NPC v.

Cabanatuan City

Action:
A petition for review of the Decision and the Resolution of the CA
finding NPC liable to pay franchise tax to City of Cabanatuan.

Fact:
NAPOCOR, the petitioner, is a government-owned and controlled
corporation created under Commonwealth Act 120. It is tasked to
undertake the development of hydroelectric generations of
power and the production of electricity from nuclear, geothermal,
and other sources, as well as, the transmission of electric power
on a nationwide basis.

For many years now, NAPOCOR sells electric power to the resident
Cabanatuan City. Pursuant to Sec. 37 of Ordinance No. 165-92,
the respondent assessed the petitioner a franchise tax
representing 75% of 1% of the formers gross receipts for the
preceding year.

Petitioner, whose capital stock was subscribed and wholly paid by

the Philippine Government, refused to pay the tax assessment. It
argued that the respondent has no authority to impose tax on
government entities. Petitioner also contend that as a non-profit
organization, it is exempted from the payment of all forms of
taxes, charges, duties or fees in accordance with Sec. 13 of RA
6395, as amended.

Issue:
(1) Is the NAPOCOR excluded from the coverage of the franchise
tax simply because its stocks are wholly owned by the National
Government and its charter characterized is as a non-profit
organization?
(2) Is the NAPOCORs exemption from all forms of taxes repealed
by the provisions of the Local Government Code (LGC)?

Held:
(1) NO. To stress, a franchise tax is imposed based not on the
ownership but on the exercise by the corporation of a privilege to
do business. The taxable entity is the corporation which exercises
the franchise, and not the individual stockholders. By virtue of its
charter, petitioner was created as a separate and distinct entity
from the National Government. It can sue and be sued under its
own name, and can exercise all the powers of a corporation under
the Corporation Code.

To be sure, the ownership by the National Government of its entire

capital stock does not necessarily imply that petitioner is not
engaged in business.

(2) YES. One of the most significant provisions of the LGC is the
removal of the blanket exclusion of instrumentalities and agencies
of the National Government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees, or
charges of any kind on the National Government, its agencies and
instrumentalities, this rule now admits an exception, i.e. when
specific provisions of the LGC authorize the LGUs to impose taxes,

fees, or charges on the aforementioned entities. The legislative

purpose to withdraw tax privileges enjoyed under existing laws or
charter is clearly manifested by the language used on Sec. 137
and 193 categorically withdrawing such exemption subject only to
the exceptions enumerated. Since it would be tedious and
impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC
provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could
have been used.
Facts: City of Cabanatuan filed a collection suit against NAPOCOR, a
government-owned and controlled corporation demanding that the latter
pay the assessed franchise tax due, plus surcharge and interest.
It alleged that NAPOCORs exemption from local taxes has already been
withdrawn by the Local Government Code. NAPOCOR submitted that it is
not liable to pay an annual franchise because the citys taxing power is
limited to private entities that are engaged in trade or occupation for profit,
and that the NAPOCOR Charter, being a valid exercise of police power,
should
prevail
over
the
LGC.
Issue: Whether NAPOCOR is liable to pay annual franchise tax to the City
of Cabanatuan
Held: Yes. The power to tax is no longer vested exclusively on Congress;
local legislative bodies are now given direct authority to levy taxes, fees
and other charges. Although as a general rule, LGUs cannot impose taxes,
fees or charges of any kind on the National Government, its agencies and
instrumentalities, this rule now admits of an exception, i.e., when specific
provisions of the LGC authorize the LGUs to impose taxes, fees or charges
on the aforementioned entities. Nothing prevents Congress from decreeing
that even instrumentalities or agencies of the government performing
governmental
functions
may
be
subject
to
tax.
A franchise is a privilege conferred by government authority, which does
not belong to citizens of the country generally as a matter of common right.
It may be construed in two senses: the right vested in the individuals
composing the corporation and the right and privileges conferred upon the
corporation. A franchise tax is understood in the second sense; it is not

levied on the corporation simply for existing as a corporation but on

its exercise of the rights or privileges granted to it by the government.
NAPOCOR is covered by the franchise tax because it exercises a franchise
in the second sense and it is exercising its rights or privileges under this
franchise within the territory of the City.

DAVAO GULF LUMBER CORPORATION V CIR July 23, 1998

Monday, January 26, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Taxation
Facts: Davao
Gulf Lumber Corp.
is
a
licensed
forest
concessionaire possessing a Timber License Agreement granted
by the Ministry of Natural Resources (now Department of
Environment and Natural Resources). From July 1, 1980 to
January 31, 1982 petitioner purchased, from various oil
companies refined and manufactured mineral oils as well as
motor and diesel fuels, which it used exclusively for the
exploitation and operation of its forest concession. Said oil
companies paid the specific taxes imposed under 153 and 156 of
the NIRC, on the sale of said products. Being included in
thepurchase price of the oil products, the specific taxes paid by
the oil companies were eventually passed on to the user, the
petitioner
in
this
case.
On December 13, 1982, petitioner filed before Respondent
Commissioner of Internal Revenue (CIR) a claimed for refund in
the amount of P120,825.11, representing 25% of the specific
taxes actually paid on the abovementioned fuels and oils that
were used by petitioner in its operations as forest concessionaire.
Petitioner complied with the procedure for refund, including the
submission of proof of the actual use of the aforementioned oils
in its forest concession as required by the above-quoted law.

Petitioner, in support of its claim for refund, submitted to the CIR

the affidavits of its general manager, the president of the
Philippine Wood ProductsAssociation, and 3 disinterested persons,
all attesting that the manufactured diesel and fuel oils were
actually used in the exploitation and operation of its forest.
On January 20, 1983, petitioner filed at the CTA a petition for
review. On June 21, 1994, the CTA rendered decision finding
petitioner entitled to a partial refund of specific taxes the latter
had
paid
in
the
reduced
amount
of
P2,923.15.
Insisting that the basis for computing the refund should be the
increased rates prescribed by Secs. 153 and 156 of the NIRC,
petitioner elevated the matter to the CA. CA affirmed the decision
of
the
CTA.
Hence,
this petition.

Issue: Whether or not the petitioner is entitled to the tax

refundunder the increased rates prescribed by Secs. 153 and 156
of
the
NIRC.

Held: At the outset, it must be stressed that the petitioner is

entitled to a partial refund under Sec. 5 of RA 1435, which was
enacted to provide means for increasing the Highway Special
Fund.
The
gasoline
and
fuel
purchased
by
mining
and lumber concessionaires are used within their compounds and
roads, and their vehicles seldom used the National Highways,
they do not directly benefit from the Fund and its use. The
Highway Special Fund was abolished in 1985, but since petitioner
purchased the subject manufactured diesel and fuel oils from July
1, 1980 to January 31, 1982, it is entitled to claim the refund
under
Sec.
5
of
RA
1435.

A tax cannot be imposed unless it is supported by the clear and

express language of a statute; on the other hand, once the tax is
unquestionably imposed, a claim of exemption from tax
payments must be clearly shown and based on language in the
law too plain to be mistaken. Since the partial refund authorized
under Sec. 5 RA 1435, is in the nature of a tax exemption, it
must be construed strictissimi juris against the grantee. Hence,
petitioners claim of refund on the basis of the specific taxes it
actually paid must expressly be granted in a statute stated in a
language too clear to be mistaken.
Davao Gulf Lumber vs. CIR
DAVAO
GULF
LUMBER
CORP
GR
No.
117359,
July
293 SCRA 77

v.
23,

CIR
1998

FACTS: Republic Act No. 1435 entitles miners and forest

concessioners to the refund of 25% of the specific taxes paid by
the oil companies, which were eventually passed on to the user-the petitioner in this case--in the purchase price of the oil
products. Petitioner filed before respondent Commissioner of
Internal Revenue (CIR) a claim for refund in the amount
representing 25% of the specific taxes actually paid on the abovementioned fuels and oils that were used by petitioner in its
operations. However petitioner asserts that equity and justice
demands that the refund should be based on the increased rates
of specific taxes which it actually paid, as prescribed in Sections
153 and 156 of the NIRC. Public respondent, on the other hand,
contends that it should be based on specific taxes deemed paid
under Sections 1 and 2 of RA 1435.

ISSUE: Should the petitioner be entitled under Republic Act No.

1435 to the refund of 25% of the amount of specific taxes it
actually paid on various refined and manufactured mineral oils
and other oil products, and not on the taxes deemed paid and
passed on to them, as end-users, by the oil companies?

HELD: No. According to an eminent authority on taxation, "there is

no tax exemption solely on the ground of equity." Thus, the tax
refund should be based on the taxes deemed paid. Because taxes
are the lifeblood of the nation, statutes that allow exemptions are
construed strictly against the grantee and liberally in favor of the
government. Otherwise stated, any exemption from the payment
of a tax must be clearly stated in the language of the law; it
cannot be merely implied therefrom.

PNOC vs. CA G.R. No. 109976

April 26, 2005
BIR requested PNOC to settle its liability for taxes onthe
interest earned by its money placements withPNB and which PNB did
not withhold. PNOC wrote BIRand made an offer to compromise its tax
liability,estimated at P304M against NAPOCORs pendingclaim for tax
refund. CIR accepted the compromise.Private respondent Savellanowas paid
the informer'sreward in the total amount of
P
14
M
, representing15% of tax collected by the BIR from PNOC and PNB.
But
private respondent Savellano, demand
ed from BIR the
payment of the balance of his informer's reward
and sought
reconsideration of
CIRs

d e c i s i o n t o co m p r o m i s e t h e t ax l i a b i l i t y o f P N O C .
W
h i l e t h e a f o r e s a i d Mo t i o n f or R e c o n s i d er a t i o n wa s s t i l l pending
with the BIR, private respondent Savellanofiled a Petition for Review with
the CTA,
alleging
that
CIR acted
with grave abuse of discretion in enteringinto
a compromise agreement that resulted in "agross and unconscionable
diminution" of
his reward.P r i v a t e r e s p o n d e n t S a v e l l a n o p r a y e d f o r t h e e n f
orcement and collection of the total taxassessment
a g a i n s t t a x p a y e r P N O C a n d / o r withholding agent PNB; and
the payment to him by
CIR
of the 15% informer's reward on the total
taxc o l l e c t e d . T h e C T A r u l e d t h a t t h e c o m p r o m i s e a g r e e m e
n t b e t w e e n B I R a n d P N B a n d P N O C i s without force, and ruled
that Private respondent bepaid the balance of the informers reward.PNB
assailed the decision of CTA on ground that theBIR demand letter
should be considered as a newassessment against PNB. As a new
assessment, itgave rise to a new dispute and controversy
solelyb e t w e e n t h e B I R a n d P N B t h a t s h o u l d b e
administratively settled or adjudicated
Does CTA have jurisdiction over the case?
T h e d e m a n d l et t e r d i d n o t c o n s t i t u t e
a n e w assessment against PNB
.
The issuance by the BIRof the demand letter was merely a development
inthe continuing effort of the BIR to collect the taxassessed against
PNOC and PNB way back in
1986. T h e d e m a n d l e t t e r a c t u a l l y r e f e r r e d t o t h e withhol
ding tax assessment first issued in 1986
andi t s ev e n t u a l s e t t l e m e n t t hr o u gh a c o m p r o m i s e agreement. In
addition, the computation of thedeficiency withholding tax was based
on the figuresfrom the 1986 assessments against PNOC and PNB.

The CTA correctly retained jurisdiction

overt h e c a s e b y v i r t u e o f R e p u b l i c A c t N o
. 1125
.
Having established that the BIR demand letterdid not constitute a new
assessment, then, therecould be no basis for PNB's claim that any
disputearising from the new assessment should only bebetween BIR
and PNB. The CTA, however,
correctlys u s t a i n e d i t s j u r i s d i c t i o n a n d c o n t i n u e d t h e pr
oceedings; and, in effect, rejected DOJ's claim of jurisdiction
to administratively settle or adjudicateBIR's assessment against
PNB.In his Petition before the CTA, private respondentSavellano
requested a review of the decisions of CIRto enter into a compromise
agreement
with PNOCa n d t o r e je c t h i s c l a i m f o r ad d i t i o n a l i n f o r m e r ' s rewar
d. Thus,
h e s u b m i t t ed q u e s t i on s o f l a w i n v o l v i n g i n t e r p r
etation of EO 44 whicha u t h o r i z e d t h e B I
R C o m m i s s i o n e r t o compromise delinquent
accounts and Sec 316of NIRC which granted to the
informer a
rewarde q u i v a l e n t t o 1 5 % o f t h e a c t u a l a m o u
n t r e c o v e r e d o r c o l l e c t e d b y t h e B I R . T h e s e sho
uld undoubtedly be considered as mattersa r i s i n g
f r o m t h e N IR C a n d o t h er
l a w s b e i n g administered by the BIR, thus, appealable
tot h e C T A u n d er S e c t i o n 7 ( 1 ) o f R e p. A c t N o . 1125
.PNB, however, insists on the jurisdiction of the DOJover
its appeal of the deficiency withholding taxassessment by virtue of
P.D. No. 242. However, it
isan established rule of statutory construction thatbetween a general
law and a special law, the speciallaw prevails. P.D. No. 242 is a general law
that
dealswith administrative settlement or adjudication of d i s pu t e s , c l a
i m s a n d c o n t r o v e r s i e s b e t we e n o r a m o n g g o v e r n m e n t o f
f i c e s , a g e n c i e s a n d instrumentalities, including governmentowned orcontrolled corporations. On the other hand, Rep.
ActN o . 112 5 i s a s p e c i a l l a w

dealing with a specificsubject matter the creation of the CTA, which

shallexercise exclusive appellate jurisdiction over the taxdisputes and
controversies enumerated therein.

CIR vs Santos G.R. No. 119252

August 18, 1997

Guild of Phil. Jewellers questions the constitutionality of certain provisions

of theNIRC and Tariff and Customs Code of the Philippines. It is their
contention that presentTariff and tax structure increases manufacturing
costs and render local jewelrymanufacturers uncompetitive against other
countries., in support of their position, theysubmitted what they purported to
be an exhaustive study of the tax rates on jewelryprevailing in other Asian
countries, in comparison to tax rates levied in the country.Judge Santos of
RTC Pasig, ruled that the laws in question are confiscatory andoppressive
and declared them INOPERATIVE and WITHOUR FORCE AND
EFFECTinsofar as petitioners are concerned.Petitioner CIR assailed
decision rendered by respondent judge contending thatthe latter has no
authority to pass judgment upon the taxation policy of the
government.Petitioners also impugn the decision by asserting that there
was no showing that the taxlaws on jewelry are confiscatory.
ISSUE:
Whether or not the Regional Trial Court has authority to pass judgment
upontaxation policy of the government.
RULING:
The policy of the courts is to avoid ruling on constitutional questions and
topresume that the acts of the political departments are valid in the
absence of a clear and unmistakable showing to the contrary.This is not to
say that RTC has no power whatsoever to declare a
lawunconstitutional. But this authority does not extend to
deciding questions which pertainto legislative policy.RTC have the power to
declare the law unconstitutional but this authority doesnot extend
to deciding questions which pertain to legislative policy. RTC can
only lookinto the validity of a provision, that is whether or not it has been
passed according to theprovisions laid down by law, and thus cannot
inquire as to the reasons for its existence.
RULING ON THE EXTENT OF LEGISLATIVE POWER TO TAX

SC held that it is within the power f the legislature whether to tax jewelry or
not.With the legislature primarily lies the discretion to determine the nature
(kind), object(purpose), extent (rate), coverage (subject) and situs (place)
of taxation.

FUNDAMENTALS OF TAXATION
BRITISH AMERICAN TOBACCO, vs. JOSE ISIDRO N. CAMACHO, in his
capacity as Secretary of the Departmentof Finance and GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of the Bureau of Internal
Revenues.PHILIP MORRIS PHILIPPINES MANUFACTURING, INC.,
FORTUNE TOBACCO CORP., MIGHTY CORPORATION, and
JT INTERNATIONAL [G.R. No. 163583. April 15, 2009.]
(Motion for Reconsideration of the 2008 case)Facts:
To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue
Regulations No. 1-97, 2 whichclassified the existing brands of cigarettes as those
duly registered or active brands prior to January 1, 1997. New brands,or those
registered after January 1, 1997, shall be initially assessed at their suggested retail
price until such time that theappropriate survey to determine their current net retail
price is conducted. In June 2001 British American Tobaccointroduced into the
market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights
cigarettes, with asuggested retail price of P9.90 per pack. 3 Pursuant to Sec. 145
(c) quoted above, the Lucky Strike brands were initially assessed the excise tax at
P8.96 per pack.On February 17, 2003, Revenue Regulations No. 9-2003, amended
Revenue Regulations No. 1-97 by providing, among others, a periodic review
every two years or earlier of the current net retail price of new brands and variants
thereof forthe purpose of establishing and updating their tax classification.
Pursuant thereto, Revenue Memorandum Order No. 6-2003 5 was issued on March
11, 2003, prescribing the guidelines and procedures in establishing current net
retail pricesof new brands of cigarettes and alcohol products. Subsequently,
Revenue Regulations No. 22-2003 6 was issued on August 8, 2003 to
implement the revised tax classification of certain new brands introduced in
the market after January 1, 1997, based on the survey of their current net retail
price. The survey revealed that Lucky Strike Filter, Lucky StrikeLights, and Lucky
Strike Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and
P21.23, per pack,respectively. Respondent Commissioner of the Bureau of Internal
Revenue thus recommended the applicable tax rate of P13.44 per pack inasmuch as
Lucky Strike's average net retail price is above P10.00 per pack. Thus filed before
theRegional Trial Court (RTC) of Makati, Branch 61, a petition for injunction with

prayer for the issuance of a temporary restraining order (TRO) and/or writ of
preliminary injunction, docketed as Civil Case No. 03-1032. Said petition soughtto
enjoin the implementation of Section 145 of the NIRC, Revenue Regulations Nos.
1-97, 9-2003, 22-2003 andRevenue Memorandum Order No. 6-2003 on the ground
that they discriminate against new brands of cigarettes,
in violation of the equal protection and uniformity provisions of the Constitution. T
he trial court rendered a decisionupholding the constitutionality of Section 145 of
the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 andRevenue
Memorandum Order No. 6-2003
Issue/ Held:
W/N the classification freeze provision violates the equal protection and
uniformity of taxation clauses of the Constitution.- NO
Ratio:
In the instant case, there is no question that the classification freeze provision
meets the geographical uniformity requirement because the assailed law applies to
all cigarette brands in the Philippines. And, for reasons already advertedto in our
August 20, 2008 Decision, the four-fold test has been met in the present case. As
held in the assailed Decision,the instant case neither involves a suspect
classification nor impinges on a fundamental right. Consequently, the rationalbasis
test was properly applied to gauge the constitutionality of the assailed law in the
face of an equal protectionchallenge. It has been held that "in the areas of social
and economic policy, a statutory classification that neitherproceeds along suspect
lines nor infringes constitutional rights must be upheld against equal protection
challenge if thereis any reasonably conceivable state of facts that could provide a
rational basis for the classification." Under the rationalbasis test, it is sufficient that
the legislative classification is rationally related to achieving some legitimate State
interest.Petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the
controverted municipal ordinance specifically named and taxed only the Ormoc
Sugar Company, and excluded any subsequently established sugar central from
itscoverage. Thus, the ordinance was found unconstitutional on equal protection
grounds because its terms do not apply tofuture conditions as well. This is not the
case here. The classification freeze provision uniformly applies to all
cigarettebrands whether existing or to be introduced in the market at some future
time. It does not purport to exempt any brandfrom its operation nor single out a
brand for the purpose of imposition of excise taxes.
Systra Phils vs. CIR
September 21, 2007
Corona, J.:
FACTS:

G.R. 176290

This is a case where a second motion for reconsideration was filed

by petitioner. Systra likewise questioned the substantive aspect of CTA
decisions. The facts on the tax case.
Petitioner had creditable taxes which they opted to carry over to
the succeeding year 2001. In 2001 ITR, it indicated that creditable
withholding taxes will also be carried over to next years tax as credit.
However, on August 9, 2001, petitioner instituted a claim for refund of its
unutilized creditable withholding taxes. Due to BIRs inaction, petitioner
filed a petition for review. CTA partially granted the petition but denied claim
for refund because petitioner was precluded from claiming a refund. Once it
was made for a particular taxable period, the option to carry over become
irrevocable.
ISSUE:
Whether or not the exercise of the option to carry-over excess
income tax credits bars a taxpayer from claiming the excess tax credits for
refund.
RULING:
It was in the year 2000 that petitioner derived excess tax credits
and exercised the irrevocable option to carry them over as tax credits for
the next taxable year. The excess credits will only be applied against
income tax due for the taxable quarters of the succeeding taxable years.
Section 76 of the present tax c ode formulates an irrevocability
rule which stresses and fortifies the nature of the remedies or options as
alternative, not cumulative. It also provides that the excess tax credits may
be carried over and credited against the estimated quarterly income tax
liabilities for the taxable quarters of the succeeding taxable years until fully
utilized.
Nevertheless, the amount will not be forfeited in favor of the
government but will remain in the taxpayers account.
PPI v. Fertphil Corporation, 548 SCRA 485 (2008)
Post under case digests, Political Law at Wednesday,
2012 Posted by Schizophrenic Mind

February

08,

Facts: Petitioner and private respondent are private corporations

incorporated under Philippine laws. They are both engaged in the
importation and distribution of fertilizers, pesticides and agricultural
chemicals. President Marcos issued LOI 1465 which provided, among

others, for the imposition of a capital recovery component on the domestic

sale of all grades of fertilizers in the Philippines. Pursuant to the LOI,
private respondent paid P10 for every bag of fertilizer it sold in the domestic
market to the Fertilizer and Pesticide Authority (FPA). After the 1986
Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy.
Private respondent then demanded from petitioner a refund of the amounts
it
paid
under
LOI
1465
Issue: Whether or not the issuance of LOI 1465 is a valid exerciseof police
power
of
the
State
Held: Petition denied. The RTC and the CA did not err in ruling against the
constitutionality
of
the
LOI.
Police power and the power of taxation are inherent powers of the State.
These powers are distinct and have different tests for validity. Police power
is the power of the State to enact legislation that may interfere with
personal liberty or property in order to promote the general welfare, while
the power of taxation is the power to levy taxes to be used for public
purpose. The main purpose of police power is the regulation of a behavior
or conduct, while taxation is revenue generation. The lawful subjects and
lawful means tests are used to determine the validity of a law enacted
under the police power. The power of taxation, on the other hand, is
circumscribed
by
inherent
and
constitutional
limitations.
An inherent limitation on the power of taxation is public purpose. Taxes are
exacted only for a public purpose. They cannot be used for purely private
purposes or for the exclusive benefit of private persons.
The power to tax exists for the general welfare; hence, implicit in its power
is the limitation that it should be used only for a public purpose.

Facts: Congress, with the approval of the President,

passed into law RA 7227 entitled "An Act Accelerating the
Conversion of MilitaryReservations Into Other Productive
Uses, Creating the Bases Conversion and Development
Authority for this Purpose, Providing Funds Therefor and
for Other Purposes." Section 12 thereof created the Subic
Special Economic Zone and granted there to special
privileges. President Ramos issued Executive Order No.
97, clarifying the application of the tax and duty incentives.
The President issued Executive Order No. 97-A,
specifying the area within which the tax-and-duty-free
privilege was operative. The petitioners challenged before
this Court the constitutionality of EO 97-A for allegedly
being violative of their right to equal protection of the laws.
This Court referred the matter to the Court of
Appeals.Proclamation No. 532 was issued by President
Ramos. It delineated the exact metes and bounds of the
Subic Special Economic and Free Port Zone, pursuant to
Section 12 of RA 7227. Respondent Court held that "there
is no substantial difference between the provisions of EO
97-A and Section 12 of RA 7227. In both, the 'Secured
Area' is precise and well-defined as '. . . the lands
occupied by the Subic Naval Base and its contiguous
extensions as embraced, covered and defined by the
1947 Military BasesAgreement between the Philippines
and the United States of America, as amended . . .'"
Issue: Whether or not Executive Order No. 97-A violates
the equal protection clause of the Constitution

Held: No. The Court found real and substantive

distinctions between the circumstances obtaining inside
and those outside the Subic Naval Base, thereby justifying
a valid and reasonableclassification. The fundamental right
of equal protection of the laws is not absolute, but is
subject to reasonable classification. If the groupings are
characterized by substantial distinctions that make real
differences, one class may be treated and regulated
differently from another. The classification must also be
germane to the purpose of the law and must apply to all
those belonging to the same class. Classification, to be
valid, must (1) rest on substantial distinctions, (2) be
germane to the purpose of the law, (3) not be limited to
existing conditions only, and (4) apply equally to all
members of the same class. The Supreme Court believed
it was reasonable for the President to have delimited the
application of some incentives to the confines of the
former Subic military base. It is this specific area which the
government intends to transform and develop from its
status quo ante as an abandoned naval facility into a selfsustaining industrial and commercial zone, particularly for
big foreign and local investors to use as operational bases
for their businesses and industries.