Our Constitution, for instance,
provides that the rule of taxation shall be uniform and equitable and Congress shall
evolve a progressive system of taxation.[14] So potent indeed is the power that it was
once opined that the power to tax involves the power to destroy.[15] Verily, taxation is a
destructive power which interferes with the personal and property rights of the people
and takes from them a portion of their property for the support of the
government. Accordingly, tax statutes must be construed strictly against the government
and liberally in favor of the taxpayer.[16] But since taxes are what we pay for civilized
society,[17] or are the lifeblood of the nation, the law frowns against exemptions from
taxation and statutes granting tax exemptions are thus construed strictissimi
juris against the taxpayer and liberally in favor of the taxing authority.[18] A claim of
exemption from tax payments must be clearly shown and based on language in the law
too plain to be mistaken.[19] Elsewise stated, taxation is the rule, exemption therefrom is
the exception.[20] However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical effect
of the exemption is merely to reduce the amount of money that has to be handled by the
government in the course of its operations.[21]
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it
may be exercised by local legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority conferred by Section 5, Article X of
the Constitution.[22] Under the latter, the exercise of the power may be subject to such
guidelines and limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the petitioner is
exempt from the payment of realty taxes imposed by the National Government or any of
its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is
the rule and exemption therefrom the exception, the exemption may thus be withdrawn
at the pleasure of the taxing authority. The only exception to this rule is where the
exemption was granted to private parties based on material consideration of a mutual
nature, which then becomes contractual and is thus covered by the non-impairment
clause of the Constitution.[23]
The LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for
the exercise by local government units of their power to tax, the scope thereof or its
limitations, and the exemptions from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of
local government units as follows:
SEC. 133. Common Limitations on the Taxing Power of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:

(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all
other kinds of customs fees, charges and dues except wharfage on wharves constructed and
maintained by the local government unit concerned;
(e) Taxes, fees and charges and other impositions upon goods carried into or out of, or passing
through, the territorial jurisdictions of local government units in the guise of charges for wharfage,
tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such
goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-
pioneer for a period of six (6) and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended,
and taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on
goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water, except
as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives
duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight
(R.A. No. 6938) otherwise known as the Cooperatives Code of the Philippines respectively; and
(o) TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT, ITS
AGENCIES AND INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS. (emphasis
supplied)

Needless to say, the last item (item o) is pertinent to this case. The taxes, fees or
charges referred to are of any kind; hence, they include all of these, unless otherwise
provided by the LGC. The term taxes is well understood so as to need no further
elaboration, especially in light of the above enumeration. The term fees means charges
fixed by law or ordinance for the regulation or inspection of business or activity,[24] while
charges are pecuniary liabilities such as rents or fees against persons or property.[25]
 Among the taxes enumerated in the LGC is real property tax, which is governed by
Section 232. It reads as follows:

SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality within the
Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land,
building, machinery, and other improvements not hereafter specifically exempted.

Section 234 of the LGC provides for the exemptions from payment of real property
taxes and withdraws previous exemptions therefrom granted to natural and juridical
persons, including government-owned and controlled corporations, except as provided
therein. It provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the
real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof had been granted, for consideration or otherwise, to a taxable
person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,
nonprofit or religious cemeteries and all lands, buildings and improvements actually, directly,
and exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938;
and
(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted
to, or presently enjoyed by, all persons, whether natural or juridical, including all government-
owned or controlled corporations are hereby withdrawn upon the effectivity of this Code.

These exemptions are based on the ownership, character, and use of the
property.Thus:
(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownershipare real
properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay,
and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the basis of their character are: (i)
charitable institutions, (ii) houses and temples of prayer like churches, parsonages or convents
appurtenant thereto, mosques, and (iii) non-profit or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and
exclusive use to which they are devoted are: (i) all lands, buildings and improvements which are
actually directly and exclusively used for religious, charitable or educational purposes; (ii) all
machineries and equipment actually, directly and exclusively used by local water districts or by
government-owned or controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; and (iii) all machinery and equipment used
for pollution control and environmental protection.
To help provide a healthy environment in the midst of the modernization of the country, all
machinery and equipment for pollution control and environmental protection may not be taxed
by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical
persons including government-owned or controlled corporations are withdrawn upon the
effectivity of the Code.[26]

Section 193 of the LGC is the general provision on withdrawal of tax exemption
privileges. It provides:

SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.

On the other hand, the LGC authorizes local government units to grant tax
exemption privileges. Thus, Section 192 thereof provides:

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

The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers
of local government units and the exceptions to such limitations; and (b) the rule on tax
exemptions and the exceptions thereto. The use of exceptions or provisos in these
sections, as shown by the following clauses:
(1) unless otherwise provided herein in the opening paragraph of Section 133;
(2) Unless otherwise provided in this Code in Section 193;
(3) not hereafter specifically exempted in Section 232; and
(4) Except as provided herein in the last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in Section 133 seems to be inaccurately worded. Instead of the
clause unless otherwise provided herein, with the herein to mean, of course, the section,
it should have used the clause unless otherwise provided in this Code. The former
results in absurdity since the section itself enumerates what are beyond the taxing
powers of local government units and, where exceptions were intended, the exceptions
are explicitly indicated in the next. For instance, in item (a) which excepts income taxes
when levied on banks and other financial institutions; item (d) which excepts wharfage
on wharves constructed and maintained by the local government unit concerned; and
item (1) which excepts taxes, fees and charges for the registration and issuance of
licenses or permits for the driving of tricycles. It may also be observed that within the
body itself of the section, there are exceptions which can be found only in other parts of
the LGC, but the section interchangeably uses therein the clause except as otherwise
provided herein as in items (c) and (i), or the clause except as provided in this Code in
item (j). These clauses would be obviously unnecessary or mere surplusages if the
opening clause of the section were Unless otherwise provided in this Code instead of
Unless otherwise provided herein. In any event, even if the latter is used, since under
Section 232 local government units have the power to levy real property tax, except
those exempted therefrom under Section 234, then Section 232 must be deemed to
qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as
a general rule, as laid down in Section 133, the taxing powers of local government units
cannot extend to the levy of, inter alia, taxes, fees and charges of any kind on the
National Government, its agencies and instrumentalities, and local government units;
however, pursuant to Section 232, provinces, cities, and municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, real
property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise,
to a taxable person, as provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or
juridical persons, including government-owned and controlled corporations, Section 193
of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of
the LGC, exceptthose granted to local water districts, cooperatives duly registered
under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions,
and unless otherwise provided in the LGC. The latter proviso could refer to Section 234
which enumerates the properties exempt from real property tax. But the last paragraph
of Section 234 further qualifies the retention of the exemption insofar as real property
taxes are concerned by limiting the retention only to those enumerated therein; all
others not included in the enumeration lost the privilege upon the effectivity of the
LGC. Moreover, even as to real property owned by the Republic of the Philippines or
any of its political subdivisions covered by item (a) of the first paragraph of Section 234,
the exemption is withdrawn if the beneficial use of such property has been granted to a
taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity
of the LGC, exemptions from payment of real property taxes granted to natural or
juridical persons, including government-owned or controlled corporations, except as
provided in the said section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax granted it in Section
14 of its Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only
be justified if the petitioner can seek refuge under any of the exceptions provided in
Section 234, but not under Section 133, as it now asserts, since, as shown above, the
said section is qualified by Sections 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133 that the
taxing powers of the local government units cannot extend to the levy of:
(o) taxes, fees or charges of any kind on the National Government, its agencies or
instrumentalities, and local government units.

It must show that the parcels of land in question, which are real property, are any one of
those enumerated in Section 234, either by virtue of ownership, character, or use of the
property. Most likely, it could only be the first, but not under any explicit provision of the
said section, for none exists. In light of the petitioners theory that it is an instrumentality
of the Government, it could only be within the first item of the first paragraph of the
section by expanding the scope of the term Republic of the Philippines to embrace its
instrumentalities and agencies. For expediency, we quote:

(a) real property owned by the Republic of the Philippines, or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.

This view does not persuade us. In the first place, the petitioners claim that it is an
instrumentality of the Government is based on Section 133(o), which expressly
mentions the word instrumentalities; and, in the second place, it fails to consider the fact
that the legislature used the phrase National Government, its agencies and
instrumentalities in Section 133(o), but only the phrase Republic of the Philippines or
any of its political subdivisions in Section 234(a).
The terms Republic of the Philippines and National Government are not
interchangeable. The former is broader and synonymous with Government of the
Republic of the Philippines which the Administrative Code of 1987 defines as the
corporate governmental entity through which the functions of government are exercised
throughout the Philippines, including, save as the contrary appears from the context, the
various arms through which political authority is made affective in the Philippines,
whether pertaining to the autonomous regions, the provincial, city, municipal or
barangay subdivisions or other forms of local government.[27] These autonomous
regions, provincial, city, municipal or barangay subdivisions are the political
subdivisions.[28]
On the other hand, National Government refers to the entire machinery of the central
government, as distinguished from the different forms of local governments.[29] The
National Government then is composed of the three great departments: the executive,
the legislative and the judicial.[30]
An agency of the Government refers to any of the various units of the Government,
including a department, bureau, office, instrumentality, or government-owned or
controlled corporation, or a local government or a distinct unit therein;[31] while an
instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term includes regulatory agencies,
chartered institutions and government-owned and controlled corporations.[32]
 If Section 234(a) intended to extend the exception therein to the withdrawal of the
exemption from payment of real property taxes under the last sentence of the said
section to the agencies and instrumentalities of the National Government mentioned in
Section 133(o), then it should have restated the wording of the latter. Yet, it did
not. Moreover, that Congress did not wish to expand the scope of the exemption in
Section 234(a) to include real property owned by other instrumentalities or agencies of
the government including government-owned and controlled corporations is further
borne out by the fact that the source of this exemption is Section 40(a) of P.D. No. 464,
otherwise known as The Real Property Tax Code, which reads:

SEC. 40. Exemptions from Real Property Tax. The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
and any government-owned or controlled corporation so exempt by its charter: Provided,
however, That this exemption shall not apply to real property of the above-mentioned entities the
beneficial use of which has been granted, for consideration or otherwise, to a taxable person.

Note that as reproduced in Section 234(a), the phrase and any government-owned or
controlled corporation so exempt by its charter was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to limit further tax exemption
privileges, especially in light of the general provision on withdrawal of tax exemption
privileges in Section 193 and the special provision on withdrawal of exemption from
payment of real property taxes in the last paragraph of Section 234. These policy
considerations are consistent with the State policy to ensure autonomy to local
governments[33] and the objective of the LGC that they enjoy genuine and meaningful
local autonomy to enable them to attain their fullest development as self-reliant
communities and make them effective partners in the attainment of national
goals.[34] The power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement of
peace, progress, and prosperity of the people. It may also be relevant to recall that the
original reasons for the withdrawal of tax exemption privileges granted to government-
owned and controlled corporations and all other units of government were that such
privilege resulted in serious tax base erosion and distortions in the tax treatment of
similarly situated enterprises, and there was a need for these entities to share in the
requirements of development, fiscal or otherwise, by paying the taxes and other charges
due from them.[35]
The crucial issues then to be addressed are: (a) whether the parcels of land in
question belong to the Republic of the Philippines whose beneficial use has been
granted to the petitioner, and (b) whether the petitioner is a taxable person.
Section 15 of the petitioners Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities,
runways, lands, buildings and other properties, movable or immovable, belonging to or presently
administered by the airports, and all assets, powers, rights, interests and privileges relating on
airport works or air operations, including all equipment which are necessary for the operations of
air navigation, aerodrome control towers, crash, fire, and rescue facilities are hereby transferred
to the Authority: Provided, however, that the operations control of all equipment necessary for
the operation of radio aids to air navigation, airways communication, the approach control office,
and the area control center shall be retained by the Air Transportation Office. No equipment,
however, shall be removed by the Air Transportation Office from Mactan without the
concurrence of the Authority. The Authority may assist in the maintenance of the Air
Transportation Office equipment.

The airports referred to are the Lahug Air Port in Cebu City and the Mactan
International Airport in the Province of Cebu,[36] which belonged to the Republic of the
Philippines, then under the Air Transportation Office (ATO).[37]
It may be reasonable to assume that the term lands refer to lands in Cebu City then
administered by the Lahug Air Port and includes the parcels of land the respondent City
of Cebu seeks to levy on for real property taxes. This section involves a transfer of the
lands, among other things, to the petitioner and not just the transfer of the beneficial use
thereof, with the ownership being retained by the Republic of the Philippines.
This transfer is actually an absolute conveyance of the ownership thereof because
the petitioners authorized capital stock consists of, inter alia, the value of such real
estate owned and/or administered by the airports.[38] Hence, the petitioner is now the
owner of the land in question and the exception in Section 234(c) of the LGC is
inapplicable.
Moreover, the petitioner cannot claim that it was never a taxable person under its
Charter. It was only exempted from the payment of real property taxes. The grant of the
privilege only in respect of this tax is conclusive proof of the legislative intent to make it
a taxable person subject to all taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable person for purposes of real
property tax, in light of the foregoing disquisitions, it had already become, even if it be
conceded to be an agency or instrumentality of the Government, a taxable person for
such purpose in view of the withdrawal in the last paragraph of Section 234 of
exemptions from the payment of real property taxes, which, as earlier adverted to,
applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs.
Philippine Amusement and Gaming Corporation[39] is unavailing since it was decided
before the effectivity of the LGC. Besides, nothing can prevent Congress from decreeing
that even instrumentalities or agencies of the Government performing governmental
functions may be subject to tax. Where it is done precisely to fulfill a constitutional
mandate and national policy, no one can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision and order of
the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are
AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-24693 July 31, 1967

ERMITA-MALATE HOTEL AND MOTEL OPERATORS ASSOCIATION, INC., HOTEL DEL MAR INC. and GO
CHIU, petitioners-appellees,
vs.
THE HONORABLE CITY MAYOR OF MANILA, respondent-appellant.
VICTOR ALABANZA, intervenor-appellee.

Panganiban, Abad and Associates Law Office for respondent-appellant.

J. M. Aruego, Tenchavez and Associates for intervenor-appellee.

FERNANDO, J.:

The principal question in this appeal from a judgment of the lower court in an action for prohibition is whether
Ordinance No. 4760 of the City of Manila is violative of the due process clause. The lower court held that it is and
adjudged it "unconstitutional, and, therefore, null and void." For reasons to be more specifically set forth, such
judgment must be reversed, there being a failure of the requisite showing to sustain an attack against its validity.

The petition for prohibition against Ordinance No. 4760 was filed on July 5, 1963 by the petitioners, Ermita-
Malate Hotel and Motel Operators Association, one of its members, Hotel del Mar Inc., and a certain Go Chiu,
who is "the president and general manager of the second petitioner" against the respondent Mayor of the City of
Manila who was sued in his capacity as such "charged with the general power and duty to enforce ordinances of
the City of Manila and to give the necessary orders for the faithful execution and enforcement of such
ordinances." (par. 1). It was alleged that the petitioner non-stock corporation is dedicated to the promotion and
protection of the interest of its eighteen (18) members "operating hotels and motels, characterized as legitimate
businesses duly licensed by both national and city authorities, regularly paying taxes, employing and giving
livelihood to not less than 2,500 person and representing an investment of more than P3 million."1 (par. 2). It was
then alleged that on June 13, 1963, the Municipal Board of the City of Manila enacted Ordinance No. 4760,
approved on June 14, 1963 by the then Vice-Mayor Herminio Astorga, who was at the time acting as Mayor of
the City of Manila. (par. 3).

After which the alleged grievances against the ordinance were set forth in detail. There was the assertion of its
being beyond the powers of the Municipal Board of the City of Manila to enact insofar as it would regulate motels,
on the ground that in the revised charter of the City of Manila or in any other law, no reference is made to motels;
that Section 1 of the challenged ordinance is unconstitutional and void for being unreasonable and violative of
due process insofar as it would impose P6,000.00 fee per annum for first class motels and P4,500.00 for second
class motels; that the provision in the same section which would require the owner, manager, keeper or duly
authorized representative of a hotel, motel, or lodging house to refrain from entertaining or accepting any guest or
customer or letting any room or other quarter to any person or persons without his filling up the prescribed form in
a lobby open to public view at all times and in his presence, wherein the surname, given name and middle name,
the date of birth, the address, the occupation, the sex, the nationality, the length of stay and the number of
companions in the room, if any, with the name, relationship, age and sex would be specified, with data furnished
as to his residence certificate as well as his passport number, if any, coupled with a certification that a person
signing such form has personally filled it up and affixed his signature in the presence of such owner, manager,
keeper or duly authorized representative, with such registration forms and records kept and bound together, it
also being provided that the premises and facilities of such hotels, motels and lodging houses would be open for
inspection either by the City Mayor, or the Chief of Police, or their duly authorized representatives is
unconstitutional and void again on due process grounds, not only for being arbitrary, unreasonable or oppressive
but also for being vague, indefinite and uncertain, and likewise for the alleged invasion of the right to privacy and
the guaranty against self-incrimination; that Section 2 of the challenged ordinance classifying motels into two
classes and requiring the maintenance of certain minimum facilities in first class motels such as a telephone in
each room, a dining room or, restaurant and laundry similarly offends against the due process clause for being
arbitrary, unreasonable and oppressive, a conclusion which applies to the portion of the ordinance requiring
second class motels to have a dining room; that the provision of Section 2 of the challenged ordinance prohibiting
a person less than 18 years old from being accepted in such hotels, motels, lodging houses, tavern or common
inn unless accompanied by parents or a lawful guardian and making it unlawful for the owner, manager, keeper
or duly authorized representative of such establishments to lease any room or portion thereof more than twice
every 24 hours, runs counter to the due process guaranty for lack of certainty and for its unreasonable, arbitrary
and oppressive character; and that insofar as the penalty provided for in Section 4 of the challenged ordinance
for a subsequent conviction would, cause the automatic cancellation of the license of the offended party, in effect
causing the destruction of the business and loss of its investments, there is once again a transgression of the due
process clause.

There was a plea for the issuance of preliminary injunction and for a final judgment declaring the above
ordinance null and void and unenforceable. The lower court on July 6, 1963 issued a writ of preliminary injunction
ordering respondent Mayor to refrain from enforcing said Ordinance No. 4760 from and after July 8, 1963.

In the a answer filed on August 3, 1963, there was an admission of the personal circumstances regarding the
respondent Mayor and of the fact that petitioners are licensed to engage in the hotel or motel business in the City
of Manila, of the provisions of the cited Ordinance but a denial of its alleged nullity, whether on statutory or
constitutional grounds. After setting forth that the petition did fail to state a cause of action and that the
challenged ordinance bears a reasonable relation, to a proper purpose, which is to curb immorality, a valid and
proper exercise of the police power and that only the guests or customers not before the court could complain of
the alleged invasion of the right to privacy and the guaranty against self incrimination, with the assertion that the
issuance of the preliminary injunction ex parte was contrary to law, respondent Mayor prayed for, its dissolution
and the dismissal of the petition.

Instead of evidence being offered by both parties, there was submitted a stipulation of facts dated September 28,
1964, which reads:

1. That the petitioners Ermita-Malate Hotel and Motel Operators Association, Inc. and Hotel del Mar Inc.
are duly organized and existing under the laws of the Philippines, both with offices in the City of Manila,
while the petitioner Go Chin is the president and general manager of Hotel del Mar Inc., and the
intervenor Victor Alabanza is a resident of Baguio City, all having the capacity to sue and be sued;

2. That the respondent Mayor is the duly elected and incumbent City Mayor and chief executive of the
City of Manila charged with the general power and duty to enforce ordinances of the City of Manila and to
give the necessary orders for the faithful execution and enforcement of such ordinances;

3. That the petitioners are duly licensed to engage in the business of operating hotels and motels in
Malate and Ermita districts in Manila;

4. That on June 13, 1963, the Municipal Board of the City of Manila enacted Ordinance No. 4760, which
was approved on June 14, 1963, by Vice-Mayor Herminio Astorga, then the acting City Mayor of Manila,
in the absence of the respondent regular City Mayor, amending sections 661, 662, 668-a, 668-b and 669
of the compilation of the ordinances of the City of Manila besides inserting therein three new sections.
This ordinance is similar to the one vetoed by the respondent Mayor (Annex A) for the reasons stated in
its 4th Indorsement dated February 15, 1963 (Annex B);

5. That the explanatory note signed by then Councilor Herminio Astorga was submitted with the proposed
ordinance (now Ordinance 4760) to the Municipal Board, copy of which is attached hereto as Annex C;

6. That the City of Manila derived in 1963 an annual income of P101,904.05 from license fees paid by the
105 hotels and motels (including herein petitioners) operating in the City of Manila.1äwphï1.ñët

Thereafter came a memorandum for respondent on January 22, 1965, wherein stress was laid on the
presumption of the validity of the challenged ordinance, the burden of showing its lack of conformity to the
Constitution resting on the party who assails it, citing not only U.S. v. Salaveria, but likewise applicable American
authorities. Such a memorandum likewise refuted point by point the arguments advanced by petitioners against
its validity. Then barely two weeks later, on February 4, 1965, the memorandum for petitioners was filed
reiterating in detail what was set forth in the petition, with citations of what they considered to be applicable
American authorities and praying for a judgment declaring the challenged ordinance "null and void and
unenforceable" and making permanent the writ of preliminary injunction issued.
After referring to the motels and hotels, which are members of the petitioners association, and referring to the
alleged constitutional questions raised by the party, the lower court observed: "The only remaining issue here
being purely a question of law, the parties, with the nod of the Court, agreed to file memoranda and thereafter, to
submit the case for decision of the Court." It does appear obvious then that without any evidence submitted by
the parties, the decision passed upon the alleged infirmity on constitutional grounds of the challenged ordinance,
dismissing as is undoubtedly right and proper the untenable objection on the alleged lack of authority of the City
of Manila to regulate motels, and came to the conclusion that "the challenged Ordinance No. 4760 of the City of
Manila, would be unconstitutional and, therefore, null and void." It made permanent the preliminary injunction
issued against respondent Mayor and his agents "to restrain him from enforcing the ordinance in question."
Hence this appeal.

As noted at the outset, the judgment must be reversed. A decent regard for constitutional doctrines of a
fundamental character ought to have admonished the lower court against such a sweeping condemnation of the
challenged ordinance. Its decision cannot be allowed to stand, consistently with what has hitherto been the
accepted standards of constitutional adjudication, in both procedural and substantive aspects.

Primarily what calls for a reversal of such a decision is the absence of any evidence to offset the presumption of
validity that attaches to a challenged statute or ordinance. As was expressed categorically by Justice Malcolm:
"The presumption is all in favor of validity x x x . The action of the elected representatives of the people cannot be
lightly set aside. The councilors must, in the very nature of things, be familiar with the necessities of their
particular municipality and with all the facts and circumstances which surround the subject and necessitate action.
The local legislative body, by enacting the ordinance, has in effect given notice that the regulations are essential
to the well being of the people x x x . The Judiciary should not lightly set aside legislative action when there is not
a clear invasion of personal or property rights under the guise of police regulation.2

It admits of no doubt therefore that there being a presumption of validity, the necessity for evidence to rebut it is
unavoidable, unless the statute or ordinance is void on its face which is not the case here. The principle has been
nowhere better expressed than in the leading case of O'Gorman & Young v. Hartford Fire Insurance Co.,3 where
the American Supreme Court through Justice Brandeis tersely and succinctly summed up the matter thus: The
statute here questioned deals with a subject clearly within the scope of the police power. We are asked to declare
it void on the ground that the specific method of regulation prescribed is unreasonable and hence deprives the
plaintiff of due process of law. As underlying questions of fact may condition the constitutionality of legislation of
this character, the resumption of constitutionality must prevail in the absence of some factual foundation of record
for overthrowing the statute." No such factual foundation being laid in the present case, the lower court deciding
the matter on the pleadings and the stipulation of facts, the presumption of validity must prevail and the judgment
against the ordinance set aside.

Nor may petitioners assert with plausibility that on its face the ordinance is fatally defective as being repugnant to
the due process clause of the Constitution. The mantle of protection associated with the due process guaranty
does not cover petitioners. This particular manifestation of a police power measure being specifically aimed to
safeguard public morals is immune from such imputation of nullity resting purely on conjecture and unsupported
by anything of substance. To hold otherwise would be to unduly restrict and narrow the scope of police power
which has been properly characterized as the most essential, insistent and the least limitable of
powers,4 extending as it does "to all the great public needs."5 It would be, to paraphrase another leading decision,
to destroy the very purpose of the state if it could be deprived or allowed itself to be deprived of its competence to
promote public health, public morals, public safety and the genera welfare.6 Negatively put, police power is "that
inherent and plenary power in the State which enables it to prohibit all that is hurt full to the comfort, safety, and
welfare of society.7

There is no question but that the challenged ordinance was precisely enacted to minimize certain practices
hurtful to public morals. The explanatory note of the Councilor Herminio Astorga included as annex to the
stipulation of facts, speaks of the alarming increase in the rate of prostitution, adultery and fornication in Manila
traceable in great part to the existence of motels, which "provide a necessary atmosphere for clandestine entry,
presence and exit" and thus become the "ideal haven for prostitutes and thrill-seekers." The challenged
ordinance then proposes to check the clandestine harboring of transients and guests of these establishments by
requiring these transients and guests to fill up a registration form, prepared for the purpose, in a lobby open to
public view at all times, and by introducing several other amendatory provisions calculated to shatter the privacy
that characterizes the registration of transients and guests." Moreover, the increase in the licensed fees was
intended to discourage "establishments of the kind from operating for purpose other than legal" and at the same
time, to increase "the income of the city government." It would appear therefore that the stipulation of facts, far
from sustaining any attack against the validity of the ordinance, argues eloquently for it.

It is a fact worth noting that this Court has invariably stamped with the seal of its approval, ordinances punishing
vagrancy and classifying a pimp or procurer as a vagrant;8 provide a license tax for and regulating the
maintenance or operation of public dance halls;9 prohibiting gambling;10 prohibiting jueteng;11 and
monte;12 prohibiting playing of panguingui on days other than Sundays or legal holidays;13 prohibiting the
operation of pinball machines;14 and prohibiting any person from keeping, conducting or maintaining an opium
joint or visiting a place where opium is smoked or otherwise used,15 all of which are intended to protect public
morals.

On the legislative organs of the government, whether national or local, primarily rest the exercise of the police
power, which, it cannot be too often emphasized, is the power to prescribe regulations to promote the health,
morals, peace, good order, safety and general welfare of the people. In view of the requirements of due process,
equal protection and other applicable constitutional guaranties however, the exercise of such police power insofar
as it may affect the life, liberty or property of any person is subject to judicial inquiry. Where such exercise of
police power may be considered as either capricious, whimsical, unjust or unreasonable, a denial of due process
or a violation of any other applicable constitutional guaranty may call for correction by the courts.

We are thus led to considering the insistent, almost shrill tone, in which the objection is raised to the question of
due process.16 There is no controlling and precise definition of due process. It furnishes though a standard to
which the governmental action should conform in order that deprivation of life, liberty or property, in each
appropriate case, be valid. What then is the standard of due process which must exist both as a procedural and a
substantive requisite to free the challenged ordinance, or any governmental action for that matter, from the
imputation of legal infirmity sufficient to spell its doom? It is responsiveness to the supremacy of reason,
obedience to the dictates of justice. Negatively put, arbitrariness is ruled out and unfairness avoided. To satisfy
the due process requirement, official action, to paraphrase Cardozo, must not outrun the bounds of reason and
result in sheer oppression. Due process is thus hostile to any official action marred by lack of reasonableness.
Correctly it has been identified as freedom from arbitrariness. It is the embodiment of the sporting idea of fair
play.17 It exacts fealty "to those strivings for justice" and judges the act of officialdom of whatever branch "in the
light of reason drawn from considerations of fairness that reflect [democratic] traditions of legal and political
thought."18 It is not a narrow or "technical conception with fixed content unrelated to time, place and
circumstances,"19 decisions based on such a clause requiring a "close and perceptive inquiry into fundamental
principles of our society."20 Questions of due process are not to be treated narrowly or pedantically in slavery to
form or phrases.21

It would thus be an affront to reason to stigmatize an ordinance enacted precisely to meet what a municipal
lawmaking body considers an evil of rather serious proportion an arbitrary and capricious exercise of authority. It
would seem that what should be deemed unreasonable and what would amount to an abdication of the power to
govern is inaction in the face of an admitted deterioration of the state of public morals. To be more specific, the
Municipal Board of the City of Manila felt the need for a remedial measure. It provided it with the enactment of the
challenged ordinance. A strong case must be found in the records, and, as has been set forth, none is even
attempted here to attach to an ordinance of such character the taint of nullity for an alleged failure to meet the
due process requirement. Nor does it lend any semblance even of deceptive plausibility to petitioners' indictment
of Ordinance No. 4760 on due process grounds to single out such features as the increased fees for motels and
hotels, the curtailment of the area of freedom to contract, and, in certain particulars, its alleged vagueness.

Admittedly there was a decided increase of the annual license fees provided for by the challenged ordinance for
hotels and motels, 150% for the former and over 200% for the latter, first-class motels being required to pay a
P6,000 annual fee and second-class motels, P4,500 yearly. It has been the settled law however, as far back as
1922 that municipal license fees could be classified into those imposed for regulating occupations or regular
enterprises, for the regulation or restriction of non-useful occupations or enterprises and for revenue purposes
only.22 As was explained more in detail in the above Cu Unjieng case: (2) Licenses for non-useful occupations are
also incidental to the police power and the right to exact a fee may be implied from the power to license and
regulate, but in fixing amount of the license fees the municipal corporations are allowed a much wider discretion
in this class of cases than in the former, and aside from applying the well-known legal principle that municipal
ordinances must not be unreasonable, oppressive, or tyrannical, courts have, as a general rule, declined to
interfere with such discretion. The desirability of imposing restraint upon the number of persons who might
otherwise engage in non-useful enterprises is, of course, generally an important factor in the determination of the
amount of this kind of license fee. Hence license fees clearly in the nature of privilege taxes for revenue have
frequently been upheld, especially in of licenses for the sale of liquors. In fact, in the latter cases the fees have
rarely been declared unreasonable.23

Moreover in the equally leading case of Lutz v. Araneta24 this Court affirmed the doctrine earlier announced by
the American Supreme Court that taxation may be made to implement the state's police power. Only the other
day, this Court had occasion to affirm that the broad taxing authority conferred by the Local Autonomy Act of
1959 to cities and municipalities is sufficiently plenary to cover a wide range of subjects with the only limitation
that the tax so levied is for public purposes, just and uniform.25

As a matter of fact, even without reference to the wide latitude enjoyed by the City of Manila in imposing licenses
for revenue, it has been explicitly held in one case that "much discretion is given to municipal corporations in
determining the amount," here the license fee of the operator of a massage clinic, even if it were viewed purely as
a police power measure.26 The discussion of this particular matter may fitly close with this pertinent citation from
another decision of significance: "It is urged on behalf of the plaintiffs-appellees that the enforcement of the
ordinance could deprive them of their lawful occupation and means of livelihood because they can not rent stalls
in the public markets. But it appears that plaintiffs are also dealers in refrigerated or cold storage meat, the sale
of which outside the city markets under certain conditions is permitted x x x . And surely, the mere fact, that some
individuals in the community may be deprived of their present business or a particular mode of earning a living
cannot prevent the exercise of the police power. As was said in a case, persons licensed to pursue occupations
which may in the public need and interest be affected by the exercise of the police power embark in these
occupations subject to the disadvantages which may result from the legal exercise of that power."27

Nor does the restriction on the freedom to contract, insofar as the challenged ordinance makes it unlawful for the
owner, manager, keeper or duly authorized representative of any hotel, motel, lodging house, tavern, common
inn or the like, to lease or rent room or portion thereof more than twice every 24 hours, with a proviso that in all
cases full payment shall be charged, call for a different conclusion. Again, such a limitation cannot be viewed as
a transgression against the command of due process. It is neither unreasonable nor arbitrary. Precisely it was
intended to curb the opportunity for the immoral or illegitimate use to which such premises could be, and,
according to the explanatory note, are being devoted. How could it then be arbitrary or oppressive when there
appears a correspondence between the undeniable existence of an undesirable situation and the legislative
attempt at correction. Moreover, petitioners cannot be unaware that every regulation of conduct amounts to
curtailment of liberty which as pointed out by Justice Malcolm cannot be absolute. Thus: "One thought which runs
through all these different conceptions of liberty is plainly apparent. It is this: 'Liberty' as understood in
democracies, is not license; it is 'liberty regulated by law.' Implied in the term is restraint by law for the good of the
individual and for the greater good of the peace and order of society and the general well-being. No man can do
exactly as he pleases. Every man must renounce unbridled license. The right of the individual is necessarily
subject to reasonable restraint by general law for the common good x x x The liberty of the citizen may be
restrained in the interest of the public health, or of the public order and safety, or otherwise within the proper
scope of the police power."28

A similar observation was made by Justice Laurel: "Public welfare, then, lies at the bottom of the enactment of
said law, and the state in order to promote the general welfare may interfere with personal liberty, with property,
and with business and occupations. Persons and property may be subjected to all kinds of restraints and burdens,
in order to secure the general comfort, health, and prosperity of the state x x x To this fundamental aim of our
Government the rights of the individual are subordinated. Liberty is a blessing without which life is a misery, but
liberty should not be made to prevail over authority because then society will fall into anarchy. Neither should
authority be made to prevail over liberty because then the individual will fall into slavery. The citizen should
achieve the required balance of liberty and authority in his mind through education and personal discipline, so
that there may be established the resultant equilibrium, which means peace and order and happiness for all.29

It is noteworthy that the only decision of this Court nullifying legislation because of undue deprivation of freedom
to contract, People v. Pomar,30 no longer "retains its virtuality as a living principle. The policy of laissez faire has
to some extent given way to the assumption by the government of the right of intervention even in contractual
relations affected with public interest.31 What may be stressed sufficiently is that if the liberty involved were
freedom of the mind or the person, the standard for the validity of governmental acts is much more rigorous and
exacting, but where the liberty curtailed affects at the most rights of property, the permissible scope of regulatory
measure is wider.32 How justify then the allegation of a denial of due process?

Lastly, there is the attempt to impugn the ordinance on another due process ground by invoking the principles of
vagueness or uncertainty. It would appear from a recital in the petition itself that what seems to be the gravamen
of the alleged grievance is that the provisions are too detailed and specific rather than vague or uncertain.
Petitioners, however, point to the requirement that a guest should give the name, relationship, age and sex of the
companion or companions as indefinite and uncertain in view of the necessity for determining whether the
companion or companions referred to are those arriving with the customer or guest at the time of the registry or
entering the room With him at about the same time or coming at any indefinite time later to join him; a proviso in
one of its sections which cast doubt as to whether the maintenance of a restaurant in a motel is dependent upon
the discretion of its owners or operators; another proviso which from their standpoint would require a guess as to
whether the "full rate of payment" to be charged for every such lease thereof means a full day's or merely a half-
day's rate. It may be asked, do these allegations suffice to render the ordinance void on its face for alleged
vagueness or uncertainty? To ask the question is to answer it. From Connally v. General Construction
Co.33 to Adderley v. Florida,34 the principle has been consistently upheld that what makes a statute susceptible to
such a charge is an enactment either forbidding or requiring the doing of an act that men of common intelligence
must necessarily guess at its meaning and differ as to its application. Is this the situation before us? A citation
from Justice Holmes would prove illuminating: "We agree to all the generalities about not supplying criminal laws
with what they omit but there is no canon against using common sense in construing laws as saying what they
obviously mean."35

That is all then that this case presents. As it stands, with all due allowance for the arguments pressed with such
vigor and determination, the attack against the validity of the challenged ordinance cannot be considered a
success. Far from it. Respect for constitutional law principles so uniformly held and so uninterruptedly adhered to
by this Court compels a reversal of the appealed decision.

Wherefore, the judgment of the lower court is reversed and the injunction issued lifted forthwith. With costs.

Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and Angeles, JJ., concur.
Concepcion, C.J. and Dizon, J., are on leave.
ROMEO P. GEROCHI, G.R. No. 159796
KATULONG NG BAYAN (KB)
and ENVIRONMENTALIST Present:
CONSUMERS NETWORK, INC.
(ECN), PUNO, C.J.,
Petitioners, QUISUMBING,
YNARES-SANTIAGO,
-versus- SANDOVAL-GUTIERREZ,
CARPIO,
DEPARTMENT OF ENERGY AUSTRIA-MARTINEZ,
(DOE), ENERGY REGULATORY CORONA,
COMMISSION (ERC), CARPIO MORALES,
NATIONAL POWER AZCUNA,
CORPORATION (NPC), POWER TINGA,
SECTOR ASSETS AND CHICO-NAZARIO,
LIABILITIES MANAGEMENT GARCIA,
GROUP (PSALM Corp.), VELASCO, JR. and
STRATEGIC POWER NACHURA, JJ.
UTILITIES GROUP (SPUG),
and PANAYELECTRIC Promulgated:
COMPANY INC. (PECO),
Respondents. July 17, 2007

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

DECISION

NACHURA, J.:

Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist Consumers

Network, Inc. (ECN) (petitioners), come before this Court in this original action praying that
Section 34 of Republic Act (RA) 9136, otherwise known as the Electric Power Industry
Reform Act of 2001 (EPIRA), imposing the Universal Charge,[1] and Rule 18 of the Rules
and Regulations (IRR)[2] which seeks to implement the said imposition, be declared
unconstitutional. Petitioners also pray that the Universal Charge imposed upon the consumers
be refunded and that a preliminary injunction and/or temporary restraining order (TRO) be
issued directing the respondents to refrain from implementing, charging, and collecting the
said charge.[3] The assailed provision of law reads:
 SECTION 34. Universal Charge. Within one (1) year from the effectivity of
this Act, a universal charge to be determined, fixed and approved by the ERC, shall
be imposed on all electricity end-users for the following purposes:

(a) Payment for the stranded debts[4] in excess of the amount assumed by the
National Government and stranded contract costs of NPC[5] and as well as
qualified stranded contract costs of distribution utilities resulting from the
restructuring of the industry;

(b) Missionary electrification;[6]

(c) The equalization of the taxes and royalties applied to indigenous or renewable
sources of energy vis--vis imported energy fuels;

(d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-

hour (P0.0025/kWh), which shall accrue to an environmental fund to be used
solely for watershed rehabilitation and management. Said fund shall be
managed by NPC under existing arrangements; and

(e) A charge to account for all forms of cross-subsidies for a period not exceeding
three (3) years.

The universal charge shall be a non-bypassable charge which shall be passed on and
collected from all end-users on a monthly basis by the distribution utilities.
Collections by the distribution utilities and the TRANSCO in any given month shall
be remitted to the PSALM Corp. on or before the fifteenth (15th) of the succeeding
month, net of any amount due to the distribution utility. Any end-user or self-
generating entity not connected to a distribution utility shall remit its corresponding
universal charge directly to the TRANSCO. The PSALM Corp., as administrator of
the fund, shall create a Special Trust Fund which shall be disbursed only for the
purposes specified herein in an open and transparent manner. All amount collected
for the universal charge shall be distributed to the respective beneficiaries within a
reasonable period to be provided by the ERC.

The Facts

Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect.[7]

On April 5, 2002, respondent National Power Corporation-Strategic Power Utilities

Group[8] (NPC-SPUG) filed with respondent Energy Regulatory Commission (ERC) a
petition for the availment from the Universal Charge of its share for Missionary
Electrification, docketed as ERC Case No. 2002-165.[9]
On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case No. 2002-194,
praying that the proposed share from the Universal Charge for the Environmental charge
of P0.0025 per kilowatt-hour (/kWh), or a total of P119,488,847.59, be approved for
withdrawal from the Special
Trust Fund (STF)managed by respondent Power Sector Assets and

Liabilities Management Group (PSALM)[10] for the rehabilitation and management of

watershed areas.[11]

On December 20, 2002, the ERC issued an Order[12] in ERC Case No. 2002-165 provisionally
approving the computed amount of P0.0168/kWh as the share of the NPC-SPUG from the
Universal Charge for Missionary Electrification and authorizing the National Transmission
Corporation (TRANSCO) and Distribution Utilities to collect the same from its end-users on
a monthly basis.

On June 26, 2003, the ERC rendered its Decision[13] (for ERC Case No. 2002-165) modifying
its Order of December 20, 2002, thus:

WHEREFORE, the foregoing premises considered, the provisional authority

granted to petitioner National Power Corporation-Strategic Power Utilities Group
(NPC-SPUG) in the Order dated December 20, 2002 is hereby modified to the
effect that an additional amount of P0.0205 per kilowatt-hour should be added to
the P0.0168 per kilowatt-hour provisionally authorized by the Commission in the
said Order. Accordingly, a total amount of P0.0373 per kilowatt-hour is hereby
APPROVED for withdrawal from the Special Trust Fund managed by PSALM as
its share from the Universal Charge for Missionary Electrification (UC-ME)
effective on the following billing cycles:

(a) June 26-July 25, 2003 for National Transmission Corporation

(TRANSCO); and
(b) July 2003 for Distribution Utilities (Dus).

Relative thereto, TRANSCO and Dus are directed to collect the UC-ME in
the amount of P0.0373 per kilowatt-hour and remit the same to PSALM on or
before the 15th day of the succeeding month.

In the meantime, NPC-SPUG is directed to submit, not later than April 30,
2004, a detailed report to include Audited Financial Statements and physical status
(percentage of completion) of the projects using the prescribed format.
 Let copies of this Order be furnished petitioner NPC-SPUG and all
distribution utilities (Dus).

SO ORDERED.

On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the ERC, among
others,[14] to set aside the above-mentioned Decision, which the ERC granted in its Order
dated October 7, 2003, disposing:

WHEREFORE, the foregoing premises considered, the Motion for Reconsideration

filed by petitioner National Power Corporation-Small Power Utilities Group (NPC-
SPUG) is hereby GRANTED. Accordingly, the Decision dated June 26, 2003 is
hereby modified accordingly.

Relative thereto, NPC-SPUG is directed to submit a quarterly report on the

following:

1. Projects for CY 2002 undertaken;

2. Location
3. Actual amount utilized to complete the project;
4. Period of completion;
5. Start of Operation; and
6. Explanation of the reallocation of UC-ME funds, if any.
SO ORDERED.[15]

Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, authorizing the NPC to
draw up to P70,000,000.00 from PSALM for its 2003 Watershed Rehabilitation Budget
subject to the availability of funds for the Environmental Fund component of the Universal
Charge.[16]

On the basis of the said ERC decisions, respondent Panay Electric Company, Inc. (PECO)
charged petitioner Romeo P. Gerochi and all other

end-users with the Universal Charge as reflected in their respective electric bills starting from
the month of July 2003.[17]
Hence, this original action.

Petitioners submit that the assailed provision of law and its IRR which sought to implement
the same are unconstitutional on the following grounds:
 1) The universal charge provided for under Sec. 34 of the EPIRA and sought to be
implemented under Sec. 2, Rule 18 of the IRR of the said law is a tax which is
to be collected from all electric end-users and self-generating entities. The
power to tax is strictly a legislative function and as such, the delegation of said
power to any executive or administrative agency like the ERC is
unconstitutional, giving the same unlimited authority. The assailed provision
clearly provides that the Universal Charge is to be determined, fixed and
approved by the ERC, hence leaving to the latter complete discretionary
legislative authority.

2) The ERC is also empowered to approve and determine where the funds
collected should be used.

3) The imposition of the Universal Charge on all end-users is oppressive and

confiscatory and amounts to taxation without representation as the consumers
were not given a chance to be heard and represented.[18]

Petitioners contend that the Universal Charge has the characteristics of a tax and is
collected to fund the operations of the NPC. They argue that the cases[19] invoked by the
respondents clearly show the regulatory purpose of the charges imposed therein, which is not
so in the case at bench. In said cases, the respective funds[20] were created in order to balance
and stabilize the prices of oil and sugar, and to act as buffer to counteract the changes and
adjustments in prices, peso devaluation, and other variables which cannot be adequately and
timely monitored by the legislature. Thus, there was a need to delegate powers to
administrative bodies.[21] Petitioners posit that the Universal Charge is imposed not for a
similar purpose.
On the other hand, respondent PSALM through the Office of the Government Corporate
Counsel (OGCC) contends that unlike a tax which is imposed to provide income for public
purposes, such as support of the government, administration of the law, or payment of public
expenses, the assailed Universal Charge is levied for a specific regulatory purpose, which is
to ensure the viability of the country's electric power industry. Thus, it is exacted by the State
in the exercise of its inherent police power. On this premise, PSALM submits that there is no
undue delegation of legislative power to the ERC since the latter merely exercises a limited
authority or discretion as to the execution and implementation of the provisions of the
EPIRA.[22]

Respondents Department of Energy (DOE), ERC, and NPC, through the Office of the
Solicitor General (OSG), share the same view that the Universal Charge is not a tax because
it is levied for a specific regulatory purpose, which is to ensure the viability of the country's
electric power industry, and is, therefore, an exaction in the exercise of the State's police
power. Respondents further contend that said Universal Charge does not possess the essential
characteristics of a tax, that its imposition would redound to the benefit of the electric power
industry and not to the public, and that its rate is uniformly levied on electricity end-users,
unlike a tax which is imposed based on the individual taxpayer's ability to pay. Moreover,
respondents deny that there is undue delegation of legislative power to the ERC since the
EPIRA sets forth sufficient determinable standards which would guide the ERC in the
exercise of the powers granted to it. Lastly, respondents argue that the imposition of the
Universal Charge is not oppressive and confiscatory since it is an exercise of the police power
of the State and it complies with the requirements of due process.[23]

On its part, respondent PECO argues that it is duty-bound to collect and remit the amount
pertaining to the Missionary Electrification and Environmental Fund components of the
Universal Charge, pursuant to Sec. 34 of the EPIRA and the Decisions in ERC Case Nos.
2002-194 and 2002-165. Otherwise, PECO could be held liable under Sec. 46[24] of the
EPIRA, which imposes fines and penalties for any violation of its provisions or its IRR.[25]

The Issues

The ultimate issues in the case at bar are:

1) Whether or not, the Universal Charge imposed under Sec. 34 of the EPIRA is a
tax; and

2) Whether or not there is undue delegation of legislative power to tax on the part
of the ERC.[26]

Before we discuss the issues, the Court shall first deal with an obvious procedural lapse.

Petitioners filed before us an original action particularly denominated as a Complaint

assailing the constitutionality of Sec. 34 of the EPIRA imposing the Universal Charge and
Rule 18 of the EPIRA's IRR. No doubt, petitioners have locus standi. They impugn the
constitutionality of Sec. 34 of the EPIRA because they sustained a direct injury as a result of
the imposition of the Universal Charge as reflected in their electric bills.
 However, petitioners violated the doctrine of hierarchy of courts when they filed this
Complaint directly with us. Furthermore, the Complaint is bereft of any allegation of grave
abuse of discretion on the part of the ERC or any of the public respondents, in order for the
Court to consider it as a petition for certiorarior prohibition.

Article VIII, Section 5(1) and (2) of the 1987 Constitution[27] categorically provides
that:

SECTION 5. The Supreme Court shall have the following powers:

1. Exercise original jurisdiction over cases affecting ambassadors, other public

ministers and consuls, and over petitions for certiorari, prohibition, mandamus,
quo warranto, and habeas corpus.
2. Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or
the rules of court may provide, final judgments and orders of lower courts in:

(a) All cases in which the constitutionality or validity of any treaty,

international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in
question.

But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto,
and habeas corpus, while concurrent with that of the regional trial courts and the Court of
Appeals, does not give litigants unrestrained freedom of choice of forum from which to seek
such relief.[28] It has long been established that this Court will not entertain direct resort to it
unless the redress desired cannot be obtained in the appropriate courts, or where exceptional
and compelling circumstances justify availment of a remedy within and call for the exercise
of our primary jurisdiction.[29] This circumstance alone warrants the outright dismissal of the
present action.

This procedural infirmity notwithstanding, we opt to resolve the constitutional issue

raised herein. We are aware that if the constitutionality of Sec. 34 of the EPIRA is not
resolved now, the issue will certainly resurface in the near future, resulting in a repeat of this
litigation, and probably involving the same parties. In the public interest and to avoid
unnecessary delay, this Court renders its ruling now.

The instant complaint is bereft of merit.

The First Issue

To resolve the first issue, it is necessary to distinguish the States power of taxation
from the police power.

The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in
its very nature no limits, so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the constituency that is to pay
it.[30] It is based on the principle that taxes are the lifeblood of the government, and their
prompt and certain availability is an imperious need.[31] Thus, the theory behind the exercise
of the power to tax emanates from necessity; without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people.[32]

On the other hand, police power is the power of the state to promote public welfare by
restraining and regulating the use of liberty and property.[33] It is the most pervasive, the least
limitable, and the most demanding of the three fundamental powers of the State. The
justification is found in the Latin maxims salus populi est suprema lex (the welfare of the
people is the supreme law) and sic utere tuo ut alienum non laedas (so use your property as
not to injure the property of others). As an inherent attribute of sovereignty which virtually
extends to all public needs, police power grants a wide panoply of instruments through which
the State, as parens patriae, gives effect to a host of its regulatory powers.[34] We have held
that the power to "regulate" means the power to protect, foster, promote, preserve, and
control, with due regard for the interests, first and foremost, of the public, then of the utility
and of its patrons.[35]

The conservative and pivotal distinction between these two powers rests in the purpose
for which the charge is made. If generation of revenue is the primary purpose and regulation
is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact
that revenue is incidentally raised does not make the imposition a tax.[36]
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's police
power, particularly its regulatory dimension, is invoked. Such can be deduced from Sec. 34
which enumerates the purposes for which the Universal Charge is imposed [37] and which can
be amply discerned as regulatory in character. The EPIRA resonates such regulatory purposes,
thus:

SECTION 2. Declaration of Policy. It is hereby declared the policy of the State:

(a) To ensure and accelerate the total electrification of the country;

(b) To ensure the quality, reliability, security and affordability of the supply of
electric power;
(c) To ensure transparent and reasonable prices of electricity in a regime of free and
fair competition and full public accountability to achieve greater operational
and economic efficiency and enhance the competitiveness of Philippine
products in the global market;
(d) To enhance the inflow of private capital and broaden the ownership base of the
power generation, transmission and distribution sectors;
(e) To ensure fair and non-discriminatory treatment of public and private sector
entities in the process of restructuring the electric power industry;
(f) To protect the public interest as it is affected by the rates and services of electric
utilities and other providers of electric power;
(g) To assure socially and environmentally compatible energy sources and
infrastructure;
(h) To promote the utilization of indigenous and new and renewable energy
resources in power generation in order to reduce dependence on imported
energy;
(i) To provide for an orderly and transparent privatization of the assets and
liabilities of the National Power Corporation (NPC);
(j) To establish a strong and purely independent regulatory body and system to
ensure consumer protection and enhance the competitive operation of the
electricity market; and
(k) To encourage the efficient use of energy and other modalities of demand side
management.

From the aforementioned purposes, it can be gleaned that the assailed Universal Charge is not
a tax, but an exaction in the exercise of the State's police power. Public welfare is surely
promoted.

Moreover, it is a well-established doctrine that the taxing power may be used as an

implement of police power.[38] In Valmonte v. Energy Regulatory Board, et al.[39] and
in Gaston v. Republic Planters Bank,[40] this Court held that the Oil Price Stabilization Fund
(OPSF) and the Sugar Stabilization Fund (SSF) were exactions made in the exercise of the
police power. The doctrine was reiterated in Osmea v. Orbos[41] with respect to the
OPSF. Thus, we disagree with petitioners that the instant case is different from the
aforementioned cases. With the Universal Charge, a Special Trust Fund (STF) is also created
under the administration of PSALM.[42] The STF has some notable characteristics similar to
the OPSF and the SSF, viz.:

1) In the implementation of stranded cost recovery, the ERC shall conduct a

review to determine whether there is under-recovery or over recovery and adjust
(true-up) the level of the stranded cost recovery charge. In case of an over-
recovery, the ERC shall ensure that any excess amount shall be remitted to the
STF. A separate account shall be created for these amounts which shall be held
in trust for any future claims of distribution utilities for stranded cost recovery.
At the end of the stranded cost recovery period, any remaining amount in this
account shall be used to reduce the electricity rates to the end-users.[43]

2) With respect to the assailed Universal Charge, if the total amount collected for
the same is greater than the actual availments against it, the PSALM shall retain
the balance within the STF to pay for periods where a shortfall occurs.[44]

3) Upon expiration of the term of PSALM, the administration of the STF shall be
transferred to the DOF or any of the DOF attached agencies as designated by the
DOF Secretary.[45]

The OSG is in point when it asseverates:

Evidently, the establishment and maintenance of the Special Trust Fund, under the
last paragraph of Section 34, R.A. No. 9136, is well within the pervasive and non-
waivable power and responsibility of the government to secure the physical and
economic survival and well-being of the community, that comprehensive sovereign
authority we designate as the police power of the State.[46]

This feature of the Universal Charge further boosts the position that the same is an exaction
imposed primarily in pursuit of the State's police objectives. The STF reasonably serves and
assures the attainment and perpetuity of the purposes for which the Universal Charge is
imposed, i.e., to ensure the viability of the country's electric power industry.

The Second Issue

The principle of separation of powers ordains that each of the three branches of
government has exclusive cognizance of and is supreme in matters falling within its own
constitutionally allocated sphere. A logical corollary to the doctrine of separation of powers is
the principle of non-delegation of powers, as expressed in the Latin maxim potestas delegata
non delegari potest (what has been delegated cannot be delegated). This is based on the
ethical principle that such delegated power constitutes not only a right but a duty to be
performed by the delegate through the instrumentality of his own judgment and not through
the intervening mind of another. [47]

In the face of the increasing complexity of modern life, delegation of legislative power to
various specialized administrative agencies is allowed as an exception to this
principle.[48] Given the volume and variety of interactions in today's society, it is doubtful if
the legislature can promulgate laws that will deal adequately with and respond promptly to
the minutiae of everyday life. Hence, the need to delegate to administrative bodies - the
principal agencies tasked to execute laws in their specialized fields - the authority to
promulgate rules and regulations to implement a given statute and effectuate its policies. All
that is required for the valid exercise of this power of subordinate legislation is that the
regulation be germane to the objects and purposes of the law and that the regulation be not in
contradiction to, but in conformity with, the standards prescribed by the law. These
requirements are denominated as the completeness test and the sufficient standard test.

Under the first test, the law must be complete in all its terms and conditions when it leaves
the legislature such that when it reaches the delegate, the only thing he will have to do is to
enforce it. The second test mandates adequate guidelines or limitations in the law to
determine the boundaries of the delegate's authority and prevent the delegation from running
riot.[49]

The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec. 34
thereof, is complete in all its essential terms and conditions, and that it contains sufficient
standards.

Although Sec. 34 of the EPIRA merely provides that within one (1) year from the effectivity
thereof, a Universal Charge to be determined, fixed and approved by the ERC, shall be
imposed on all electricity end-users, and therefore, does not state the specific amount to be
paid as Universal Charge, the amount nevertheless is made certain by the legislative
parameters provided in the law itself. For one, Sec. 43(b)(ii) of the EPIRA provides:

SECTION 43. Functions of the ERC. The ERC shall promote competition,
encourage market development, ensure customer choice and penalize abuse of
market power in the restructured electricity industry. In appropriate cases, the ERC
is authorized to issue cease and desist order after due notice and hearing. Towards
this end, it shall be responsible for the following key functions in the restructured
industry:
 xxxx

(b) Within six (6) months from the effectivity of this Act, promulgate and enforce,
in accordance with law, a National Grid Code and a Distribution Code which shall
include, but not limited to the following:

xxxx

(ii) Financial capability standards for the generating companies, the TRANSCO,
distribution utilities and suppliers: Provided, That in the formulation of the financial
capability standards, the nature and function of the entity shall be considered:
Provided, further, That such standards are set to ensure that the electric power
industry participants meet the minimum financial standards to protect the public
interest. Determine, fix, and approve, after due notice and public hearings the
universal charge, to be imposed on all electricity end-users pursuant to Section 34
hereof;

Moreover, contrary to the petitioners contention, the ERC does not enjoy a wide latitude of
discretion in the determination of the Universal Charge. Sec. 51(d) and (e) of the
EPIRA[50] clearly provides:

SECTION 51. Powers. The PSALM Corp. shall, in the performance of its functions
and for the attainment of its objective, have the following powers:

xxxx

(d) To calculate the amount of the stranded debts and stranded contract costs of
NPC which shall form the basis for ERC in the determination of the
universal charge;

(e) To liquidate the NPC stranded contract costs, utilizing the proceeds from sales
and other property contributed to it, including the proceeds from the universal
charge.

Thus, the law is complete and passes the first test for valid delegation of legislative
power.
As to the second test, this Court had, in the past, accepted as sufficient standards the
following: "interest of law and order;"[51] "adequate and efficient instruction;"[52] "public
interest;"[53] "justice and equity;"[54] "public convenience and welfare;"[55] "simplicity,
economy and efficiency;"[56]"standardization and regulation of medical education;"[57] and
"fair and equitable employment practices."[58] Provisions of the EPIRA such as, among others,
to ensure the total electrification of the country and the quality, reliability, security and
affordability of the supply of electric power[59] and watershed rehabilitation and
management[60] meet the requirements for valid delegation, as they provide the limitations on
the ERCs power to formulate the IRR. These are sufficient standards.

It may be noted that this is not the first time that the ERC's conferred powers were challenged.
In Freedom from Debt Coalition v. Energy Regulatory Commission,[61] the Court had
occasion to say:

In determining the extent of powers possessed by the ERC, the provisions of the
EPIRA must not be read in separate parts. Rather, the law must be read in its
entirety, because a statute is passed as a whole, and is animated by one general
purpose and intent. Its meaning cannot to be extracted from any single part thereof
but from a general consideration of the statute as a whole. Considering the intent of
Congress in enacting the EPIRA and reading the statute in its entirety, it is plain to
see that the law has expanded the jurisdiction of the regulatory body, the ERC in
this case, to enable the latter to implement the reforms sought to be accomplished
by the EPIRA. When the legislators decided to broaden the jurisdiction of the ERC,
they did not intend to abolish or reduce the powers already conferred upon ERC's
predecessors. To sustain the view that the ERC possesses only the powers and
functions listed under Section 43 of the EPIRA is to frustrate the objectives of the
law.

In his Concurring and Dissenting Opinion[62] in the same case, then Associate Justice, now
Chief Justice, Reynato S. Puno described the immensity of police power in relation to the
delegation of powers to the ERC and its regulatory functions over electric power as a vital
public utility, to wit:

Over the years, however, the range of police power was no longer limited to
the preservation of public health, safety and morals, which used to be the primary
social interests in earlier times. Police power now requires the State to "assume an
affirmative duty to eliminate the excesses and injustices that are the concomitants
of an unrestrained industrial economy." Police power is now exerted "to further the
public welfare a concept as vast as the good of society itself." Hence, "police power
is but another name for the governmental authority to further the welfare of society
 that is the basic end of all government." When police power is delegated to
administrative bodies with regulatory functions, its exercise should be given a wide
latitude. Police power takes on an even broader dimension in developing countries
such as ours, where the State must take a more active role in balancing the many
conflicting interests in society. The Questioned Order was issued by the ERC,
acting as an agent of the State in the exercise of police power. We should have
exceptionally good grounds to curtail its exercise. This approach is more
compelling in the field of rate-regulation of electric power rates. Electric power
generation and distribution is a traditional instrument of economic growth that
affects not only a few but the entire nation. It is an important factor in encouraging
investment and promoting business. The engines of progress may come to a
screeching halt if the delivery of electric power is impaired. Billions of pesos would
be lost as a result of power outages or unreliable electric power services. The State
thru the ERC should be able to exercise its police power with great flexibility, when
the need arises.

This was reiterated in National Association of Electricity Consumers for Reforms v. Energy
Regulatory Commission[63] where the Court held that the ERC, as regulator, should have
sufficient power to respond in real time to changes wrought by multifarious factors affecting
public utilities.

From the foregoing disquisitions, we therefore hold that there is no undue delegation of
legislative power to the ERC.

Petitioners failed to pursue in their Memorandum the contention in the Complaint that
the imposition of the Universal Charge on all end-users is oppressive and confiscatory, and
amounts to taxation without representation. Hence, such contention is deemed waived or
abandoned per Resolution[64] of August 3, 2004.[65] Moreover, the determination of whether
or not a tax is excessive, oppressive or confiscatory is an issue which essentially involves
questions of fact, and thus, this Court is precluded from reviewing the same.[66]

As a penultimate statement, it may be well to recall what this Court said of EPIRA:

One of the landmark pieces of legislation enacted by Congress in recent years is the
EPIRA. It established a new policy, legal structure and regulatory framework for
the electric power industry. The new thrust is to tap private capital for the
expansion and improvement of the industry as the large government debt and the
 highly capital-intensive character of the industry itself have long been
acknowledged as the critical constraints to the program. To attract private
investment, largely foreign, the jaded structure of the industry had to be addressed.
While the generation and transmission sectors were centralized and monopolistic,
the distribution side was fragmented with over 130 utilities, mostly small and
uneconomic. The pervasive flaws have caused a low utilization of existing
generation capacity; extremely high and uncompetitive power rates; poor quality of
service to consumers; dismal to forgettable performance of the government power
sector; high system losses; and an inability to develop a clear strategy for
overcoming these shortcomings.

Thus, the EPIRA provides a framework for the restructuring of the industry,
including the privatization of the assets of the National Power Corporation (NPC),
the transition to a competitive structure, and the delineation of the roles of various
government agencies and the private entities. The law ordains the division of the
industry into four (4) distinct
sectors, namely: generation, transmission, distribution and supply.
Corollarily, the NPC generating plants have to privatized and its transmission
business spun off and privatized thereafter.[67]

Finally, every law has in its favor the presumption of constitutionality, and to justify its
nullification, there must be a clear and unequivocal breach of the Constitution and not one
that is doubtful, speculative, or argumentative.[68] Indubitably, petitioners failed to overcome
this presumption in favor of the EPIRA.We find no clear violation of the Constitution which
would warrant a pronouncement that Sec. 34 of the EPIRA and Rule 18 of its IRR are
unconstitutional and void.

WHEREFORE, the instant case is hereby DISMISSED for lack of merit.

SO ORDERED.
G.R. No. L-68252 May 26, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP AGENCIES INC., and COURT OF
TAX APPEALS, respondents.

PUNO, J.:

For resolution is whether or not private respondent Tokyo Shipping Co. Ltd., is entitled to a refund or tax credit for
amounts representing pre-payment of income and common carrier's taxes under the National Internal Revenue
Code, section 24 (b) (2), as amended.1

Private respondent is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies,
Incorporated. It owns and operates tramper vessel M/V Gardenia. In December 1980, NASUTRA2 chartered M/V
Gardenia to load 16,500 metric tons of raw sugar in the Philippines.3 On December 23, 1980, Mr. Edilberto Lising,
the operations supervisor of Soriamont Agency,4 paid the required income and common carrier's taxes in the
respective sums of FIFTY-NINE THOUSAND FIVE HUNDRED TWENTY-THREE PESOS and SEVENTY-FIVE
CENTAVOS (P59,523.75) and FORTY-SEVEN THOUSAND SIX HUNDRED NINETEEN PESOS (P47,619.00),
or a total of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE
CENTAVOS (P107,142.75) based on the expected gross receipts of the vessel.5 Upon arriving, however, at
Guimaras Port of Iloilo, the vessel found no sugar for loading. On January 10, 1981, NASUTRA and private
respondent's agent mutually agreed to have the vessel sail for Japan without any cargo.

Claiming the pre-payment of income and common carrier's taxes as erroneous since no receipt was realized from
the charter agreement, private respondent instituted a claim for tax credit or refund of the sum ONE HUNDRED
SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75)
before petitioner Commissioner of Internal Revenue on March 23, 1981. Petitioner failed to act promptly on the
claim, hence, on May 14, 1981, private respondent filed a petition for review6 before public respondent Court of
Tax Appeals.

Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that taxes are
presumed to have been collected in accordance with law; that in an action for refund, the burden of proof is upon
the taxpayer to show that taxes are erroneously or illegally collected, and the taxpayer's failure to sustain said
burden is fatal to the action for refund; and that claims for refund are construed strictly against tax claimants.7

After trial, respondent tax court decided in favor of the private respondent. It held:

It has been shown in this case that 1) the petitioner has complied with the mentioned statutory
requirement by having filed a written claim for refund within the two-year period from date of
payment; 2) the respondent has not issued any deficiency assessment nor disputed the
correctness of the tax returns and the corresponding amounts of prepaid income and percentage
taxes; and 3) the chartered vessel sailed out of the Philippine port with absolutely no cargo laden
on board as cleared and certified by the Customs authorities; nonetheless 4) respondent's
apparent bit of reluctance in validating the legal merit of the claim, by and large, is tacked upon
the "examiner who is investigating petitioner's claim for refund which is the subject matter of this
case has not yet submitted his report. Whether or not respondent will present his evidence will
depend on the said report of the examiner." (Respondent's Manifestation and Motion dated
September 7, 1982). Be that as it may the case was submitted for decision by respondent on the
basis of the pleadings and records and by petitioner on the evidence presented by
counsel sans the respective memorandum.

An examination of the records satisfies us that the case presents no dispute as to relatively
simple material facts. The circumstances obtaining amply justify petitioner's righteous indignation
 to a more expeditious action. Respondent has offered no reason nor made effort to submit any
controverting documents to bash that patina of legitimacy over the claim. But as might well be,
towards the end of some two and a half years of seeming impotent anguish over the pendency,
the respondent Commissioner of Internal Revenue would furnish the satisfaction of ultimate
solution by manifesting that "it is now his turn to present evidence, however, the Appellate
Division of the BIR has already recommended the approval of petitioner's claim for refund subject
matter of this petition. The examiner who examined this case has also recommended the refund
of petitioner's claim. Without prejudice to withdrawing this case after the final approval of
petitioner's claim, the Court ordered the resetting to September 7, 1983." (Minutes of June 9,
1983 Session of the Court) We need not fashion any further issue into an apparently settled legal
situation as far be it from a comedy of errors it would be too much of a stretch to hold and deny
the refund of the amount of prepaid income and common carrier's taxes for which petitioner could
no longer be made accountable.

On August 3, 1984, respondent court denied petitioner's motion for reconsideration, hence, this petition for review
on certiorari.

Petitioner now contends: (1) private respondent has the burden of proof to support its claim of refund; (2) it failed
to prove that it did not realize any receipt from its charter agreement; and (3) it suppressed evidence when it did
not present its charter agreement.

We find no merit in the petition.

There is no dispute about the applicable law. It is section 24 (b) (2) of the National Internal Revenue Code which
at that time provides as follows:

A corporation organized, authorized, or existing under the laws of any foreign country, engaged in
trade or business within the Philippines, shall be taxable as provided in subsection (a) of this
section upon the total net income derived in the preceding taxable year from all sources within the
Philippines: Provided, however, That international carriers shall pay a tax of two and one-half per
cent (2 1/2%) on their gross Philippine billings: "Gross Philippine Billings" include gross revenue
realized from uplifts anywhere in the world by any international carrier doing business in the
Philippines of passage documents sold therein, whether for passenger, excess baggage or mail,
provided the cargo or mail originates from the Philippines. The gross revenue realized from the
said cargo or mail include the gross freight charge up to final destination. Gross revenue from
chartered flights originating from the Philippines shall likewise form part of "Gross Philippine
Billings" regardless of the place or payment of the passage documents . . . . .

Pursuant to this provision, a resident foreign corporation engaged in the transport of cargo is liable for taxes
depending on the amount of income it derives from sources within the Philippines. Thus, before such a tax
liability can be enforced the taxpayer must be shown to have earned income sourced from the Philippines.

We agree with petitioner that a claim for refund is in the nature of a claim for exemption8 and should be construed
in strictissimi juris against the taxpayer.9 Likewise, there can be no disagreement with petitioner's stance that
private respondent has the burden of proof to establish the factual basis of its claim for tax refund.

The pivotal issue involves a question of fact — whether or not the private respondent was able to prove that it
derived no receipts from its charter agreement, and hence is entitled to a refund of the taxes it pre-paid to the
government.

The respondent court held that sufficient evidence has been adduced by the private respondent proving that it
derived no receipt from its charter agreement with NASUTRA. This finding of fact rests on a rational basis, and
hence must be sustained. Exhibits "E", "F," and "G" positively show that the tramper vessel M/V "Gardenia"
arrived in Iloilo on January 10, 1981 but found no raw sugar to load and returned to Japan without any cargo
laden on board. Exhibit "E" is the Clearance Vessel to a Foreign Port issued by the District Collector of Customs,
Port of Iloilo while Exhibit "F" is the Certification by the Officer-in-Charge, Export Division of the Bureau of
Customs Iloilo. The correctness of the contents of these documents regularly issued by officials of the Bureau of
Customs cannot be doubted as indeed, they have not been contested by the petitioner. The records also reveal
that in the course of the proceedings in the court a quo, petitioner hedged and hawed when its turn came to
present evidence. At one point, its counsel manifested that the BIR examiner and the appellate division of the
BIR have both recommended the approval of private respondent's claim for refund. The same counsel even
represented that the government would withdraw its opposition to the petition after final approval of private
respondents' claim. The case dragged on but petitioner never withdrew its opposition to the petition even if it did
not present evidence at all. The insincerity of petitioner's stance drew the sharp rebuke of respondent court in its
Decision and for good reason. Taxpayers owe honesty to government just as government owes fairness to
taxpayers.

In its last effort to retain the money erroneously prepaid by the private respondent, petitioner contends that
private respondent suppressed evidence when it did not present its charter agreement with NASUTRA. The
contention cannot succeed. It presupposes without any basis that the charter agreement is prejudicial evidence
against the private respondent. 10 Allegedly, it will show that private respondent earned a charter fee with or
without transporting its supposed cargo from Iloilo to Japan. The allegation simply remained an allegation and no
court of justice will regard it as truth. Moreover, the charter agreement could have been presented by petitioner
itself thru the proper use of a subpoena duces tecum. It never did either because of neglect or because it knew it
would be of no help to bolster its position. 11 For whatever reason, the petitioner cannot take to task the private
respondent for not presenting what it mistakenly calls "suppressed evidence."

We cannot but bewail the unyielding stance taken by the government in refusing to refund the sum of ONE
HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS AND SEVENTY FIVE CENTAVOS
(P107,142.75) erroneously prepaid by private respondent. The tax was paid way back in 1980 and despite the
clear showing that it was erroneously paid, the government succeeded in delaying its refund for fifteen (15) years.
After fifteen (15) long years and the expenses of litigation, the money that will be finally refunded to the private
respondent is just worth a damaged nickel. This is not, however, the kind of success the government, especially
the BIR, needs to increase its collection of taxes. Fair deal is expected by our taxpayers from the BIR and the
duty demands that BIR should refund without any unreasonable delay what it has erroneously collected. Our
ruling in Roxas v. Court of Tax Appeals 12 is apropos to recall:

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.

IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals, dated September 15, 1983, is
AFFIRMED in toto. No costs.

SO ORDERED.