G.R. No.

L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor General
Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which was
certified to Us by the Court of Appeals on October 6, 1969, as involving only pure questions of law, challenging
the power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, as
amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a
complaint with preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2
of Republic Act No. 2264. 1 otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation
of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of
Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that, first,
both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates imposed
therein are practically the same, and second, that on January 17, 1963, the acting Municipal Treasurer of
Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality,
sought to enforce compliance by the latter of the provisions of said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and collects
"from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft
drink corked." 2 For the purpose of computing the taxes due, the person, firm, company or corporation producing
soft drinks shall submit to the Municipal Treasurer a monthly report, of the total number of bottles produced and
corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects "on
soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due,
the person, fun company, partnership, corporation or plant producing soft drinks shall submit to the Municipal
Treasurer a monthly report of the total number of gallons produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and
upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn,
elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:

1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and
oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific
taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to
every independent government, without being expressly conferred by the people. 6 It is a power that is purely
legislative and which the central legislative body cannot delegate either to the executive or judicial department
of the government without infringing upon the theory of separation of powers. The exception, however, lies in the
case of municipal corporations, to which, said theory does not apply. Legislative powers may be delegated to
local governments in respect of matters of local concern. 7 This is sanctioned by immemorial practice. 8 By
necessary implication, the legislative power to create political corporations for purposes of local self-government
carries with it the power to confer on such local governmental agencies the power to tax. 9 Under the New
Constitution, local governments are granted the autonomous authority to create their own sources of revenue
and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to create its
sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal, it cannot be
said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact
and vest in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not
suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not
limited 6 the exact measure of that which is exercised by itself. When it is said that the taxing power may be
delegated to municipalities and the like, it is meant that there may be delegated such measure of power to
impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax
subjects which for reasons of public policy the State has not deemed wise to tax for more general
purposes. 10 This is not to say though that the constitutional injunction against deprivation of property without
due process of law may be passed over under the guise of the taxing power, except when the taking of the
property is in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on
uniformity of taxation is observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice and
opportunity for hearing are provided. 11 Due process is usually violated where the tax imposed is for a private as
distinguished from a public purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation;
and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the
due process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury
rather than a benefit to such taxpayer. Due process does not require that the property subject to the tax or the
amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount of
the tax and the manner in which it shall be apportioned are generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory
of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates
the taxes over which local taxation may not be exercised. 13 The reason is that the State has exclusively reserved
the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law,
since We have not adopted as part thereof the injunction against double taxation found in the Constitution of the
United States and some states of the Union. 14 Double taxation becomes obnoxious only where the taxpayer is
taxed twice for the benefit of the same governmental entity 15 or by the same jurisdiction for the same
purpose, 16 but not in a case where one tax is imposed by the State and the other by the city or municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these two
ordinances cover the same subject matter and impose practically the same tax rate. The thesis proceeds from its
assumption that both ordinances are valid and legally enforceable. This is not so. As earlier quoted, Ordinance
No. 23, which was approved on September 25, 1962, levies or collects from soft drinks producers or
manufacturers a tax of one-sixteen (1/16) of a centavo for .every bottle corked, irrespective of the volume
contents of the bottle used. When it was discovered that the producer or manufacturer could increase the volume

contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance No. 27,
approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council
of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. 18 Plaintiff-appellant in
its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27, series of 1962. Even
the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel
compliance by the plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962. The
aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by defendantsappellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are inconsistent
with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific tax.
Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is
broad enough as to extend to almost "everything, accepting those which are mentioned therein." As long as the
text levied under the authority of a city or municipal ordinance is not within the exceptions and limitations in the
law, the same comes within the ambit of the general rule, pursuant to the rules of exclucion attehus and exceptio
firmat regulum in cabisus non excepti 19 The limitation applies, particularly, to the prohibition against
municipalities and municipal districts to impose "any percentage tax or other taxes in any form based
thereon nor impose taxes on articles subject to specific taxexcept gasoline, under the provisions of the National
Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set
ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and
void for being outside the power of the municipality to enact. 20 But, the imposition of "a tax of one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured
under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any form
based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity
of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the
products, but there is not set ratio between the volume of sales and the amount of the tax. 21
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as
distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing
cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced or
manufactured, or an equivalent of 1- centavos per case, 23 cannot be considered unjust and unfair. 24 an
increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory.
Municipal corporations are allowed much discretion in determining the reates of imposable taxes. 25 This is in
line with the constutional policy of according the widest possible autonomy to local governments in matters of
local taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the
amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27
Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to
further strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners or
P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers, importers and
dealers of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance
No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the resolution of the validity of
Ordinance No. 27. Municipalities are empowered to impose, not only municipal license taxes upon persons
engaged in any business or occupation but also to levy for public purposes, just and uniform taxes. The ordinance
in question (Ordinance No. 27) comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local
Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan,

Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and legal
effect. Costs against petitioner-appellant.
SO ORDERED.

HON. EXECUTIVE SECRETARY, G.R. No. 164171

HON. SECRETARY OF THE
DEPARTMENT OF TRANSPORTATION
AND COMMUNICATIONS (DOTC),
COMMISSIONER OF CUSTOMS,
ASSISTANT SECRETARY, LAND
TRANSPORTATION OFFICE (LTO),
COLLECTOR OF CUSTOMS, SUBIC
BAY FREE PORT ZONE, AND CHIEF
OF LTO, SUBIC BAY FREE PORT ZONE,
Petitioners,
Present:
Panganiban, C.J.,
Puno,
Quisumbing,
Ynares-Santiago,
- versus - Carpio,

Sandoval-Gutierrez,
Austria-Martinez,
Corona,
Carpio-Morales,
Callejo, Sr.,
Azcuna,
Tinga,
Chico-Nazario, and
Garcia, JJ.

SOUTHWING HEAVY INDUSTRIES,

INC., represented by its President JOSE
T. DIZON, UNITED AUCTIONEERS,
INC., represented by its President
DOMINIC SYTIN, and MICROVAN,
INC., represented by its President
MARIANO C. SONON,
Respondents.
x -------------------------------------------------------- x

HON. EXECUTIVE SECRETARY, G.R. No. 164172

SECRETARY OF THE DEPARTMENT
OF TRANSPORTATION AND
COMMUNICATION (DOTC),
COMMISSIONER OF CUSTOMS,
ASSISTANT SECRETARY, LAND
TRANSPORTATION OFFICE (LTO),
COLLECTOR OF CUSTOMS, SUBIC
BAY FREE PORT ZONE AND CHIEF OF
LTO, SUBIC BAY FREE PORT ZONE,
Petitioners,
- versus SUBIC INTEGRATED MACRO
VENTURES CORP., represented
by its President YOLANDA AMBAR,
Respondent.
x -------------------------------------------------------- x
HON. EXECUTIVE SECRETARY, G.R. No. 168741
HON. SECRETARY OF FINANCE,
THE CHIEF OF THE LAND
TRANSPORTATION OFFICE, THE
COMMISSIONER OF CUSTOMS,
and THE COLLECTOR OF CUSTOMS,
SUBIC SPECIAL ECONOMIC ZONE,
Petitioners,
- versus MOTOR VEHICLE IMPORTERS
ASSOCIATION OF SUBIC BAY
FREEPORT, INC., represented by Promulgated:
its President ALFREDO S. GALANG,
Respondent. February 20, 2006
x ---------------------------------------------------------------------------------------- x

DECISION
YNARES-SANTIAGO, J.:
The instant consolidated petitions seek to annul and set aside the Decisions of the Regional Trial Court
of Olongapo City, Branch 72, in Civil Case No. 20-0-04 and Civil Case No. 22-0-04, both dated May 24, 2004; and
the February 14, 2005 Decision of the Court of Appeals in CA-G.R. SP. No. 83284, which declared Article 2, Section
3.1 of Executive Order No. 156 (EO 156) unconstitutional. Said executive issuance prohibits the
importation into the country, inclusive of the Special Economic and Freeport Zone or the Subic Bay
Freeport (SBF or Freeport), of used motor vehicles, subject to a few exceptions.
The undisputed facts show that on December 12, 2002, President Gloria Macapagal-Arroyo, through
Executive Secretary Alberto G. Romulo, issued EO 156, entitled PROVIDING FOR A COMPREHENSIVE INDUSTRIAL
POLICY AND DIRECTIONS FOR THE MOTOR VEHICLE DEVELOPMENT PROGRAM AND ITS IMPLEMENTING
GUIDELINES. The challenged provision states:
3.1 The importation into the country, inclusive of the Freeport, of all types of
used motor vehicles is prohibited, except for the following:
3.1.1 A vehicle that is owned and for the personal use of a returning resident or immigrant
and covered by an authority to import issued under the No-dollar Importation Program. Such
vehicles cannot be resold for at least three (3) years;
3.1.2 A vehicle for the use of an official of the Diplomatic Corps and authorized to be
imported by the Department of Foreign Affairs;
3.1.3 Trucks excluding pickup trucks;
1. with GVW of 2.5-6.0 tons covered by an authority to import issued by the DTI.
2. With GVW above 6.0 tons.
3.1.4 Buses:
1. with GVW of 6-12 tons covered by an authority to import issued by DTI;
2. with GVW above 12 tons.
3.1.5 Special purpose vehicles:
1.
fire trucks
2.
ambulances
3.
funeral hearse/coaches
4.
crane lorries
5.
tractor heads and truck tractors
6.
boom trucks
7.
tanker trucks
8.
tank lorries with high pressure spray gun
9.
reefers or refrigerated trucks
10. mobile drilling derricks
11. transit/concrete mixers
12. mobile radiological units
13. wreckers or tow trucks
14. concrete pump trucks
15. aerial/bucket flat-form trucks
16. street sweepers
17. vacuum trucks
18. garbage compactors
19. self loader trucks
20. man lift trucks
21. lighting trucks
22. trucks mounted with special purpose equipment
23. all other types of vehicle designed for a specific use.
The issuance of EO 156 spawned three separate actions for declaratory relief before Branch 72 of
the Regional Trial Court of Olongapo City, all seeking the declaration of the unconstitutionality of Article 2, Section
3.1 of said executive order. The cases were filed by herein respondent entities, who or whose members, are

classified as Subic Bay Freeport Enterprises and engaged in the business of, among others, importing and/or
trading used motor vehicles.
G.R. No. 164171:
On January 16, 2004, respondents Southwing Heavy Industries, Inc., (SOUTHWING) United Auctioneers,
Inc. (UNITED AUCTIONEERS), andMicrovan, Inc. (MICROVAN), instituted a declaratory relief case docketed as Civil
Case No. 20-0-04,[1] against the Executive Secretary, Secretary of Transportation and Communication,
Commissioner of Customs, Assistant Secretary and Head of the Land Transportation Office, Subic Bay
Metropolitan Authority (SBMA), Collector of Customs for the Port at Subic Bay Freeport Zone, and the Chief of the
Land Transportation Office at Subic Bay Freeport Zone.
SOUTHWING, UNITED AUCTIONEERS and MICROVAN prayed that judgment be rendered (1) declaring
Article 2, Section 3.1 of EO 156 unconstitutional and illegal; (2) directing the Secretary of Finance,
Commissioner of Customs, Collector of Customs and the Chairman of the SBMA to allow the
importation of used motor vehicles; (2) ordering the Land Transportation Office and its subordinates
inside the Subic Special Economic Zone to process the registration of the imported used motor
vehicles; and (3) in general, to allow the unimpeded entry and importation of used motor vehicles
subject only to the payment of the required customs duties.
Upon filing of petitioners answer/comment, respondents SOUTHWING and MICROVAN filed a motion for
summary judgment which was granted by the trial court. On May 24, 2004, a summary judgment was rendered
declaring that Article 2, Section 3.1 of EO 156 constitutes an unlawful usurpation of legislative power vested by
the Constitution with Congress. The trial court further held that the proviso is contrary to the mandate
of Republic Act No. 7227 (RA 7227) or the Bases Conversion and Development Act of 1992 which
allows the free flow of goods and capital within the Freeport. The dispositive portion of the said decision
reads:
WHEREFORE, judgment is hereby rendered in favor of petitioner declaring Executive Order
156 [Article 2, Section] 3.1 for being unconstitutional and illegal; directing respondents Collector
of Customs based at SBMA to allow the importation and entry of used motor vehicles pursuant to
the mandate of RA 7227; directing respondent Chief of the Land Transportation Office and its
subordinates inside the Subic Special Economic Zone or SBMA to process the registration of
imported used motor vehicle; and in general, to allow unimpeded entry and importation of used
motor vehicles to the Philippines subject only to the payment of the required customs duties.
SO ORDERED.[2]
From the foregoing decision, petitioners sought relief before this Court via a petition for review on
certiorari, docketed as G.R. No. 164171.
G.R. No. 164172:
On January 20, 2004, respondent Subic Integrated Macro Ventures Corporation (MACRO VENTURES) filed with the
same trial court, a similar action for declaratory relief docketed as Civil Case No. 22-0-04, [3] with the same prayer
and against the same parties[4] as those in Civil Case No. 20-0-04.
In this case, the trial court likewise rendered a summary judgment on May 24, 2004, holding that Article
2, Section 3.1 of EO 156, is repugnant to the constitution. [5] Elevated to this Court via a petition for review on
certiorari, Civil Case No. 22-0-04 was docketed as G.R. No. 164172.
G.R. No. 168741
On January 22, 2003, respondent Motor Vehicle Importers Association of Subic Bay Freeport, Inc.
(ASSOCIATION), filed another action for declaratory relief with essentially the same prayer as those in Civil Case
No. 22-0-04 and Civil Case No. 20-0-04, against the Executive Secretary, Secretary of Finance, Chief of the Land
Transportation Office, Commissioner of Customs, Collector of Customs at SBMA and the Chairman of SBMA. This
was docketed as Civil Case No. 30-0-2003,[6] before the same trial court.
In a decision dated March 10, 2004, the court a quo granted the ASSOCIATIONs prayer and declared the
assailed proviso as contrary to the Constitution, to wit:
WHEREFORE, judgment is hereby rendered in favor of petitioner declaring Executive Order
156 [Article 2, Section] 3.1 for being unconstitutional and illegal; directing respondents Collector
of Customs based at SBMA to allow the importation and entry of used motor vehicles pursuant to
the mandate of RA 7227; directing respondent Chief of the Land Transportation Office and its

subordinates inside the Subic Special Economic Zone or SBMA to process the registration of
imported used motor vehicles; directing the respondent Chairman of the SBMA to allow the entry
into the Subic Special Economic Zone or SBMA imported used motor vehicle; and in general, to
allow unimpeded entry and importation of used motor vehicles to the Philippines subject only to
the payment of the required customs duties.
SO ORDERED.[7]
Aggrieved, the petitioners in Civil Case No. 30-0-2003, filed a petition for certiorari[8] with the Court of
Appeals (CA-G.R. SP. No. 83284) which denied the petition on February 14, 2005 and sustained the finding of the
trial court that Article 2, Section 3.1 of EO 156, is void for being repugnant to the constitution. The dispositive
portion thereof, reads:
WHEREFORE, the instant petition for certiorari is hereby DENIED. The assailed decision of
the Regional Trial Court, Third Judicial Region, Branch 72,Olongapo City, in Civil Case No. 30-02003, accordingly, STANDS.
SO ORDERED.[9]
The aforequoted decision of the Court of Appeals was elevated to this Court and docketed as G.R. No.
168741. In a Resolution dated October 4, 2005,[10] said case was consolidated with G.R. No. 164171 and G.R. No.
164172.
Petitioners are now before this Court contending that Article 2, Section 3.1 of EO 156 is valid and
applicable to the entire country, including theFreeeport. In support of their arguments, they raise procedural and
substantive issues bearing on the constitutionality of the assailed proviso. The procedural issues are: the lack
of respondents locus standi to question the validity of EO 156, the propriety of challenging EO 156 in a
declaratory relief proceeding and the applicability of a judgment on the pleadings in this case.
Petitioners argue that respondents will not be affected by the importation ban considering that their
certificate of registration and tax exemption do not authorize them to engage in the importation and/or trading
of used cars. They also aver that the actions filed by respondents do not qualify as declaratory relief
cases. Section 1, Rule 63 of the Rules of Court provides that a petition for declaratory relief may be filed before
there is a breach or violation of rights.Petitioners claim that there was already a breach of respondents supposed
right because the cases were filed more than a year after the issuance of EO 156. In fact, in Civil Case No. 30-02003, numerous warrants of seizure and detention were issued against imported used motor vehicles belonging
to respondentASSOCIATIONs members.
Petitioners arguments lack merit.
The established rule that the constitutionality of a law or administrative issuance can be challenged by
one who will sustain a direct injury as a result of its enforcement [11] has been satisfied in the instant case. The
broad subject of the prohibited importation is all types of used motor vehicles. Respondents would definitely
suffer a direct injury from the implementation of EO 156 because their certificate of registration and tax
exemption authorize them to trade and/or import new and used motor vehicles and spare parts, except used
cars.[12] Other types of motor vehicles imported and/or traded by respondents and not falling within the category
of used cars would thus be subjected to the ban to the prejudice of their business. Undoubtedly, respondents
have the legal standing to assail the validity of EO 156.
As to the propriety of declaratory relief as a vehicle for assailing the executive issuance, suffice it to state
that any breach of the rights of respondents will not affect the case. In Commission on Audit of the Province
of Cebu v. Province of Cebu,[13] the Court entertained a suit for declaratory relief to finally settle the doubt as to
the proper interpretation of the conflicting laws involved, notwithstanding a violation of the right of the party
affected. We find no reason to deviate from said ruling mindful of the significance of the present case to the
national economy.
So also, summary judgments were properly rendered by the trial court because the issues involved in the
instant case were pure questions of law. A motion for summary judgment is premised on the assumption that the
issues presented need not be tried either because these are patently devoid of substance or that there is no
genuine issue as to any pertinent fact. It is a method sanctioned by the Rules of Court for the prompt disposition
of a civil action in which the pleadings raise only a legal issue, not a genuine issue as to any material fact.[14]
At any rate, even assuming the procedural flaws raised by petitioners truly exist, the Court is not
precluded from brushing aside these technicalities and taking cognizance of the action filed by respondents

considering its importance to the public and in keeping with the duty to determine whether the other branches of
the government have kept themselves within the limits of the Constitution.[15]
We now come to the substantive issues, which are: (1) whether there is statutory basis for the issuance
of EO 156; and (2) if the answer is in the affirmative, whether the application of Article 2, Section 3.1 of EO 156,
reasonable and within the scope provided by law.
The main thrust of the petition is that EO 156 is constitutional because it was issued pursuant
to EO 226, the Omnibus Investment Code of the Philippines and that its application should be
extended to the Freeport because the guarantee of RA 7227 on the free flow of goods into the said
zone is merely an exemption from customs duties and taxes on items brought into the Freeport and
not an open floodgate for all kinds of goods and materials without restriction.
In G.R. No. 168741, the Court of Appeals invalidated Article 2, Section 3.1 of EO 156, on the ground of lack
of any statutory basis for the President to issue the same. It held that the prohibition on the importation of used
motor vehicles is an exercise of police power vested on the legislature and absent any enabling law, the exercise
thereof by the President through an executive issuance, is void.
Police power is inherent in a government to enact laws, within constitutional limits, to promote the order,
safety, health, morals, and general welfare of society. It is lodged primarily with the legislature. By virtue of a
valid delegation of legislative power, it may also be exercised by the President and administrative boards, as well
as the lawmaking bodies on all municipal levels, including the barangay.[16] Such delegation confers upon the
President quasi-legislative power which may be defined as the authority delegated by the law-making body to
the administrative body to adopt rules and regulations intended to carry out the provisions of the law and
implement legislative policy.[17] To be valid, an administrative issuance, such as an executive order, must comply
with the following requisites:
(1)
(2)
(3)
(4)

Its promulgation must be authorized by the legislature;

It must be promulgated in accordance with the prescribed procedure;
It must be within the scope of the authority given by the legislature; and
It must be reasonable.[18]

Contrary to the conclusion of the Court of Appeals, EO 156 actually satisfied the first requisite of a valid
administrative order. It has both constitutional and statutory bases.
Delegation of legislative powers to the President is permitted in Section 28(2) of Article VI of the
Constitution. It provides:
(2) The Congress may, by law, authorize the President to fix within specified limits, and
subject to such limitations and restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the
national development program of the Government.[19](Emphasis supplied)
The relevant statutes to execute this provision are:
1) The Tariff and Customs Code which authorizes the President, in the interest of national economy,
general welfare and/or national security, to, interalia, prohibit the importation of any commodity. Section 401
thereof, reads:
Sec. 401. Flexible Clause.
a. In the interest of national economy, general welfare and/or national security,
and subject to the limitations herein prescribed, the President, upon recommendation
of the National Economic and Development Authority (hereinafter referred to as NEDA),
is hereby empowered: x x x (2) to establish import quota or to ban imports of any
commodity, as may be necessary; x x x Provided, That upon periodic investigations by the
Tariff Commission and recommendation of the NEDA, the President may cause a gradual reduction
of protection levels granted in Section One hundred and four of this Code, including those
subsequently granted pursuant to this section. (Emphasis supplied)
2) Executive Order No. 226, the Omnibus Investment Code of the Philippines which was issued on July 16,
1987, by then President Corazon C. Aquino, in the exercise of legislative power under the Provisional Freedom
Constitution,[20] empowers the President to approve or reject the prohibition on the importation of any equipment
or raw materials or finished products. Pertinent provisions thereof, read:

ART. 4. Composition of the board. The Board of Investments shall be composed of seven (7)
governors: The Secretary of Trade and Industry, three (3) Undersecretaries of Trade and Industry
to be chosen by the President; and three (3) representatives from the government agencies and
the private sector x x x.
ART. 7. Powers and duties of the Board.
xxxx
(12) Formulate and implement rationalization programs for certain industries whose
operation may result in dislocation, overcrowding or inefficient use of resources, thus impeding
economic growth. For this purpose, the Board may formulate guidelines for progressive
manufacturing programs, local content programs, mandatory sourcing requirements and dispersal
of industries. In appropriate cases and upon approval of the President, the Board may
restrict, either totally or partially, the importation of any equipment or raw materials
or finished products involved in the rationalization program; (Emphasis supplied)
3) Republic Act No. 8800, otherwise known as the Safeguard Measures Act (SMA), and entitled An Act
Protecting Local Industries By Providing Safeguard Measures To Be Undertaken In Response To Increased Imports
And Providing Penalties For Violation Thereof, [21] designated the Secretaries[22] of the Department of Trade and
Industry (DTI) and the Department of Agriculture, in their capacity as alter egos of the President, as the
implementing authorities of the safeguard measures, which include, inter alia, modification or imposition of any
quantitative restriction on the importation of a product into the Philippines. The purpose of the SMA is stated in
the declaration of policy, thus:
SEC. 2. Declaration of Policy. The State shall promote competitiveness of domestic
industries and producers based on sound industrial and agricultural development policies, and
efficient use of human, natural and technical resources. In pursuit of this goal and in the public
interest, the State shall provide safeguard measures to protect domestic industries and producers
from increased imports which cause or threaten to cause serious injury to those domestic
industries and producers.
There are thus explicit constitutional and statutory permission authorizing the President to ban or regulate
importation of articles and commodities into the country.
Anent the second requisite, that is, that the order must be issued or promulgated in accordance with
the prescribed procedure, it is necessary that the nature of the administrative issuance is properly
determined. As in the enactment of laws, the general rule is that, the promulgation of administrative issuances
requires previous notice and hearing, the only exception being where the legislature itself requires it and
mandates that the regulation shall be based on certain facts as determined at an appropriate investigation.
[23]
This exception pertains to the issuance of legislative rules as distinguished from interpretative ruleswhich
give no real consequence more than what the law itself has already prescribed; [24] and are designed merely to
provide guidelines to the law which the administrative agency is in charge of enforcing. [25] A legislative rule, on
the other hand, is in the nature of subordinate legislation, crafted to implement a primary legislation.
In Commissioner of Internal Revenue v. Court of Appeals,[26] and Commissioner of Internal Revenue v.
Michel J. Lhuillier Pawnshop, Inc.,[27] the Court enunciated the doctrine that when an administrative rule goes
beyond merely providing for the means that can facilitate or render less cumbersome the implementation of the
law and substantially increases the burden of those governed, it behooves the agency to accord at least to those
directly affected a chance to be heard and, thereafter, to be duly informed, before the issuance is given the force
and effect of law.
In the instant case, EO 156 is obviously a legislative rule as it seeks to implement or execute primary
legislative enactments intended to protect the domestic industry by imposing a ban on the importation of a
specified product not previously subject to such prohibition. The due process requirements in the issuance
thereof are embodied in Section 401[28] of the Tariff and Customs Code and Sections 5 and 9 of the SMA [29] which
essentially mandate the conduct of investigation and public hearings before the regulatory measure or
importation ban may be issued.
In the present case, respondents neither questioned before this Court nor with the courts below the
procedure that paved the way for the issuance of EO 156. What they challenged in their petitions before the trial
court was the absence of substantive due process in the issuance of the EO. [30] Their main contention before the
court a quo is that the importation ban is illogical and unfair because it unreasonably drives them out of business
to the prejudice of the national economy.

Considering the settled principle that in the absence of strong evidence to the contrary, acts of the other
branches of the government are presumed to be valid,[31] and there being no objection from the respondents as to
the procedure in the promulgation of EO 156, the presumption is that said executive issuance duly complied with
the procedures and limitations imposed by law.
To determine whether EO 156 has complied with the third and fourth requisites of a valid administrative
issuance, to wit, that it was issued within the scope of authority given by the legislature and that it is reasonable,
an examination of the nature of a Freeport under RA 7227 and the primordial purpose of the importation ban
under the questioned EO is necessary.
RA 7227 was enacted providing for, among other things, the sound and balanced conversion of the Clark
and Subic military reservations and their extensions into alternative productive uses in the form of Special
Economic and Freeport Zone, or the Subic Bay Freeport, in order to promote the economic and social
development of Central Luzon in particular and the country in general.
The Rules and Regulations Implementing RA 7227 specifically defines the territory comprising
the Subic Bay Freeport, referred to as the Special Economic and Freeport Zone in Section 12 of RA 7227 as "a
separate customs territory consisting of the City of Olongapo and the Municipality of Subic, Province of Zambales,
the lands occupied by the Subic Naval Base and its contiguous extensions as embraced, covered and defined by
the 1947 Philippine-U.S. Military Base Agreement as amended and within the territorial jurisdiction
of Morong and Hermosa, Province of Bataan, the metes and bounds of which shall be delineated by the President
of the Philippines; provided further that pending establishment of secure perimeters around the entire SBF, the
SBF shall refer to the area demarcated by the SBMA pursuant to Section 13[32] hereof."
Among the salient provisions of RA 7227 are as follows:
SECTION 12. Subic Special Economic Zone.
xxxx
The abovementioned zone shall be subject to the following policies:
xxxx
(a) Within the framework and subject to the mandate and limitations of the Constitution
and the pertinent provisions of the Local Government Code, the SubicSpecial Economic Zone shall
be developed into a self-sustaining, industrial, commercial, financial and investment center to
generate employment opportunities in and around the zone and to attract and promote productive
foreign investments;
(b) The Subic Special Economic Zone shall be operated and managed as a separate
customs territory ensuring free flow or movement of goods and capital within, into and exported
out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free
importations of raw materials, capital and equipment. However, exportation or removal of goods
from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant
tax laws of the Philippines;
The Freeport was designed to ensure free flow or movement of goods and capital within a portion of the
Philippine territory in order to attract investors to invest their capital in a business climate with the least
governmental intervention. The concept of this zone was explained by Senator Guingona in this wise:
Senator Guingona. Mr. President, the special economic zone is successful in many places,
particularly Hong Kong, which is a free port. The difference between a special economic zone and
an industrial estate is simply expansive in the sense that the commercial activities, including the
establishment of banks, services, financial institutions, agro-industrial activities, maybe
agriculture to a certain extent.
This delineates the activities that would have the least of government
intervention, and the running of the affairs of the special economic zone would be run
principally by the investors themselves, similar to a housing subdivision, where the
subdivision owners elect their representatives to run the affairs of the subdivision, to
set the policies, to set the guidelines.

We would like to see Subic area converted into a little Hong Kong, Mr. President,
where there is a hub of free port and free entry, free duties and activities to a
maximum spur generation of investment and jobs.
While the investor is reluctant to come in the Philippines, as a rule, because of red tape
and perceived delays, we envision this special economic zone to be an area where there will be
minimum government interference.
The initial outlay may not only come from the Government or the Authority as envisioned
here, but from them themselves, because they would be encouraged to invest not only for the
land but also for the buildings and factories. As long as they are convinced that in such an area
they can do business and reap reasonable profits, then many from other parts, both local and
foreign, would invest, Mr. President.[33] (Emphasis, added)
With minimum interference from the government, investors can, in general, engage in any kind of
business as well as import and export any article into and out of the Freeport. These are among the rights
accorded to Subic Bay Freeport Enterprises under Section 39 of the Rules and Regulations Implementing RA 7227,
thus
SEC. 39. Rights and Obligations.- SBF Enterprises shall have the following rights and
obligations:
a. To freely engage in any business, trade, manufacturing, financial or service activity, and to
import and export freely all types of goods into and out of the SBF, subject to the
provisions of the Act, these Rules and other regulations that may be promulgated by the
SBMA;
Citing, inter alia, the interpellations of Senator Enrile, petitioners claim that the free flow or movement of
goods and capital only means that goods and material brought within the Freeport shall not be subject to
customs duties and other taxes and should not be construed as an open floodgate for entry of all kinds of
goods. They thus surmise that the importation ban on motor vehicles is applicable within the Freeport. Pertinent
interpellations of Senator Enrile on the concept of Freeport is as follows:
Senator Enrile: Mr. President, I think we are talking here of sovereign concepts, not
territorial concepts. The concept that we are supposed to craft here is to carve out a portion of our
terrestrial domain as well as our adjacent waters and say to the world: Well, you can set up your
factories in this area that we are circumscribing, and bringing your equipment and bringing your
goods, you are not subject to any taxes and duties because you are not within the customs
jurisdiction of the Republic of the Philippines, whether you store the goods or only for purposes of
transshipment or whether you make them into finished products again to bereexported to other
lands.
xxxx
My understanding of a free port is, we are in effect carving out a part of our
territory and make it as if it were foreign territory for purposes of our customs laws,
and that people can come, bring their goods, store them there and bring them out
again, as long as they do not come into the domestic commerce of the Republic.
We do not really care whether these goods are stored here. The only thing that we care is
for our people to have an employment because of the entry of these goods that are being
discharged, warehoused and reloaded into the ships so that they can be exported. That will
generate employment for us. For as long as that is done, we are saying, in effect, that we have the
least contact with our tariff and customs laws and our tax laws. Therefore, we consider these
goods as outside of the customs jurisdiction of the Republic of the Philippines as yet, until we draw
them from this territory and bring them inside our domestic commerce. In which case, they have
to pass through our customs gate. I thought we are carving out this entire area and convert it into
this kind of concept.[34]
However, contrary to the claim of petitioners, there is nothing in the foregoing excerpts which absolutely
limits the incentive to Freeport investors only to exemption from customs duties and taxes. Mindful of the
legislative intent to attract investors, enhance investment and boost the economy, the legislature could not have
limited the enticement only to exemption from taxes. The minimum interference policy of the government on
the Freeport extends to the kind of business that investors may embark on and the articles which they may

import or export into and out of the zone. A contrary interpretation would defeat the very purpose of
the Freeport and drive away investors.
It does not mean, however, that the right of Freeport enterprises to import all types of goods and article is
absolute. Such right is of course subject to the limitation that articles absolutely prohibited by law cannot be
imported into the Freeport.[35] Nevertheless, in determining whether the prohibition would apply to the Freeport,
resort to the purpose of the prohibition is necessary.
In issuing EO 156, particularly the prohibition on importation under Article 2, Section 3.1, the President
envisioned to rationalize the importation of used motor vehicles and to enhance the capabilities of the Philippine
motor manufacturing firms to be globally competitive producers of completely build-up units and their parts and
components for the local and export markets. [36] In justifying the issuance of EO 156, petitioners alleged that
there has been a decline in the sales of new vehicles and a remarkable growth of the sales of imported used
motor vehicles. To address the same, the President issued the questioned EO to prevent further erosion of the
already depressed market base of the local motor vehicle industry and to curtail the harmful effects of the
increase in the importation of used motor vehicles.[37]
Taking our bearings from the foregoing discussions, we hold that the importation ban runs afoul the third
requisite for a valid administrative order. To be valid, an administrative issuance must not be ultra vires or
beyond the limits of the authority conferred. It must not supplant or modify the Constitution, its enabling statute
and other existing laws, for such is the sole function of the legislature which the other branches of the
government cannot usurp. As held inUnited BF Homeowners Association v. BF Homes, Inc.:[38]
The rule-making power of a public administrative body is a delegated legislative power,
which it may not use either to abridge the authority given it by Congress or the Constitution or to
enlarge its power beyond the scope intended. Constitutional and statutory provisions control what
rules and regulations may be promulgated by such a body, as well as with respect to what fields
are subject to regulation by it. It may not make rules and regulations which are inconsistent with
the provisions of the Constitution or a statute, particularly the statute it is administering or which
created it, or which are in derogation of, or defeat, the purpose of a statute.
In the instant case, the subject matter of the laws authorizing the President to regulate or forbid
importation of used motor vehicles, is the domestic industry. EO 156, however, exceeded the scope of its
application by extending the prohibition on the importation of used cars to the Freeport, which RA 7227,
considers to some extent, a foreign territory. The domestic industry which the EO seeks to protect is actually
the customs territory which is defined under the Rules and Regulations Implementing RA 7227, as follows:
the portion of the Philippines outside the Subic Bay Freeport where the Tariff and
Customs Code of the Philippines and other national tariff and customs laws are in force
and effect.[39]
The proscription in the importation of used motor vehicles should be operative only outside
the Freeport and the inclusion of said zone within the ambit of the prohibition is an invalid modification of RA
7227. Indeed, when the application of an administrative issuance modifies existing laws or exceeds the intended
scope, as in the instant case, the issuance becomes void, not only for being ultra vires, but also for being
unreasonable.
This brings us to the fourth requisite. It is an axiom in administrative law that administrative authorities
should not act arbitrarily and capriciously in the issuance of rules and regulations. To be valid, such rules and
regulations must be reasonable and fairly adapted to secure the end in view. If shown to bear no reasonable
relation to the purposes for which they were authorized to be issued, then they must be held to be invalid.[40]
There is no doubt that the issuance of the ban to protect the domestic industry is a reasonable exercise
of police power. The deterioration of the local motor manufacturing firms due to the influx of imported used
motor vehicles is an urgent national concern that needs to be swiftly addressed by the President.In the exercise
of delegated police power, the executive can therefore validly proscribe the importation of these vehicles. Thus,
in Taxicab Operators of Metro Manila, Inc. v. Board of Transportation,[41] the Court held that a regulation phasing
out taxi cabs more than six years old is a valid exercise of police power.The regulation was sustained as
reasonable holding that the purpose thereof was to promote the convenience and comfort and protect the safety
of the passengers.
The problem, however, lies with respect to the application of the importation ban to the Freeport. The
Court finds no logic in the all encompassing application of the assailed provision to the Freeport which is outside
the customs territory. As long as the used motor vehicles do not enter the customs territory, the injury or harm

sought to be prevented or remedied will not arise. The application of the law should be consistent with the
purpose of and reason for the law. Ratione cessat lex, et cessat lex. When the reason for the law ceases, the law
ceases. It is not the letter alone but the spirit of the law also that gives it life. [42] To apply the proscription to
the Freeport would not serve the purpose of the EO. Instead of improving the general economy of the country,
the application of the importation ban in the Freeport would subvert the avowed purpose of RA 7227 which is to
create a market that would draw investors and ultimately boost the national economy.
In similar cases, we also declared void the administrative issuance or ordinances concerned for being
unreasonable. To illustrate, in De la Cruz v. Paras,[43] the Court held as unreasonable and unconstitutional an
ordinance characterized by overbreadth. In that case, the Municipality of Bocaue, Bulacan, prohibited the
operation of all night clubs, cabarets and dance halls within its jurisdiction for the protection of public morals. As
explained by the Court:
x x x It cannot be said that such a sweeping exercise of a lawmaking power by Bocaue could
qualify under the term reasonable. The objective of fostering public morals, a worthy and
desirable end can be attained by a measure that does not encompass too wide a field. Certainly
the ordinance on its face is characterized by overbreadth. The purpose sought to be achieved
could have been attained by reasonable restrictions rather than by an absolute prohibition. The
admonition in Salaveria should be heeded: 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. It is clear that in the guise of a police regulation, there was in this instance a clear
invasion of personal or property rights, personal in the case of those individuals desirous of
patronizing those night clubs and property in terms of the investments made and salaries to be
earned by those therein employed.
Lupangco v. Court of Appeals,[44] is a case involving a resolution issued by the Professional Regulation
Commission which prohibited examinees from attending review classes and receiving handout materials, tips,
and the like three days before the date of examination in order to preserve the integrity and purity of the
licensure examinations in accountancy. Besides being unreasonable on its face and violative of academic
freedom, the measure was found to be more sweeping than what was necessary, viz:
Needless to say, the enforcement of Resolution No. 105 is not a guarantee that the alleged
leakages in the licensure examinations will be eradicated or at least minimized. Making the
examinees suffer by depriving them of legitimate means of review or preparation on those last
three precious days when they should be refreshing themselves with all that they have learned in
the review classes and preparing their mental and psychological make-up for the examination day
itself would be like uprooting the tree to get rid of a rotten branch. What is needed to be done by
the respondent is to find out the source of such leakages and stop it right there. If corrupt officials
or personnel should be terminated from their loss, then so be it. Fixers or swindlers should be
flushed out. Strict guidelines to be observed by examiners should be set up and if violations are
committed, then licenses should be suspended or revoked. x x x
In Lucena Grand Central Terminal, Inc. v. JAC Liner, Inc.,[45] the Court likewise struck down as unreasonable
and overbreadth a city ordinance granting an exclusive franchise for 25 years, renewable for another 25 years, to
one entity for the construction and operation of one common bus and jeepneyterminal facility
in Lucena City. While professedly aimed towards alleviating the traffic congestion alleged to have been caused by
the existence of various bus and jeepney terminals within the city, the ordinance was held to be beyond what is
reasonably necessary to solve the traffic problem in the city.
By parity of reasoning, the importation ban in this case should also be declared void for its too sweeping
and unnecessary application to the Freeportwhich has no bearing on the objective of the prohibition. If the aim of
the EO is to prevent the entry of used motor vehicles from the Freeport to the customs territory, the solution is
not to forbid entry of these vehicles into the Freeport, but to intensify governmental campaign and measures to
thwart illegal ingress of used motor vehicles into the customs territory.
At this juncture, it must be mentioned that on June 19, 1993, President Fidel V. Ramos issued Executive
Order No. 97-A, Further Clarifying The Tax And Duty-Free Privilege Within The Subic Special Economic And Free
Port Zone, Section 1 of which provides:
SECTION 1. The following guidelines shall govern the tax and duty-free privilege within
the Secured Area of the Subic Special Economic and Free Port Zone:
1.1. The Secured Area consisting of the presently fenced-in former Subic Naval Base shall
be the only completely tax and duty-free area in the SSEFPZ.Business enterprises and individuals
(Filipinos and foreigners) residing within the Secured Area are free to import raw materials, capital

goods, equipment, and consumer items tax and dutry-free. Consumption items, however, must be
consumed within the Secured Area. Removal of raw materials, capital goods, equipment and
consumer items out of the Secured Area for sale to non-SSEFPZ registered enterprises shall be
subject to the usual taxes and duties, except as may be provided herein.
In Tiu v. Court of Appeals[46] as reiterated in Coconut Oil Refiners Association, Inc. v. Torres,[47] this
provision limiting the special privileges on tax and duty-free importation in the presently fenced-in
former Subic Naval Base has been declared valid and constitutional and in accordance with RA 7227.Consistent
with these rulings and for easier management and monitoring of activities and to prevent fraudulent importation
of merchandise and smuggling, the free flow and importation of used motor vehicles shall be operative only
within the secured area.
In sum, the Court finds that Article 2, Section 3.1 of EO 156 is void insofar as it is made applicable to the
presently secured fenced-in former Subic Naval Base area as stated in Section 1.1 of EO 97-A. Pursuant to
the separability clause[48] of EO 156, Section 3.1 is declared valid insofar as it applies to the customs territory or
the Philippine territory outside the presently secured fenced-in former Subic Naval Base area as stated in Section
1.1 of EO 97-A. Hence, used motor vehicles that come into the Philippine territory via the secured fenced-in
former Subic Naval Base area may be stored, used or traded therein, or exported out of the Philippine territory,
but they cannot be imported into the Philippine territory outside of the secured fenced-in former Subic Naval
Base area.
WHEREFORE, the petitions are PARTIALLY GRANTED and the May 24, 2004 Decisions of Branch 72, Regional
Trial Court of Olongapo City, in Civil Case No. 20-0-04 and Civil Case No. 22-0-04; and the February 14, 2005
Decision of the Court of Appeals in CA-G.R. SP No. 63284, are MODIFIEDinsofar as they declared Article 2,
Section 3.1 of Executive Order No. 156, void in its entirety.
Said provision is declared VALID insofar as it applies to the Philippine territory outside the presently fenced-in
former Subic Naval Base area and VOID with respect to its application to the secured fenced-in
former Subic Naval Base area.
SO ORDERED.

G.R. No. L-4043

May 26, 1952

CENON S. CERVANTES, petitioner,

vs.
THE AUDITOR GENERAL, respondent.
Cenon Cervantes in his own behalf.
Office of the Solicitor General Pompeyo Diaz and Solicitor Felix V. Makasiar for respondent.
REYES, J.:
This is a petition to review a decision of the Auditor General denying petitioner's claim for quarters
allowance as manager of the National Abaca and Other Fibers Corporation, otherwise known as the
NAFCO.
It appears that petitioner was in 1949 the manager of the NAFCO with a salary of P15,000 a year. By
a resolution of the Board of Directors of this corporation approved on January 19 of that year, he was
granted quarters allowance of not exceeding P400 a month effective the first of that month.
Submitted the Control Committee of the Government Enterprises Council for approval, the said resolution was on
August 3, 1949, disapproved by the said Committee on strenght of the recommendation of the NAFCO auditor,
concurred in by the Auditor General, (1) that quarters allowance constituted additional compensation
prohibited by the charter of the NAFCO, which fixes the salary of the general manager thereof at the
sum not to exceed P15,000 a year, and (2) that the precarious financial condition of the corporation
did not warrant the granting of such allowance.
On March 16, 1949, the petitioner asked the Control Committee to reconsider its action and approve his claim for
allowance for January to June 15, 1949, amounting to P1,650. The claim was again referred by the Control

Committee to the auditor General for comment. The latter, in turn referred it to the NAFCO auditor, who
reaffirmed his previous recommendation and emphasized that the fact that the corporation's finances had not
improved. In view of this, the auditor General also reiterated his previous opinion against the granting of the
petitioner's claim and so informed both the Control Committee and the petitioner. But as the petitioner insisted
on his claim the Auditor General Informed him on June 19, 1950, of his refusal to modify his decision. Hence this
petition for review.
The NAFCO was created by the Commonwealth Act No. 332, approved on June 18, 1939, with a
capital stock of P20,000,000, 51 per cent of which was to be able to be subscribed by the National
Government and the remainder to be offered to provincial, municipal, and the city governments and
to the general public. The management the corporation was vested in a board of directors of not more than 5
members appointed by the president of the Philippines with the consent of the Commission on Appointments. But
the corporation was made subject to the provisions of the corporation law in so far as they were compatible with
the provisions of its charter and the purposes of which it was created and was to enjoy the general powers
mentioned in the corporation law in addition to those granted in its charter. The members of the board were to
receive each a per diem of not to exceed P30 for each day of meeting actually attended, except the chairman of
the board, who was to be at the same time the general manager of the corporation and to receive a salary not to
exceed P15,000 per annum.
On October 4, 1946, Republic Act No. 51 was approved authorizing the President of the Philippines, among other
things, to effect such reforms and changes in government owned and controlled corporations for the purpose of
promoting simplicity, economy and efficiency in their operation Pursuant to this authority, the President on
October 4, 1947, promulgated Executive Order No. 93 creating the Government Enterprises Council to be
composed of the President of the Philippines as chairman, the Secretary of Commerce and Industry as vicechairman, the chairman of the board of directors and managing heads of all such corporations as ex-officio
members, and such additional members as the President might appoint from time to time with the consent of the
Commission on Appointments. The council was to advise the President in the excercise of his power of
supervision and control over these corporations and to formulate and adopt such policy and measures as might
be necessary to coordinate their functions and activities. The Executive Order also provided that the council was
to have a Control Committee composed of the Secretary of Commerce and Industry as chairman, a member to be
designated by the President from among the members of the council as vice-chairman and the secretary as exofficio member, and with the power, among others
(1) To supervise, for and under the direction of the President, all the corporations owned or controlled by
the Government for the purpose of insuring efficiency and economy in their operations;
(2) To pass upon the program of activities and the yearly budget of expenditures approved by the
respective Boards of Directors of the said corporations; and
(3) To carry out the policies and measures formulated by the Government Enterprises Council with the
approval of the President. (Sec. 3, Executive Order No. 93.)
With its controlling stock owned by the Government and the power of appointing its directors vested in the
President of the Philippines, there can be no question that the NAFCO is Government controlled corporation
subject to the provisions of Republic Act No. 51 and the executive order (No. 93) promulgated in accordance
therewith. Consequently, it was also subject to the powers of the Control Committee created in said executive
order, among which is the power of supervision for the purpose of insuring efficiency and economy in the
operations of the corporation and also the power to pass upon the program of activities and the yearly budget of
expenditures approved by the board of directors. It can hardly be questioned that under these powers the
Control Committee had the right to pass upon, and consequently to approve or disapprove, the
resolution of the NAFCO board of directors granting quarters allowance to the petitioners as such
allowance necessarily constitute an item of expenditure in the corporation's budget. That the
Control Committee had good grounds for disapproving the resolution is also clear, for, as pointed out
by the Auditor General and the NAFCO auditor, the granting of the allowance amounted to an illegal
increase of petitioner's salary beyond the limit fixed in the corporate charter and was furthermore
not justified by the precarious financial condition of the corporation.

It is argued, however, that Executive Order No. 93 is null and void, not only because it is based on a law that is
unconstitutional as an illegal delegation of legislature power to executive, but also because it was promulgated
beyond the period of one year limited in said law.
The second ground ignores the rule that in the computation of the time for doing an act, the first day is excluded
and the last day included (Section 13 Rev. Ad. Code.) As the act was approved on October 4, 1946, and the
President was given a period of one year within which to promulgate his executive order and that the order was
in fact promulgated on October 4, 1947, it is obvious that under the above rule the said executive order was
promulgated within the period given.
As to the first ground, the rule is that so long as the Legislature "lays down a policy and a standard is
established by the statute" there is no undue delegation. (11 Am. Jur. 957). Republic Act No. 51 in
authorizing the President of the Philippines, among others, to make reforms and changes in
government-controlled corporations, lays down a standard and policy that the purpose shall be to
meet the exigencies attendant upon the establishment of the free and independent government of
the Philippines and to promote simplicity, economy and efficiency in their operations. The standard
was set and the policy fixed. The President had to carry the mandate. This he did by promulgating
the executive order in question which, tested by the rule above cited, does not constitute an undue
delegation of legislative power.
It is also contended that the quarters allowance is not compensation and so the granting of it to the petitioner by
the NAFCO board of directors does not contravene the provisions of the NAFCO charter that the salary of the
chairman of said board who is also to be general manager shall not exceed P15,000 per anum. But regardless of
whether quarters allowance should be considered as compensation or not, the resolution of the board of the
directors authorizing payment thereof to the petitioner cannot be given effect since it was disapproved by the
Control Committee in the exercise of powers granted to it by Executive Order No. 93. And in any event,
petitioner's contention that quarters allowance is not compensation, a proposition on which American authorities
appear divided, cannot be insisted on behalf of officers and employees working for the Government of the
Philippines and its Instrumentalities, including, naturally, government-controlled corporations. This is so because
Executive Order No. 332 of 1941, which prohibits the payment of additional compensation to those working for
the Government and its Instrumentalities, including government-controlled corporations, was in 1945 amended
by Executive Order No. 77 by expressly exempting from the prohibition the payment of quarters allowance "in
favor of local government officials and employees entitled to this under existing law." The amendment is a clear
indication that quarters allowance was meant to be included in the term "additional compensation", for otherwise
the amendment would not have expressly excepted it from the prohibition. This being so, we hold that, for the
purpose of the executive order just mentioned, quarters allowance is considered additional compensation and,
therefore, prohibited.
In view of the foregoing, the petition for review is dismissed, with costs.

G.R. No. 88291 June 8, 1993

ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President, HON.
VICENTE JAYME, ETC., ET AL., respondents.
Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex.

NOCON, J.:

Just like lightning which does strike the same place twice in some instances, this matter of indirect tax exemption
of the private respondent National Power Corporation (NPC) is brought to this Court a second time. Unfazed by
the Decision We promulgated on May 31, 1991 1 petitioner Ernesto Maceda asks this Court to reconsider said
Decision. Lest We be criticized for denying due process to the petitioner. We have decided to take a second look
at the issues. In the process, a hearing was held on July 9, 1992 where all parties presented their respective
arguments. Etched in this Court's mind are the paradoxical claims by both petitioner and private respondents
that their respective positions are for the benefit of the Filipino people.
I
A Chronological review of the relevant NPC laws, specially with respect to its tax exemption provisions, at the risk
of being repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National Power
Corporation, a public corporation, mainly to develop hydraulic power from all water sources in the
Philippines. 2 The sum of P250,000.00 was appropriated out of the funds in the Philippine Treasury for the
purpose of organizing the NPC and conducting its preliminary work. 3 The main source of funds for the NPC
was the flotation of bonds in the capital markets 4 and these bonds
. . . issued under the authority of this Act shall be exempt from the payment of all
taxes by the Commonwealth of the Philippines, or by any authority, branch, division or
political subdivision thereof and subject to the provisions of the Act of Congress,
approved March 24, 1934, otherwise known as the Tydings McDuffle Law, which facts
shall be stated upon the face of said bonds. . . . . 5
On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed for the initial operations
of the NPC and reiterating the provision of the flotation of bonds as soon as the first construction of any hydraulic
power project was to be decided by the NPC Board. 6 The provision on tax exemption in relation to the issuance of
the NPC bonds was neither amended nor deleted.
On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment of the bond's principal
and interest in "gold coins" but adding that payment could be made in United States dollars. 7 The provision on
tax exemption in relation to the issuance of the NPC bonds was neither amended nor deleted.
On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to
guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC
loans. 8 He was also authorized to contract on behalf of the NPC with the International Bank for
Reconstruction and Development (IBRD) for NPC loans for the accomplishment of NPC's corporate
objectives 9 and for the reconstruction and development of the economy of the country. 10 It was
expressly stated that:
Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges,
contributions and restrictions of the Republic of the Philippines, its provinces, cities
and municipalities. 11
On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to incur other types
of indebtedness, aside from indebtedness incurred by flotation of bonds. 12 As to the pertinent tax exemption
provision, the law stated as follows:
To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all
taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its
provinces, cities and municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD, the
President of the Philippines was authorized to negotiate, contract and guarantee loans with the

Export-Import Bank of of Washigton, D.C., U.S.A., or any other international financial

institution. 14 The tax provision for repayment of these loans, as stated in R.A. No. 357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real
estate taxes. As enacted, the law states as follows:
To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, except real property tax, and from all duties, fees, imposts,
charges, and restrictions of the Republic of the Philippines, its provinces, cities, and
municipalities. 15
On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be funded by the increased
indebtedness 16 should bear the National Economic Council's stamp of approval. The tax exemption provision
related to the payment of this total indebtedness was not amended nor deleted.
On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans NPC was authorized to
incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in R.A. No. 357. 17 The tax provision related to the
repayment of these loans was not amended nor deleted.
On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to December 31, 2000.
provisions of laws and executive orders contrary to said R.A. No. 2058 were expressly repealed. 19

18

All laws or

On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation into a stock
corporation with an authorized capital stock of P100,000,000.00 divided into 1,000.000 shares having a par value
of P100.00 each, with said capital stock wholly subscribed to by the Government. 20 No tax exemption was
incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized capital stock to
P250,000,000.00 with the increase to be wholly subscribed by the Government. 21 No tax provision was
incorporated in said Act.
On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to P300,000,000.00, the
increase to be wholly subscribed by the Government. No tax provision was incorporated in said Act. 22
On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as amended.
Declared as primary objectives of the nation were:
Declaration of Policy. Congress hereby declares that (1) the comprehensive development,
utilization and conservation of Philippine water resources for all beneficial uses, including power
generation, and (2) the total electrification of the Philippines through the development of power
from all sources to meet the needs of industrial development and dispersal and the needs of rural
electrification are primary objectives of the nation which shall be pursued coordinately and
supported by all instrumentalities and agencies of the government, including the financial
institutions. 23
Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a) (Authority to incur
Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows:
The bonds issued under the authority of this subsection shall be exempt from the payment of all
taxes by the Republic of the Philippines, or by any authority, branch, division or political
subdivision thereof which facts shall be stated upon the face of said bonds. . . . 24
As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b), states as follows:

The loans, credits and indebtedness contracted under this subsection and the payment of the
principal, interest and other charges thereon, as well as the importation of machinery, equipment,
materials and supplies by the Corporation, paid from the proceeds of any loan, credit or
indebtedeness incurred under this Act, shall also be exempt from all taxes, fees, imposts, other
charges and restrictions, including import restrictions, by the Republic of the Philippines, or any of
its agencies and political subdivisions.25
A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares the non-profit
character and tax exemptions of NPC as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any
court or administrative proceedings in which it may be a party, restrictions and duties to the
Republic of the Philippines, its provinces, cities, and municipalities and other government agencies
and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government,
its provinces, cities, municipalities and other government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on
import of foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities, municipalities
and other government agencies and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale of electric power. 26
On November 7, 1972, Presidential Decree No. 40 was issued declaring that the electrification of
the entire country was one of the primary concerns of the country. And in connection with this, it
was specifically stated that:
The setting up of transmission line grids and the construction of associated generation facilities in
Luzon, Mindanao and major islands of the country, including the Visayas, shall be the
responsibility of the National Power Corporation (NPC) as the authorized implementing agency of
the State. 27
xxx xxx xxx
It is the ultimate objective of the State for the NPC to own and operate as a single integrated
system all generating facilities supplying electric power to the entire area embraced by any grid
set up by the NPC.28
On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill its role under
aforesaid P.D. No. 40. Its authorized capital stock was raised to P2,000,000,000.00, 29 its total domestic
indebtedness was pegged at a maximum of P3,000,000,000.00 at any one time, 30 and the NPC was authorized to
borrow a total of US$1,000,000,000.00 31 in foreign loans.
The relevant tax exemption provision for these foreign loans states as follows:
The loans, credits and indebtedness contracted under this subsection and the payment of the
principal, interest and other charges thereon, as well as the importation of machinery, equipment,
materials, supplies and services, by the Corporation, paid from the proceeds of any loan, credit or
indebtedness incurred under this Act, shall also be exempt from all direct and indirect taxes, fees,

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

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

. . . declared the policy of the State to formulate and implement a National Budget that is an
instrument of national development, reflective of national objectives, strategies and plans. The
budget shall be supportive of and consistent with the socio-economic development plan and shall
be oriented towards the achievement of explicit objectives and expected results, to ensure that
funds are utilized and operations are conducted effectively, economically and efficiently. The
national budget shall be formulated within a context of a regionalized government structure and of
the totality of revenues and other receipts, expenditures and borrowings of all levels of
government-owned or controlled corporations. The budget shall likewise be prepared within the
context of the national long-term plan and of a long-term budget program. 43
In line with such policy, the law decreed that
All units of government, including government-owned or controlled corporations, shall pay income
taxes, customs duties and other taxes and fees are imposed under revenues laws: provided, that
organizations otherwise exempted by law from the payment of such taxes/duties may ask for a subsidy from the
General Fund in the exact amount of taxes/duties due: provided, further, that a procedure shall be established by
the Secretary of Finance and the Commissioner of the Budget, whereby such subsidies shall automatically be
considered as both revenue and expenditure of the General Fund. 44
The law also declared that
[A]ll laws, decrees, executive orders, rules and regulations or parts thereof which are inconsistent
with the provisions of the Decree are hereby repealed and/or modified accordingly. 45
On July 11, 1984, most likely due to the economic morass the Government found itself in after the Aquino
assassination, P.D. No. 1931 was issued to reiterate that:
WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grant of tax privileges
to any government-owned or controlled corporation and all other units of government; 46
and since there was a
. . . need for government-owned or controlled corporations and all other units of government
enjoying tax privileges to share in the requirements of development, fiscal or otherwise, by paying
the duties, taxes and other charges due from them. 47
it was decreed that:
Sec. 1. The provisions of special on general law to the contrary notwithstanding, all exemptions
from the payment of duties, taxes, fees, imposts and other charges heretofore granted in favor of
government-owned or controlled corporations including their subsidiaries, are hereby withdrawn.
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the recommendation
of the Fiscal Incentives Review Board created under Presidential Decree No. 776, is hereby
empowered to restore, partially or totally, the exemptions withdrawn by Section 1 above, any
applicable tax and duty, taking into account, among others, any or all of the following:
1) The effect on the relative price levels;
2) The relative contribution of the corporation to the revenue generation effort;
3) The nature of the activity in which the corporation is engaged in; or
4) In general the greater national interest to be served.

xxx xxx xxx

Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws, decrees, executive
orders, administrative orders, rules, regulations or parts thereof which are inconsistent with this
Decree are hereby repealed, amended or modified accordingly.
On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential restoration or grant of
tax exemption to other government and private entities without benefit of review by the Fiscal Incentives Review
Board, to wit:
WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11, 1984 and October 14,
1984, respectively, withdrew the tax and duty exemption privileges, including the preferential tax
treatment, of government and private entities with certain exceptions, in order that the
requirements of national economic development, in terms of fiscals and other resources, may be
met more adequately;
xxx xxx xxx
WHEREAS, in addition to those tax and duty exemption privileges were restored by the Fiscal
Incentives Review Board (FIRB), a number of affected entities, government and private, had their
tax and duty exemption privileges restored or granted by Presidential action without benefit or
review by the Fiscal Incentives Review Board (FIRB);
xxx xxx xxx
Since it was decided that:
[A]ssistance to government and private entities may be better provided where necessary by
explicit subsidy and budgetary support rather than tax and duty exemption privileges if only to
improve the fiscal monitoring aspects of government operations.
It was thus ordered that:
Sec. 1. The Provisions of any general or special law to the contrary notwithstanding, all tax and
duty incentives granted to government and private entities are hereby withdrawn, except:
a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective internation agreement to which the Government of the Republic of
the Philippines is a signatory;
c) those enjoyed by enterprises registered with:
(i) the Board of Investment pursuant to Presidential Decree No. 1789, as amended;
(ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66 as
amended;
(iii) the Philippine Veterans Investment Development Corporation Industrial
Authority pursuant to Presidential Decree No. 538, was amended.
d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instructions
No. 1416;
e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
f) those approved by the President upon the recommendation of the Fiscal
Incentives Review Board.
Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as
amended, is hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;
b) revise the scope and coverage of tax and/or duty exemption that may be restored;
c) impose conditions for the restoration of tax and/or duty exemption;
d) prescribe the date of period of effectivity of the restoration of tax and/or duty exemption;
e) formulate and submit to the President for approval, a complete system for the grant of
subsidies to deserving beneficiaries, in lieu of or in combination with the restoration of tax and
duty exemptions or preferential treatment in taxation, indicating the source of funding therefor,
eligible beneficiaries and the terms and conditions for the grant thereof taking into consideration
the international commitment of the Philippines and the necessary precautions such that the grant
of subsidies does not become the basis for countervailing action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall take
into account any or all of the following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation effort;
c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be served.
xxx xxx xxx
Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof inconsistent with this
Executive Order are hereby repealed or modified accordingly.
E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and regulations, to be issued
by the Ministry of Finance. 49 Said rules and regulations were promulgated and published in the Official Gazette
on February 23, 1987. These became effective on the 15th day after promulgation 50 in the Official
Gasetter, 51 which 15th day was March 10, 1987.
III
Now to some definitions. We refer to the very simplistic approach that all would-be lawyers, learn in
their TAXATION I course, which fro convenient reference, is as follows:

Classifications or kinds of Taxes:

According to Persons who pay or who bear the burden:
a. Direct Tax the where the person supposed to pay the tax really pays
it. WITHOUT transferring the burden to someone else.
Examples: Individual income tax, corporate income tax, transfer taxes (estate tax,
donor's tax), residence tax, immigration tax
b. Indirect Tax that where the tax is imposed upon goods BEFORE reaching the
consumer who ultimately pays for it, not as a tax, but as a part of the purchase price.
Examples: the internal revenue indirect taxes (specific tax, percentage taxes, (VAT)
and the tariff and customs indirect taxes (import duties, special import tax and other
dues) 52
IV
To simply matter, the issues raised by petitioner in his motion for reconsideration can be reduced to the following:
(1) What kind of tax exemption privileges did NPC have?
(2) For what periods in time were these privileges being enjoyed?
(3) If there are taxes to be paid, who shall pay for these taxes?
V
Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all
forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D. No.
380, does not expressly include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has been the lawmaker's intention that the
NPC was to be completely tax exempt from all forms of taxes direct and indirect.
NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its operations upon its
creation by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD for foreign financing, any loans obtained were to be
completely tax exempt.
After the NPC was authorized to borrow from other sources of funds aside issuance of bonds it was again
specifically exempted from all types of taxes "to facilitate payment of its indebtedness." Even when the ceilings
for domestic and foreign borrowings were periodically increased, the tax exemption privileges of the NPC were
maintained.
NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No. 987, as above
stated. The exemption was, however, restored by R.A. No. 6395.
Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions allowed NPC. Its
section 13(d) is the starting point of this bone of contention among the parties. For easy reference, it is
reproduced as follows:

[T]he Corporation is hereby declared exempt:

xxx xxx xxx
(d) From all taxes, duties, fees, imposts and all other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power.
P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as follows:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the
Republic of the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization and sale of electric power. (Emphasis supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple paragraph as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby declared
exempt from the payment ofALL FORMS OF taxes, duties, fees, imposts as well as costs and
service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. (Emphasis supplied)
Petitioner reminds Us that:
[I]t must be borne in mind that Presidential Decree Nos. 380
and 938 were issued by one man, acting as such the Executive and Legislative.

53

xxx xxx xxx

[S]ince both presidential decrees were made by the same person, it would have been very easy
for him to retain the same or similar language used in P.D. No. 380 P.D. No. 938 if his intention
were to preserve the indirect tax exemption of NPC. 54
Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter what his fault were. It
should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its operations and projects;
13(d) : petroleum products used in generation of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,", included 13(a)
under the "as well as" clause and added PNOC subsidiaries as qualified for tax exemptions.
This is the only conclusion one can arrive at if he has read all the NPC laws in the order of enactment or issuance
as narrated above in part I hereof. President Marcos must have considered all the NPC statutes from C.A. No. 120

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

55

with a very simple

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

Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation privileges. It allowed,
however, NPC to appeal said repeal with the Office of the President and to avail of tax-free importation privileges
under its Section 1, subject to the prior approval of an Inter-Agency Committed created by virtue of said P.D. No.
882. It is presumed that the NPC, being the special creation of the State, was allowed to continue its tax-free
importations.
This Court notes that petitioner brought to the attention of this Court, the matter of the abolition of NPC's tax
exemption privileges by P.D. No. 1177 61 only in his Common Reply/Comment to private Respondents'
"Opposition" and "Comment" to Motion for Reconsideration, four (4) months AFTER the motion for
Reconsideration had been filed. During oral arguments heard on July 9, 1992, he proceeded to discuss this tax
exemption withdrawal as explained by then Secretary of Justice Vicente Abad Santos in opinion No. 133 (S
'77). 62 A careful perusal of petitioner's senate Blue Ribbon Committee Report No. 474, the basis of the petition at
bar, fails to yield any mention of said P.D. No. 1177's effect on NPC's tax exemption privileges. 63 Applying by
analogy Pulido vs. Pablo, 64 the court declares that the matter of P.D. No. 1177 abolishing NPC's tax exemption
privileges was not seasonably invoked 65 by the petitioner.
Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax exemption privileges as
this statute has been reiterated twice in P.D. No. 1931. The express repeal of tax privileges of any governmentowned or controlled corporation (GOCC). NPC included, was reiterated in the fourth whereas clause of P.D. No.
1931's preamble. The subsidy provided for in Section 23, P.D. No. 1177, being inconsistent with Section 2, P.D.
No. 1931, was deemed repealed as the Fiscal Incentives Revenue Board was tasked with recommending the
partial or total restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.
The records before Us do not indicate whether or not NPC asked for the subsidy contemplated in Section 23, P.D.
No. 1177. Considering, however, that under Section 16 of P.D. No. 1177, NPC had to submit to the Office of the
President its request for the P200 million mandated by P.D. No. 758 to be appropriated annually by the
Government to cover its unpaid subscription to the NPC authorized capital stock and that under Section 22, of the
same P.D. No. NPC had to likewise submit to the Office of the President its internal operating budget for review
due to capital inputs of the government (P.D. No. 758) and to the national government's guarantee of the
domestic and foreign indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177.
There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly found themselves
having to pay taxes. It will be noted that Section 23, P.D. No. 1177, mandated that the Secretary of Finance and
the Commissioner of the Budget had to establish the necessary procedure to accomplish the tax payment/tax
subsidy scheme of the Government. In effect, NPC, did not put any cash to pay any tax as it got from the General
Fund the amounts necessary to pay different revenue collectors for the taxes it had to pay.
In his memorandum filed July 16, 1992, petitioner submits:
[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost all its duty and tax
exemptions, whether direct or indirect. And so there was nothing to be withdrawn or to be
restored under P.D. No. 1931, issued on June 11, 1984. This is evident from sections 1 and 2 of
said P.D. No. 1931, which reads:
"Section 1. The provisions of special or general law to the contrary notwithstanding,
all exemptions from the payment of duties, taxes, fees, imports and other charges
heretofore granted in favor of government-owned or controlled corporations
including their subsidiaries are hereby withdrawn."
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the
recommendation of the Fiscal Incentives Review Board created under P.D. No. 776,
is hereby empowered to restore partially or totally, the exemptions withdrawn by
section 1 above. . . .
Hence, P.D. No. 1931 did not have any effect or did it change NPC's status. Since it had already
lost all its tax exemptions privilege with the issuance of P.D. No. 1177 seven (7) years earlier or on

July 30, 1977, there were no tax exemptions to be withdrawn by section 1 which could later be
restored by the Minister of Finance upon the recommendation of the FIRB under Section 2 of P.D.
No. 1931. Consequently, FIRB resolutions No. 10-85, and 1-86, were all illegally and validly issued
since FIRB acted beyond their statutory authority by creating and not merely restoring the tax
exempt status of NPC. The same is true for FIRB Res. No. 17-87 which restored NPC's tax
exemption under E.O. No. 93 which likewise abolished all duties and tax exemptions but allowed
the President upon recommendation of the FIRB to restore those abolished.
The Court disagrees.
Applying by analogy the weight of authority that:
When a revised and consolidated act re-enacts in the same or substantially the same terms the
provisions of the act or acts so revised and consolidated, the revision and consolidation shall be
taken to be a continuation of the former act or acts, although the former act or acts may be
expressly repealed by the revised and consolidated act; and all rights
and liabilities under the former act or acts are preserved and may be enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section 23, P.D. No.
1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No. 1931 was deemed to be a
continuation of the first half of Section 23, P.D. No. 1177, although the second half of Section 23, P.D. No. 177, on
the subsidy scheme for former tax exempt GOCCs had been expressly repealed by Section 2 with its institution of
the FIRB recommendation of partial/total restoration of tax exemption privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax exemption
privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy for the taxes it had to
pay. It could, however, under P.D. No. 1931, ask for a total restoration of its tax exemption privileges, which, it
did, and the same were granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as approved by the Minister of
Finance.
Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both legally and
validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax exemption status but merely
restored it. 69
Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now rather infamous
Amendment No. 6 70 as there was no showing that President Marcos' encroachment on legislative prerogatives
was justified under the then prevailing condition that he could legislate "only if the Batasang Pambansa 'failed or
was unable to act inadequately on any matter that in his judgment required immediate action' to meet the
'exigency'. 71
Actually under said Amendment No. 6, then President Marcos could issue decrees not only when the Interim
Batasang Pambansa failed or was unable to act adequately on any matter for any reason that in his (Marcos')
judgment required immediate action, but also when there existed a grave emergency or a threat or thereof. It
must be remembered that said Presidential Decree was issued only around nine (9) months after the Philippines
unilaterally declared a moratorium on its foreign debt payments 72 as a result of the economic crisis triggered by
loss of confidence in the government brought about by the Aquino assassination. The Philippines was then trying
to reschedule its debt payments. 73 One of the big borrowers was the NPC 74 which had a US$ 2.1 billion white
elephant of a Bataan Nuclear Power Plant on its back. 75 From all indications, it must have been this grave
emergency of a debt rescheduling which compelled Marcos to issue P.D. No. 1931, under his Amendment 6
power. 76
The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be passed without
the concurrence of a majority of all the members of the Batasang Pambansa" 77 does not apply as said P.D. No.
1931 was not passed by the Interim Batasang Pambansa but by then President Marcos under His Amendment No.
6 power.

P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6 authority.
Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President Aquino. Its
section 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The same was granted
under FIRB Resolution No. 17-87 78 dated June 24, 1987 which restored NPC's tax exemption privileges effective,
starting March 10, 1987, the date of effectivity of E.O. No. 93 (S'86).
FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. 79 There is no indication, however,
from the records of the case whether or not similar approvals were given by then President Marcos for FIRB
Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe that a "travesty of justice" might have
occurred when the Minister of Finance approved his own recommendation as Chairman of the Fiscal Incentives
Review Board as what happened in Zambales Chromate vs. Court of Appeals 80 when the Secretary of Agriculture
and Natural Resources approved a decision earlier rendered by him when he was the Director of Mines, 81 and
in Anzaldo vs. Clave 82 where Presidential Executive Assistant Clave affirmed, on appeal to Malacaang, his own
decision as Chairman of the Civil Service Commission. 83
Upon deeper analysis, the question arises as to whether one can talk about "due process" being violated when
FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance when the same were
recommended by him in his capacity as Chairman of the Fiscal Incentives Review Board. 84
In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups and scientist-doctors,
respectively. Thus, there was a need for procedural due process to be followed.
In the case of the tax exemption restoration of NPC, there is no other comparable entity not even a single
public or private corporation whose rights would be violated if NPC's tax exemption privileges were to be
restored. While there might have been a MERALCO before Martial Law, it is of public knowledge that the
MERALCO generating plants were sold to the NPC in line with the State policy that NPC was to be the State
implementing arm for the electrification of the entire country. Besides, MERALCO was limited to Manila and its
environs. And as of 1984, there was no more MERALCO as a producer of electricity which could have
objected to the restoration of NPC's tax exemption privileges.
It should be noted that NPC was not asking to be granted tax exemption privileges for the first time. It was just
asking that its tax exemption privileges be restored. It is for these reasons that, at least in NPC's case, the
recommendation and approval of NPC's tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86,
done by the same person acting in his dual capacities as Chairman of the Fiscal Incentives Review Board and
Minister of Finance, respectively, do not violate procedural due process.
While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino on October 5, 1987, the
view has been expressed that President Aquino, at least with regard to E.O. 93 (S'86), had no authority to subdelegate to the FIRB, which was allegedly not a delegate of the legislature, the power delegated to her
thereunder.
A misconception must be cleared up.
When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and Legislative powers. Thus,
there was no power delegated to her, rather it was she who was delegating her power. She delegated it to the
FIRB, which, for purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not subdelegating her power.
And E.O. No. 93 (S'86), as a delegating law, was complete in itself it set forth the policy to be carried out 85 and
it fixed the standard to which the delegate had to conform in the performance of his functions, 86 both qualities
having been enunciated by this Court in Pelaez vs. Auditor General. 87
Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from June 11, 1984
up to the present.

VII
The next question that projects itself is who pays the tax?
The answer to the question could be gleamed from the manner by which the Commissaries of the Armed Forces
of the Philippines sell their goods.
By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their defendants but groceries
and other goods free of all taxes and duties if bought from any AFP Commissaries.
In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad valorem and other taxes
on the goods earmarked for AFP Commissaries as an added cost of operation and distribute it over the total units
of goods sold as it would any other cost. Thus, even the ordinary supermarket buyer probably pays for the
specific, ad valorem and other taxes which theses suppliers do not charge the AFP Commissaries. 89
IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies have to absorb the taxes they
add to the bunker fuel oil they sell to NPC.
It should be stated at this juncture that, as early as May 14, 1954, the Secretary of Justice renders an
opinion, 90wherein he stated and We quote:
xxx xxx xxx
Republic Act No. 358 exempts the National Power Corporation from "all taxes, duties, fees,
imposts, charges, and restrictions of the Republic of the Philippines and its provinces, cities, and
municipalities." This exemption is broad enough to include all taxes, whether direct or indirect,
which the National Power Corporation may be required to pay, such as the specific tax on
petroleum products. That it is indirect or is of no amount [should be of no moment], for it is the
corporation that ultimately pays it. The view which refuses to accord the exemption because the
tax is first paid by the seller disregards realities and gives more importance to form than to
substance. Equity and law always exalt substance over from.
xxx xxx xxx
Tax exemptions are undoubtedly to be construed strictly but not so grudgingly as knowledge that
many impositions taxpayers have to pay are in the nature of indirect taxes. To limit the exemption
granted the National Power Corporation to direct taxes notwithstanding the general and broad
language of the statue will be to thwrat the legislative intention in giving exemption from all forms
of taxes and impositions without distinguishing between those that are direct and those that are
not. (Emphasis supplied)
In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil to
NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect taxation,
the economic burden of such taxation is expected to be passed on through the channels of commerce to the user
or consumer of the goods sold. Because, however, the NPC has been exempted from both direct and indirect
taxation, the NPC must beheld exempted from absorbing the economic burden of indirect taxation. This means,
on the one hand, that the oil companies which wish to sell to NPC absorb all or part of the economic burden of
the taxes previously paid to BIR, which could they shift to NPC if NPC did not enjoy exemption from indirect taxes.
This means also, on the other hand, that the NPC may refuse to pay the part of the "normal" purchase price of
bunker fuel oil which represents all or part of the taxes previously paid by the oil companies to BIR. If NPC
nonetheless purchases such oil from the oil companies because to do so may be more convenient and
ultimately less costly for NPC than NPC itself importing and hauling and storing the oil from overseas NPC is
entitled to be reimbursed by the BIR for that part of the buying price of NPC which verifiably represents the tax
already paid by the oil company-vendor to the BIR.

It should be noted at this point in time that the whole issue of who WILL pay these indirect taxes HAS BEEN
RENDERED moot and academic by E.O. No. 195 issued on June 16, 1987 by virtue of which the ad valorem tax
rate on bunker fuel oil was reduced to ZERO (0%) PER CENTUM. Said E.O. no. 195 reads as follows:
EXECUTIVE ORDER NO. 195
AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED BY REVISING THE EXCISE TAX RATES OF CERTAIN PETROLEUM PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code, as amended, is hereby
amended to read as follows:
Par. (b) For products subject to ad valorem tax only:
PRODUCT AD VALOREM TAX RATE
1. . . .
2. . . .
3. . . .
4. Fuel oil, commercially known as bunker oil and on similar fuel oils having more or less the same
generating power 0%
xxx xxx xxx
Sec. 3. This Executive Order shall take effect immediately.
Done in the city of Manila, this 17th day of June, in the year of Our Lord, nineteen hundred and
eighty-seven. (Emphasis supplied)
The oil companies can now deliver bunker fuel oil to NPC without having to worry about who is going to bear the
economic burden of the ad valorem taxes. What this Court will now dispose of are petitioner's complaints that
some indirect tax money has been illegally refunded by the Bureau of Internal Revenue to the NPC and that more
claims for refunds by the NPC are being processed for payment by the BIR.
A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in favor of the NPC last July 7,
1986 for P58.020.110.79 which were for "erroneously paid specific and ad valorem taxes during the period from
October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to declare this Tax Credit Memo illegal as the PNC did not
have indirect tax exemptions with the enactment of P.D. No. 938. As We have already ruled otherwise, the only
questions left are whether NPC Is entitled to a tax refund for the tax component of the price of the bunker fuel oil
purchased from Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue properly refunded the amount to
NPC.
After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs NPC included, it was only on May 8, 1985 when the BIR issues its letter authority
to the NPC authorizing it to withdraw tax-free bunker fuel oil from the oil companies pursuant to FIRB Resolution
No. 10-85. 92 Since the tax exemption restoration was retroactive to June 11, 1984 there was a need. therefore, to
recover said amount as Caltex (PhiIs.) Inc. had already paid the BIR the specific and ad valorem taxes on the
bunker oil it sold NPC during the period above indicated and had billed NPC correspondingly. 93 It should be noted
that the NPC, in its letter-claim dated September 11, 1985 to the Commissioner of the Bureau of Internal Revenue

DID NOT CATEGORICALLY AND UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part of the bunker
fuel oil price it purchased from Caltex (Phils) Inc. 94
The law governing recovery of erroneously or illegally, collected taxes is section 230 of the National Internal
Revenue Code of 1977, as amended which reads as follows:
Sec. 230. Recover of tax erroneously or illegally collected. No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in any Manner
wrongfully collected. until a claim for refund or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment; Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly, to have been erroneously paid.
xxx xxx xxx
Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985,
the Tax Credit Memo in view of NPC's indirect tax exemption.

95

the Commissioner correctly issued

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

WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is hereby DENIED for lack of
merit and the decision of this Court promulgated on May 31, 1991 is hereby AFFIRMED.
SO ORDERED.

G.R. No. L-41631 December 17, 1976

HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as Secretary to
the Mayor; THE MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First Instance of Manila,
Branch XXX and the FEDERATION OF MANILA MARKET VENDORS, INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.

MARTIN, J.:
The chief question to be decided in this case is what law shall govern the publication of a tax
ordinance enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as
amended), which requires publication of the ordinance before its enactment and after its approval,
or the Local Tax Code (P.D. No. 231), which only demands publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE REGULATING THE
OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF STALLS AND PROVIDING
PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The petitioner City Mayor, Ramon D.
Bagatsing, approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil Case 96787 before
the Court of First Instance of Manila presided over by respondent Judge, seeking the declaration of nullity of
Ordinance No. 7522 for the reason that (a) the publication requirement under the Revised Charter of
the City of Manila has not been complied with; (b) the Market Committee was not given any
participation in the enactment of the ordinance, as envisioned by Republic Act 6039; (c) Section 3
(e) of the Anti-Graft and Corrupt Practices Act has been violated; and (d) the ordinance would
violate Presidential Decree No. 7 of September 30, 1972 prescribing the collection of fees and
charges on livestock and animal products.
Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent Judge issued
an order on March 11, 1975, denying the plea for failure of the respondent Federation of Manila Market Vendors,
Inc. to exhaust the administrative remedies outlined in the Local Tax Code.
After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975, declaring the nullity
of Ordinance No. 7522 of the City of Manila on the primary ground of non-compliance with the requirement of
publication under the Revised City Charter. Respondent Judge ruled:
There is, therefore, no question that the ordinance in question was not published at all in two daily
newspapers of general circulation in the City of Manila before its enactment. Neither was it
published in the same manner after approval, although it was posted in the legislative hall and in
all city public markets and city public libraries. There being no compliance with the mandatory

requirement of publication before and after approval, the ordinance in question is invalid and,
therefore, null and void.
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-publication is
required by the Local Tax Code; and (b) private respondent failed to exhaust all administrative remedies before
instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the City of Manila
and the Local Tax Code on the manner of publishing a tax ordinance enacted by the Municipal Board of Manila.
For, while Section 17 of the Revised Charter provides:
Each proposed ordinance shall be published in two daily newspapers of general circulation in the
city, and shall not be discussed or enacted by the Board until after the third day following such
publication. * * * Each approved ordinance * * * shall be published in two daily newspapers of
general circulation in the city, within ten days after its approval; and shall take effect and be in
force on and after the twentieth day following its publication, if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies of all provincial, city, municipal and
barrioordinances levying or imposing taxes, fees or other charges shall be published for three
consecutive days in a newspaper or publication widely circulated within the jurisdiction of the local
government, or posted in the local legislative hall or premises and in two other conspicuous places
within the territorial jurisdiction of the local government. In either case, copies of all provincial,
city, municipal and barrio ordinances shall be furnished the treasurers of the respective
component and mother units of a local government for dissemination.
In other words, while the Revised Charter of the City of Manila requires publication before the
enactment of the ordinance and after the approval thereof in two daily newspapers of general
circulation in the city, the Local Tax Code only prescribes for publication after the approval of
"ordinances levying or imposing taxes, fees or other charges" either in a newspaper or publication
widely circulated within the jurisdiction of the local government or by posting the ordinance in the
local legislative hall or premises and in two other conspicuous places within the territorial
jurisdiction of the local government. Petitioners' compliance with the Local Tax Code rather than with the
Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special act since it relates
only to the City of Manila, whereas the Local Tax Code is a general law because it applies universally
to all local governments. Blackstone defines general law as a universal rule affecting the entire community
and special law as one relating to particular persons or things of a class. 1 And the rule commonly said is that a
prior special law is not ordinarily repealed by a subsequent general law. The fact that one is special and the other
general creates a presumption that the special is to be considered as remaining an exception of the general, one
as a general law of the land, the other as the law of a particular case. 2 However, the rule readily yields to a
situation where the special statute refers to a subject in general, which the general statute treats
in particular. The exactly is the circumstance obtaining in the case at bar. Section 17 of the Revised Charter of
the City of Manila speaks of "ordinance" in general, i.e., irrespective of the nature and scope thereof,whereas,
Section 43 of the Local Tax Code relates to "ordinances levying or imposing taxes, fees or other charges" in
particular. In regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is doubtless
dominant, but, that dominant force loses its continuity when it approaches the realm of "ordinances levying or
imposing taxes, fees or other charges" in particular. There, the Local Tax Code controls. Here, as always, a

general provision must give way to a particular provision. 3 Special provision governs. 4 This is especially true
where the law containing the particular provision was enacted later than the one containing the general
provision. The City Charter of Manila was promulgated on June 18, 1949 as against the Local Tax Code which was
decreed on June 1, 1973. The law-making power cannot be said to have intended the establishment of conflicting
and hostile systems upon the same subject, or to leave in force provisions of a prior law by which the new will of
the legislating power may be thwarted and overthrown. Such a result would render legislation a useless and Idle
ceremony, and subject the law to the reproach of uncertainty and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for damages arising
from the injuries he suffered when he fell inside an uncovered and unlighted catchbasin or manhole on P. Burgos
Avenue. The City of Manila denied liability on the basis of the City Charter (R.A. 409) exempting the City of Manila
from any liability for damages or injury to persons or property arising from the failure of the city officers to
enforce the provisions of the charter or any other law or ordinance, or from negligence of the City Mayor,
Municipal Board, or other officers while enforcing or attempting to enforce the provisions of the charter or of any
other law or ordinance. Upon the other hand, Article 2189 of the Civil Code makes cities liable for damages for
the death of, or injury suffered by any persons by reason of the defective condition of roads, streets, bridges,
public buildings, and other public works under their control or supervision. On review, the Court held the Civil
Code controlling. It is true that, insofar as its territorial application is concerned, the Revised City Charter is a
special law and the subject matter of the two laws, the Revised City Charter establishes a general rule of liability
arising from negligence in general, regardless of the object thereof, whereas the Civil Code constitutes a
particular prescription for liability due to defective streets in particular. In the same manner, the Revised Charter
of the City prescribes a rule for the publication of "ordinance" in general, while the Local Tax Code establishes a
rule for the publication of "ordinance levying or imposing taxes fees or other charges in particular.
In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a general or
broad one. 7 A charter provision may be impliedly modified or superseded by a later statute, and where a statute
is controlling, it must be read into the charter notwithstanding any particular charter provision. 8 A subsequent
general law similarly applicable to all cities prevails over any conflicting charter provision, for the
reason that a charter must not be inconsistent with the general laws and public policy of the
state. 9 A chartered city is not an independent sovereignty. The state remains supreme in all matters not purely
local. Otherwise stated, a charter must yield to the constitution and general laws of the state, it is to have read
into it that general law which governs the municipal corporation and which the corporation cannot set aside but
to which it must yield. When a city adopts a charter, it in effect adopts as part of its charter general law of such
character. 10
2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as having been
violated by private respondent in bringing a direct suit in court. This is because Section 47 of the Local Tax
Code provides that any question or issue raised against the legality of any tax ordinance, or portion
thereof, shall be referred for opinion to the city fiscal in the case of tax ordinance of a city. The
opinion of the city fiscal is appealable to the Secretary of Justice, whose decision shall be final and
executory unless contested before a competent court within thirty (30) days. But, the petition below
plainly shows that the controversy between the parties is deeply rooted in a pure question of law: whether it is
the Revised Charter of the City of Manila or the Local Tax Code that should govern the publication of the tax
ordinance. In other words, the dispute is sharply focused on the applicability of the Revised City Charter or the
Local Tax Code on the point at issue, and not on the legality of the imposition of the tax. Exhaustion of
administrative remedies before resort to judicial bodies is not an absolute rule. It admits of exceptions. Where the
question litigated upon is purely a legal one, the rule does not apply. 11 The principle may also be disregarded
when it does not provide a plain, speedy and adequate remedy. It may and should be relaxed when its application
may cause great and irreparable damage. 12
3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because the
imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-raising function,
so that the procedure for publication under the Local Tax Code finds no application. The pretense bears its own
marks of fallacy. Precisely, the raising of revenues is the principal object of taxation. Under Section 5, Article XI of
the New Constitution, "Each local government unit shall have the power to create its own sources of revenue and
to levy taxes, subject to such provisions as may be provided by law." 13 And one of those sources of revenue is
what the Local Tax Code points to in particular: "Local governments may collect fees or rentals for the occupancy

or use of public markets and premises * * *." 14 They can provide for and regulate market stands, stalls and
privileges, and, also, the sale, lease or occupancy thereof. They can license, or permit the use of, lease, sell or
otherwise dispose of stands, stalls or marketing privileges. 15
It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated September 30, 1972,
insofar as it affects livestock and animal products, because the said decree prescribes the collection of other fees
and charges thereon "with the exception of ante-mortem and post-mortem inspection fees, as well as the
delivery, stockyard and slaughter fees as may be authorized by the Secretary of Agriculture and Natural
Resources." 16Clearly, even the exception clause of the decree itself permits the collection of the proper fees for
livestock. And the Local Tax Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments may
collect fees for the slaughter of animals and the use of corrals * * * "
4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522 supposedly in
accordance with Republic Act No. 6039, an amendment to the City Charter of Manila, providing that "the market
committee shall formulate, recommend and adopt, subject to the ratification of the municipal board, and
approval of the mayor, policies and rules or regulation repealing or maneding existing provisions of the market
code" does not infect the ordinance with any germ of invalidity. 17 The function of the committee is purely
recommendatory as the underscored phrase suggests, its recommendation is without binding effect on the
Municipal Board and the City Mayor. Its prior acquiescence of an intended or proposed city ordinance is not a
condition sine qua non before the Municipal Board could enact such ordinance. The native power of the Municipal
Board to legislate remains undisturbed even in the slightest degree. It can move in its own initiative and the
Market Committee cannot demur. At most, the Market Committee may serve as a legislative aide of the Municipal
Board in the enactment of city ordinances affecting the city markets or, in plain words, in the gathering of the
necessary data, studies and the collection of consensus for the proposal of ordinances regarding city markets.
Much less could it be said that Republic Act 6039 intended to delegate to the Market Committee the adoption of
regulatory measures for the operation and administration of the city markets. Potestas delegata non delegare
potest.
5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are
diverted to the exclusive private use of the Asiatic Integrated Corporation since the collection of
said fees had been let by the City of Manila to the said corporation in a "Management and Operating
Contract." The assumption is of course saddled on erroneous premise. The fees collected do not go
direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the
corporation but for the purpose of raising revenues for the city. That is the object it serves. The
entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So long
as the purpose is public, it does not matter whether the agency through which the money is
dispensed is public or private. The right to tax depends upon the ultimate use, purpose and object
for which the fund is raised. It is not dependent on the nature or character of the person or
corporation whose intermediate agency is to be used in applying it. The people may be taxed for a
public purpose, although it be under the direction of an individual or private corporation. 18
Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt Practices Act
because the increased rates of market stall fees as levied by the ordinance will necessarily inure to the
unwarranted benefit and advantage of the corporation. 19 We are concerned only with the issue whether the
ordinance in question is intra vires. Once determined in the affirmative, the measure may not be invalidated
because of consequences that may arise from its enforcement. 20
ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No. 7522 of the City
of Manila, dated June 15, 1975, is hereby held to have been validly enacted. No. costs.
SO ORDERED.

PLANTERS PRODUCTS, INC., G.R. No. 166006

Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

Promulgated:
FERTIPHIL CORPORATION,
Respondent. March 14, 2008

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

DECISION

REYES, R.T., J.:

THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the constitutionality of statutes,
executive orders, presidential decrees and other issuances. The Constitution vests that power not only in the
Supreme Court but in all Regional Trial Courts.

The principle is relevant in this petition for review on certiorari of the Decision[1] of the Court of Appeals
(CA) affirming with modification that of the RTC in Makati City,[2] finding petitioner Planters Products, Inc. (PPI)
liable to private respondent Fertiphil Corporation (Fertiphil) for the levies it paid under Letter of Instruction (LOI)
No. 1465.

The Facts

[3]

Petitioner PPI and private respondent Fertiphil are private corporations incorporated under Philippine laws.
They are both engaged in the importation and distribution of fertilizers, pesticides and agricultural chemicals.

On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465
which provided, among others, for the imposition of a capital recovery component (CRC) on the domestic sale of
all grades of fertilizers in the Philippines.[4] The LOI provides:

3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula
a capital contribution component of not less than P10 per bag. This capital contribution shall
be collected until adequate capital is raised to make PPI viable. Such capital contribution shall
be applied by FPA to all domestic sales of fertilizers in the Philippines.[5] (Underscoring
supplied)

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic
market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount collected to the
Far East Bank and Trust Company, the depositary bank of PPI. Fertiphil paid P6,689,144 to FPA
from July 8, 1985 toJanuary 24, 1986.[6]

After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the return of
democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI No. 1465, but PPI refused to
accede to the demand.[7]

Fertiphil filed a complaint for collection and damages [8] against FPA and PPI with the RTC in Makati. It
questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable, oppressive, invalid and an
unlawful imposition that amounted to a denial of due process of law. [9] Fertiphil alleged that the LOI solely
favored PPI, a privately owned corporation, which used the proceeds to maintain its monopoly of the
fertilizer industry.

In its Answer,[10] FPA, through the Solicitor General, countered that the issuance of LOI No. 1465 was a
valid exercise of the police power of the State in ensuring the stability of the fertilizer industry in the country. It
also averred that Fertiphil did not sustain any damage from the LOI because the burden imposed by the levy fell
on the ultimate consumer, not the seller.

RTC Disposition

On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as follows:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the
plaintiff and against the defendant Planters Product, Inc., ordering the latter to pay the former:

1) the sum of P6,698,144.00 with interest at 12% from the time of judicial demand;
2) the sum of P100,000 as attorneys fees;
3) the cost of suit.

SO ORDERED.[11]

Ruling that the imposition of the P10 CRC was an exercise of the States inherent power of taxation,
the RTC invalidated the levy for violating the basic principle that taxes can only be levied for public
purpose, viz.:

It is apparent that the imposition of P10 per fertilizer bag sold in the country by
LOI 1465 is purportedly in the exercise of the power of taxation. It is a settled principle
that the power of taxation by the state is plenary. Comprehensive and supreme, the
principal check upon its abuse resting in the responsibility of the members of the
legislature to their constituents. However, there are two kinds of limitations on the
power of taxation: the inherent limitations and the constitutional limitations.

One of the inherent limitations is that a tax may be levied only for public purposes:

The power to tax can be resorted to only for a constitutionally valid public
purpose. By the same token, taxes may not be levied for purely private
purposes, for building up of private fortunes, or for the redress of private
wrongs. They cannot be levied for the improvement of private property,
or for the benefit, and promotion of private enterprises, except where the
aid is incident to the public benefit. It is well-settled principle of
constitutional law that no general tax can be levied except for the
purpose of raising money which is to be expended for public use. Funds
cannot be exacted under the guise of taxation to promote a purpose that
is not of public interest. Without such limitation, the power to tax could
be exercised or employed as an authority to destroy the economy of the
people. A tax, however, is not held void on the ground of want of public
interest unless the want of such interest is clear. (71 Am. Jur. pp. 371-372)

In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the Fertilizer and Pesticide
Authority pursuant to the P10 per bag of fertilizer sold imposition under LOI 1465 which, in turn,
remitted the amount to the defendant Planters Products, Inc. thru the latters depository bank, Far
East Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff, Fertiphil Corporation, which is a
private domestic corporation, became poorer by the amount of P6,698,144.00 and the defendant,
Planters Product, Inc., another private domestic corporation, became richer by the amount
of P6,698,144.00.

Tested by the standards of constitutionality as set forth in the afore-quoted jurisprudence, it is

quite evident that LOI 1465 insofar as it imposes the amount of P10 per fertilizer bag sold in the
country and orders that the said amount should go to the defendant Planters Product, Inc. is
unlawful because it violates the mandate that a tax can be levied only for a public purpose and
not to benefit, aid and promote a private enterprise such as Planters Product, Inc.[12]

PPI moved for reconsideration but its motion was denied. [13] PPI then filed a notice of appeal with the RTC but it
failed to pay the requisite appeal docket fee.In a separate but related proceeding, this Court [14] allowed the
appeal of PPI and remanded the case to the CA for proper disposition.

CA Decision

On November 28, 2003, the CA handed down its decision affirming with modification that of the RTC, with the
following fallo:

IN
VIEW
OF ALL THE
FOREGOING,
the
hereby AFFIRMED, subject to the MODIFICATION that
hereby DELETED.[15]

decision
the award

appealed
from
of attorneys fees

is
is

In affirming the RTC decision, the CA ruled that the lis mota of the complaint for collection was the
constitutionality of LOI No. 1465, thus:

The question then is whether it was proper for the trial court to exercise its power to judicially
determine the constitutionality of the subject statute in the instant case.

As a rule, where the controversy can be settled on other grounds, the courts will not resolve the
constitutionality of a law (Lim v. Pacquing, 240 SCRA 649 [1995]). The policy of the courts is to
avoid ruling on constitutional questions and to presume that the acts of political departments are
valid, absent a clear and unmistakable showing to the contrary.

However, the courts are not precluded from exercising such power when the following requisites
are obtaining in a controversy before it: First, there must be before the court an actual case calling
for the exercise of judicial review. Second, the question must be ripe for adjudication. Third, the
person challenging the validity of the act must have standing to challenge. Fourth, the question of
constitutionality must have been raised at the earliest opportunity; and lastly, the issue of
constitutionality must be the very lis mota of the case (Integrated Bar of the Philippines v.
Zamora, 338 SCRA 81 [2000]).

Indisputably, the present case was primarily instituted for collection and damages. However, a
perusal of the complaint also reveals that the instant action is founded on the claim that the levy
imposed was an unlawful and unconstitutional special assessment. Consequently, the requisite
that the constitutionality of the law in question be the very lis mota of the case is present, making
it proper for the trial court to rule on the constitutionality of LOI 1465.[16]

The CA held that even on the assumption that LOI No. 1465 was issued under the police power of the state, it is
still unconstitutional because it did not promote public welfare. The CA explained:

In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed under the
said law was an invalid exercise of the States power of taxation inasmuch as it violated the
inherent and constitutional prescription that taxes be levied only for public purposes. It reasoned
out that the amount collected under the levy was remitted to the depository bank of PPI, which the
latter used to advance its private interest.

On the other hand, appellant submits that the subject statutes passage was a valid exercise of
police power. In addition, it disputes the court a quos findings arguing that the collections under
LOI 1465 was for the benefit of Planters Foundation, Incorporated (PFI), a foundation created by
law to hold in trust for millions of farmers, the stock ownership of PPI.

Of the three fundamental powers of the State, the exercise of police power has been characterized
as the most essential, insistent and the least limitable of powers, extending as it does to all the
great public needs. It may be exercised as long as the activity or the property sought to be
regulated has some relevance to public welfare (Constitutional Law, by Isagani A. Cruz, p. 38,
1995 Edition).

Vast as the power is, however, it must be exercised within the limits set by the Constitution, which
requires the concurrence of a lawful subject and a lawful method.Thus, our courts have laid down
the test to determine the validity of a police measure as follows: (1) the interests of the public
generally, as distinguished from those of a particular class, requires its exercise; and (2) the
means employed are reasonably necessary for the accomplishment of the purpose and not unduly
oppressive upon individuals (National Development Company v. Philippine Veterans Bank, 192
SCRA 257 [1990]).

It is upon applying this established tests that We sustain the trial courts holding LOI 1465
unconstitutional. To be sure, ensuring the continued supply and distribution of fertilizer in the
country is an undertaking imbued with public interest. However, the method by which LOI 1465
sought to achieve this is by no means a measure that will promote the public welfare. The
governments commitment to support the successful rehabilitation and continued viability of PPI, a
private corporation, is an unmistakable attempt to mask the subject statutes impartiality. There is
no way to treat the self-interest of a favored entity, like PPI, as identical with the general interest
of the countrys farmers or even the Filipino people in general. Well to stress, substantive due
process exacts fairness and equal protection disallows distinction where none is needed. When a
statutes public purpose is spoiled by private interest, the use of police power becomes a travesty
which must be struck down for being an arbitrary exercise of government power. To rule in favor of
appellant would contravene the general principle that revenues derived from taxes cannot be
used for purely private purposes or for the exclusive benefit of private individuals.[17]

The CA did not accept PPIs claim that the levy imposed under LOI No. 1465 was for the benefit of Planters
Foundation, Inc., a foundation created to hold in trust the stock ownership of PPI. The CA stated:

Appellant next claims that the collections under LOI 1465 was for the benefit of Planters
Foundation, Incorporated (PFI), a foundation created by law to hold in trust for millions of farmers,
the stock ownership of PFI on the strength of Letter of Undertaking (LOU) issued by then Prime
Minister Cesar Virata on April 18, 1985 and affirmed by the Secretary of Justice in an Opinion
dated October 12, 1987, to wit:

2. Upon the effective date of this Letter of Undertaking, the Republic shall cause
FPA to include in its fertilizer pricing formula a capital recovery component, the
proceeds of which will be used initially for the purpose of funding the unpaid
portion of the outstanding capital stock of Planters presently held in trust by
Planters Foundation, Inc. (Planters Foundation), which unpaid capital is estimated
at approximately P206 million (subject to validation by Planters and Planters
Foundation) (such unpaid portion of the outstanding capital stock of Planters being
hereafter referred to as the Unpaid Capital), and subsequently for such capital
increases as may be required for the continuing viability of Planters.

The capital recovery component shall be in the minimum amount of P10 per bag,
which will be added to the price of all domestic sales of fertilizer in
thePhilippines by any importer and/or fertilizer mother company. In this connection,
the Republic hereby acknowledges that the advances by Planters to Planters
Foundation which were applied to the payment of the Planters shares now held in
trust by Planters Foundation, have been assigned to, among others, the
Creditors. Accordingly, the Republic, through FPA, hereby agrees to deposit the
proceeds of the capital recovery component in the special trust account designated

in the notice dated April 2, 1985, addressed by counsel for the Creditors to Planters
Foundation. Such proceeds shall be deposited by FPA on or before the 15 th day of
each month.

The capital recovery component shall continue to be charged and collected until
payment in full of (a) the Unpaid Capital and/or (b) any shortfall in the payment of
the Subsidy Receivables, (c) any carrying cost accruing from the date hereof on the
amounts which may be outstanding from time to time of the Unpaid Capital and/or
the Subsidy Receivables and (d) the capital increases contemplated in paragraph 2
hereof. For the purpose of the foregoing clause (c), the carrying cost shall be at
such rate as will represent the full and reasonable cost to Planters of servicing its
debts, taking into account both its peso and foreign currency-denominated
obligations. (Records, pp. 42-43)

Appellants proposition is open to question, to say the least. The LOU issued by then Prime Minister
Virata taken together with the Justice Secretarys Opinion does not preponderantly demonstrate
that the collections made were held in trust in favor of millions of farmers. Unfortunately for
appellant, in the absence of sufficient evidence to establish its claims, this Court is constrained to
rely on what is explicitly provided in LOI 1465 that one of the primary aims in imposing the levy is
to support the successful rehabilitation and continued viability of PPI.[18]

PPI moved for reconsideration but its motion was denied. [19] It then filed the present petition with this
Court.

Issues

Petitioner PPI raises four issues for Our consideration, viz.:

I
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY ATTACKED AND BE
DECREED VIA A DEFAULT JUDGMENT IN A CASE FILED FOR COLLECTION AND DAMAGES WHERE
THE ISSUE OF CONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF THE CASE. NEITHER CAN LOI
1465 BE CHALLENGED BY ANY PERSON OR ENTITY WHICH HAS NO STANDING TO DO SO.

II
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE FERTILIZER
SUPPLY AND DISTRIBUTION IN THE COUNTRY,AND FOR BENEFITING A FOUNDATION CREATED BY
LAW TO HOLD IN TRUST FOR MILLIONS OF FARMERS THEIR STOCK OWNERSHIP IN
PPICONSTITUTES A VALID LEGISLATION PURSUANT TO THE EXERCISE OF TAXATION AND POLICE
POWER FOR PUBLIC PURPOSES.

III
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY COMPONENT WAS REMITTED TO THE
GOVERNMENT, AND BECAME GOVERNMENT FUNDS PURSUANT TO AN EFFECTIVE AND VALIDLY

ENACTED LAW WHICH IMPOSED DUTIES AND CONFERRED RIGHTS BY VIRTUE OF THE PRINCIPLE OF
OPERATIVE FACT PRIOR TO ANY DECLARATION OF UNCONSTITUTIONALITY OF LOI 1465.

IV
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT) FINDS NO APPLICATION IN THE
INSTANT CASE.[20] (Underscoring supplied)

Our Ruling

We shall first tackle the procedural issues of locus standi and the jurisdiction of the RTC to resolve constitutional
issues.

Fertiphil has locus standi because it suffered direct injury;

doctrine of standing is a mere procedural technicality which
may be waived.

PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465 because it
does not have a personal and substantial interest in the case or will sustain direct injury as a result of its
enforcement.[21] It asserts that Fertiphil did not suffer any damage from the CRC imposition because incidence of
the levy fell on the ultimate consumer or the farmers themselves, not on the seller fertilizer company. [22]

We cannot agree. The doctrine of locus standi or the right of appearance in a court of justice has been
adequately discussed by this Court in a catena of cases. Succinctly put, the doctrine requires a litigant to have a
material interest in the outcome of a case. In private suits, locus standi requires a litigant to be a real party in
interest, which is defined as the party who stands to be benefited or injured by the judgment in the suit or the
party entitled to the avails of the suit.[23]

In public suits, this Court recognizes the difficulty of applying the doctrine especially when plaintiff asserts
a public right on behalf of the general public because of conflicting public policy issues. [24] On one end, there is
the right of the ordinary citizen to petition the courts to be freed from unlawful government intrusion and illegal
official action. At the other end, there is the public policy precluding excessive judicial interference in official acts,
which may unnecessarily hinder the delivery of basic public services.

In this jurisdiction, We have adopted the direct injury test to determine locus standi in public
suits. In People v. Vera,[25] it was held that a person who impugns the validity of a statute must have a personal
and substantial interest in the case such that he has sustained, or will sustain direct injury as a result. The direct
injury test in public suits is similar to the real party in interest rule for private suits under Section 2, Rule 3 of the
1997 Rules of Civil Procedure.[26]

Recognizing that a strict application of the direct injury test may hamper public interest, this Court
relaxed the requirement in cases of transcendental importance or with far reaching implications. Being a mere
procedural technicality, it has also been held that locus standi may be waived in the public interest.[27]
Whether or not the complaint for collection is characterized as a private or public suit, Fertiphil has locus
standi to file it. Fertiphil suffered a direct injury from the enforcement of LOI No. 1465. It was required, and it did
pay, the P10 levy imposed for every bag of fertilizer sold on the domestic market. It may be true that Fertiphil has
passed some or all of the levy to the ultimate consumer, but that does not disqualify it from attacking the
constitutionality of the LOI or from seeking a refund. As seller, it bore the ultimate burden of paying the levy. It

faced the possibility of severe sanctions for failure to pay the levy. The fact of payment is sufficient injury to
Fertiphil.
Moreover, Fertiphil suffered harm from the enforcement of the LOI because it was compelled to factor in
its product the levy. The levy certainly rendered the fertilizer products of Fertiphil and other domestic sellers
much more expensive. The harm to their business consists not only in fewer clients because of the increased
price, but also in adopting alternative corporate strategies to meet the demands of LOI No. 1465. Fertiphil and
other fertilizer sellers may have shouldered all or part of the levy just to be competitive in the market. The harm
occasioned on the business of Fertiphil is sufficient injury for purposes of locus standi.
Even assuming arguendo that there is no direct injury, We find that the liberal policy consistently adopted
by this Court on locus standi must apply. The issues raised by Fertiphil are of paramount public importance. It
involves not only the constitutionality of a tax law but, more importantly, the use of taxes for public
purpose. Former President Marcos issued LOI No. 1465 with the intention of rehabilitating an ailing private
company. This is clear from the text of the LOI. PPI is expressly named in the LOI as the direct beneficiary of the
levy. Worse, the levy was made dependent and conditional upon PPI becoming financially viable. The LOI provided
that the capital contribution shall be collected until adequate capital is raised to make PPI viable.

The constitutionality of the levy is already in doubt on a plain reading of the statute. It is Our constitutional duty
to squarely resolve the issue as the final arbiter of all justiciable controversies. The doctrine of standing, being a
mere procedural technicality, should be waived, if at all, to adequately thresh out an important constitutional
issue.

RTC may resolve constitutional issues; the constitutional

issue was adequately raised in the complaint; it is the lis
mota of the case.

PPI insists that the RTC and the CA erred in ruling on the constitutionality of the LOI. It asserts that the
constitutionality of the LOI cannot be collaterally attacked in a complaint for collection. [28] Alternatively, the
resolution of the constitutional issue is not necessary for a determination of the complaint for collection.[29]

Fertiphil counters that the constitutionality of the LOI was adequately pleaded in its complaint. It claims
that the constitutionality of LOI No. 1465 is the very lis mota of the case because the trial court cannot determine
its claim without resolving the issue.[30]

It is settled that the RTC has jurisdiction to resolve the constitutionality of a statute, presidential decree or
an executive order. This is clear from Section 5, Article VIII of the 1987 Constitution, which provides:

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

xxxx

(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules
of Court may provide, final judgments and orders of lower courtsin:

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

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

In Mirasol v. Court of Appeals,[31] this Court recognized the power of the RTC to resolve constitutional
issues, thus:

On the first issue. It is settled that Regional Trial Courts have the authority and jurisdiction
to consider the constitutionality of a statute, presidential decree, or executive order. The
Constitution vests the power of judicial review or the power to declare a law, treaty, international
or executive agreement, presidential decree, order, instruction, ordinance, or regulation not only
in this Court, but in all Regional Trial Courts.[32]

In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign Affairs,[33] this Court reiterated:

There is no denying that regular courts have jurisdiction over cases involving the validity
or constitutionality of a rule or regulation issued by administrative agencies. Such jurisdiction,
however, is not limited to the Court of Appeals or to this Court alone for even the regional trial
courts can take cognizance of actions assailing a specific rule or set of rules promulgated by
administrative bodies. Indeed, the Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement, presidential decree, order, instruction,
ordinance, or regulation in the courts, including the regional trial courts.[34]

Judicial review of official acts on the ground of unconstitutionality may be sought or availed of through
any of the actions cognizable by courts of justice, not necessarily in a suit for declaratory relief. Such review may
be had in criminal actions, as in People v. Ferrer[35] involving the constitutionality of the now defunct AntiSubversion law, or in ordinary actions, as in Krivenko v. Register of Deeds[36] involving the constitutionality of laws
prohibiting aliens from acquiring public lands. The constitutional issue, however, (a) must be properly raised
and presented in the case, and (b) its resolution is necessary to a determination of the case, i.e., the issue of
constitutionality must be the very lis mota presented.[37]

Contrary to PPIs claim, the constitutionality of LOI No. 1465 was properly and adequately raised in the
complaint for collection filed with the RTC. The pertinent portions of the complaint allege:

6. The CRC of P10 per bag levied under LOI 1465 on domestic sales of all grades of
fertilizer in the Philippines, is unlawful, unjust, uncalled for, unreasonable, inequitable and
oppressive because:
xxxx

(c) It favors only one private domestic corporation, i.e., defendant PPPI, and
imposed at the expense and disadvantage of the other fertilizer
importers/distributors who were themselves in tight business situation and were
then exerting all efforts and maximizing management and marketing skills to
remain viable;

xxxx

(e) It was a glaring example of crony capitalism, a forced program through

which the PPI, having been presumptuously masqueraded as the fertilizer industry
itself, was the sole and anointed beneficiary;

7. The CRC was an unlawful; and unconstitutional special assessment and its imposition is
tantamount to illegal exaction amounting to a denial of due process since the persons of entities
which had to bear the burden of paying the CRC derived no benefit therefrom; that on the contrary
it was used by PPI in trying to regain its former despicable monopoly of the fertilizer industry to
the detriment of other distributors and importers.[38] (Underscoring supplied)
The constitutionality of LOI No. 1465 is also the very lis mota of the complaint for collection. Fertiphil filed
the complaint to compel PPI to refund the levies paid under the statute on the ground that the law imposing the
levy is unconstitutional. The thesis is that an unconstitutional law is void. It has no legal effect. Being void,
Fertiphil had no legal obligation to pay the levy. Necessarily, all levies duly paid pursuant to an unconstitutional
law should be refunded under the civil code principle against unjust enrichment. The refund is a mere
consequence of the law being declared unconstitutional. The RTC surely cannot order PPI to refund Fertiphil if it
does not declare the LOI unconstitutional. It is the unconstitutionality of the LOI which triggers the refund. The
issue of constitutionality is the very lis mota of the complaint with the RTC.

The P10 levy under LOI No. 1465 is an exercise of the

power of taxation.

At any rate, the Court holds that the RTC and the CA did not err in ruling against the constitutionality of the LOI.

PPI insists that LOI No. 1465 is a valid exercise either of the police power or the power of
taxation. It claims that the LOI was implemented for the purpose of assuring the fertilizer supply
and distribution in the country and for benefiting a foundation created by law to hold in trust for
millions of farmers their stock ownership in PPI.

Fertiphil counters that the LOI is unconstitutional because it was enacted to give benefit to a
private company. The levy was imposed to pay the corporate debt of PPI. Fertiphil also argues that,
even if the LOI is enacted under the police power, it is still unconstitutional because it did not
promote the general welfare of the people or public interest.

Police power and the power of taxation are inherent powers of the State. These powers are distinct and
have different tests for validity. Police power is the power of the State to enact legislation that may interfere with
personal liberty or property in order to promote the general welfare, [39] while the power of taxation is the power to
levy taxes to be used for public purpose. The main purpose of police power is the regulation of a behavior or
conduct, while taxation is revenue generation. The lawful subjects and lawful means tests are used to
determine the validity of a law enacted under the police power. [40] The power of taxation, on the
other hand, is circumscribed by inherent and constitutional limitations.

We agree with the RTC that the imposition of the levy was an exercise by the State of its
taxation power. While it is true that the power of taxation can be used as an implement of police
power,[41] the primary purpose of the levy is revenue generation. If the purpose is primarily revenue,
or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly
called a tax.[42]

In Philippine Airlines, Inc. v. Edu,[43] it was held that the imposition of a vehicle registration fee is not an
exercise by the State of its police power, but of its taxation power, thus:
It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of
the Land Transportation and Traffic Code that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the

construction and maintenance of highways and to a much lesser degree, pay for the
operating expenses of the administering agency. x x x Fees may be properly regarded
as taxes even though they also serve as an instrument of regulation.
Taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil.
148). If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration
fees. The same provision appears as Section 59(b) in the Land Transportation Code. It is patent
therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition on
the registration, operation or ownership of a motor vehicle as a tax or fee. x x x Simply put, if the
exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need
not be an additional tax. Rep. Act 4136 also speaks of other fees such as the special permit fees
for certain types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec.
11). These are not to be understood as taxes because such fees are very minimal to be revenueraising. Thus, they are not mentioned by Sec. 59(b) of the Code as taxes like the motor vehicle
registration fee and chauffeurs license fee. Such fees are to go into the expenditures of the Land
Transportation Commission as provided for in the last proviso of Sec. 61. [44] (Underscoring
supplied)

The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The
levy, no doubt, was a big burden on the seller or the ultimate consumer. It increased the price of a
bag of fertilizer by as much as five percent.[45] A plain reading of the LOI also supports the conclusion
that the levy was for revenue generation. The LOI expressly provided that the levy was
imposed until adequate capital is raised to make PPI viable.
Taxes are exacted only for a public purpose. The P10 levy is
unconstitutional because it was not for a public purpose.
The levy was imposed to give undue benefit to PPI.
An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public
purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons. [46] The
reason for this is simple. The power to tax exists for the general welfare; hence, implicit in its power is
the limitation that it should be used only for a public purpose. It would be a robbery for the State to
tax its citizens and use the funds generated for a private purpose. As an old United States case
bluntly put it: To lay with one hand, the power of the government on the property of the citizen, and
with the other to bestow it upon favored individuals to aid private enterprises and build up private
fortunes, is nonetheless a robbery because it is done under the forms of law and is called taxation.
[47]

The term public purpose is not defined. It is an elastic concept that can be hammered to fit
modern standards. Jurisprudence states that public purpose should be given a broad
interpretation. It does not only pertain to those purposes which are traditionally viewed as
essentially government functions, such as building roads and delivery of basic services, but also
includes those purposes designed to promote social justice. Thus, public money may now be used
for the relocation of illegal settlers, low-cost housing and urban or agrarian reform.
While the categories of what may constitute a public purpose are continually expanding in light of the
expansion of government functions, the inherent requirement that taxes can only be exacted for a public purpose
still stands. Public purpose is the heart of a tax law. When a tax law is only a mask to exact funds from the public
when its true intent is to give undue benefit and advantage to a private enterprise, that law will not satisfy the
requirement of public purpose.

The purpose of a law is evident from its text or inferable from other secondary sources. Here, We agree
with the RTC and that CA that the levy imposed under LOI No. 1465 was not for a public purpose.

First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company. The purpose
is explicit from Clause 3 of the law, thus:

3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula
a capital contribution component of not less than P10 per bag. This capital contribution shall
be collected until adequate capital is raised to make PPI viable. Such capital contribution shall
be applied by FPA to all domestic sales of fertilizers in the Philippines.[48] (Underscoring
supplied)

It is a basic rule of statutory construction that the text of a statute should be given a literal meaning. In
this case, the text of the LOI is plain that the levy was imposed in order to raise capital for PPI. The framers of the
LOI did not even hide the insidious purpose of the law. They were cavalier enough to name PPI as the ultimate
beneficiary of the taxes levied under the LOI. We find it utterly repulsive that a tax law would expressly name a
private company as the ultimate beneficiary of the taxes to be levied from the public. This is a clear case of crony
capitalism.

Second, the LOI provides that the imposition of the P10 levy was conditional and dependent
upon PPI becoming financially viable. This suggests that the levy was actually imposed to benefit
PPI. The LOI notably does not fix a maximum amount when PPI is deemed financially viable. Worse,
the liability of Fertiphil and other domestic sellers of fertilizer to pay the levy is made
indefinite. They are required to continuously pay the levy until adequate capital is raised for PPI.
Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and
deposited by FPA to Far East Bank and Trust Company, the depositary bank of PPI. [49] This proves
that PPI benefited from the LOI. It is also proves that the main purpose of the law was to give undue
benefit and advantage to PPI.
Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of
Understanding[50] dated May 18, 1985 signed by then Prime Minister Cesar Virata reveals that PPI
was in deep financial problem because of its huge corporate debts. There were pending petitions for
rehabilitation against PPI before the Securities and Exchange Commission. The government
guaranteed payment of PPIs debts to its foreign creditors. To fund the payment, President Marcos
issued LOI No. 1465. The pertinent portions of the letter of understanding read:

Republic of the Philippines

Office of the Prime Minister
Manila

LETTER OF UNDERTAKING

May 18, 1985

TO: THE BANKING AND FINANCIAL INSTITUTIONS
LISTED IN ANNEX A HERETO WHICH ARE
CREDITORS (COLLECTIVELY, THE CREDITORS)
OF PLANTERS PRODUCTS, INC. (PLANTERS)

Gentlemen:
This has reference to Planters which is the principal importer and distributor of fertilizer, pesticides
and agricultural chemicals in the Philippines. As regards Planters, the Philippine Government
confirms its awareness of the following: (1) that Planters has outstanding obligations in foreign
currency and/or pesos, to the Creditors, (2) thatPlanters is currently experiencing financial

difficulties, and (3) that there are presently pending with the Securities and Exchange Commission
of the Philippines a petition filed at Planters own behest for the suspension of payment of all its
obligations, and a separate petition filed by Manufacturers Hanover Trust Company, Manila
Offshore Branch for the appointment of a rehabilitation receiver for Planters.

In connection with the foregoing, the Republic of the Philippines (the Republic) confirms that it
considers and continues to consider Planters as a major fertilizer distributor. Accordingly, for and
in consideration of your expressed willingness to consider and participate in the effort to
rehabilitate Planters, the Republic hereby manifests its full and unqualified support of the
successful rehabilitation and continuing viability of Planters, and to that end, hereby binds and
obligates itself to the creditors and Planters, as follows:
xxxx
2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA
to include in its fertilizer pricing formula a capital recovery component, the proceeds of which will
be used initially for the purpose of funding the unpaid portion of the outstanding capital stock of
Planters presently held in trust by Planters Foundation, Inc. (Planters Foundation), which unpaid
capital is estimated at approximately P206 million (subject to validation by Planters and Planters
Foundation) such unpaid portion of the outstanding capital stock of Planters being hereafter
referred to as the Unpaid Capital), and subsequently for such capital increases as may be required
for the continuing viability of Planters.
xxxx
The capital recovery component shall continue to be charged and collected until payment
in full of (a) the Unpaid Capital and/or (b) any shortfall in the payment of the Subsidy Receivables,
(c) any carrying cost accruing from the date hereof on the amounts which may be outstanding
from time to time of the Unpaid Capital and/or the Subsidy Receivables, and (d) the capital
increases contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the
carrying cost shall be at such rate as will represent the full and reasonable cost to Planters of
servicing its debts, taking into account both its peso and foreign currency-denominated
obligations.
REPUBLIC OF THE PHILIPPINES
By:
(signed)
CESAR E. A. VIRATA
Prime Minister and Minister of Finance[51]

It is clear from the Letter of Understanding that the levy was imposed precisely to pay the
corporate debts of PPI. We cannot agree with PPI that the levy was imposed to ensure the stability
of the fertilizer industry in the country. The letter of understanding and the plain text of the LOI
clearly indicate that the levy was exacted for the benefit of a private corporation.

All told, the RTC and the CA did not err in holding that the levy imposed under LOI No. 1465 was not for a
public purpose. LOI No. 1465 failed to comply with the public purpose requirement for tax laws.

The LOI is still unconstitutional even if enacted under the

police power; it did not promote public interest.

Even if We consider LOI No. 1695 enacted under the police power of the State, it would still be invalid for failing
to comply with the test of lawful subjects and lawful means. Jurisprudence states the test as follows: (1) the

interest of the public generally, as distinguished from those of particular class, requires its exercise; and (2) the
means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive
upon individuals.[52]
For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public interest. The law
was enacted to give undue advantage to a private corporation. We quote with approval the CA ratiocination on
this point, thus:

It is upon applying this established tests that We sustain the trial courts holding LOI 1465
unconstitutional. To be sure, ensuring the continued supply and distribution of fertilizer in the
country is an undertaking imbued with public interest. However, the method by which LOI 1465
sought to achieve this is by no means a measure that will promote the public welfare. The
governments commitment to support the successful rehabilitation and continued viability of PPI, a
private corporation, is an unmistakable attempt to mask the subject statutes impartiality. There is
no way to treat the self-interest of a favored entity, like PPI, as identical with the general interest
of the countrys farmers or even the Filipino people in general. Well to stress, substantive due
process exacts fairness and equal protection disallows distinction where none is needed. When a
statutes public purpose is spoiled by private interest, the use of police power becomes a travesty
which must be struck down for being an arbitrary exercise of government power. To rule in favor of
appellant would contravene the general principle that revenues derived from taxes cannot be
used for purely private purposes or for the exclusive benefit of private individuals. (Underscoring
supplied)

The general rule is that an unconstitutional law is void; the

doctrine of operative fact is inapplicable.

PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is declared unconstitutional. It
banks on the doctrine of operative fact, which provides that an unconstitutional law has an effect before being
declared unconstitutional. PPI wants to retain the levies paid under LOI No. 1465 even if it is subsequently
declared to be unconstitutional.

We cannot agree. It is settled that no question, issue or argument will be entertained on appeal, unless it
has been raised in the court a quo.[53] PPI did not raise the applicability of the doctrine of operative fact with
the RTC and the CA. It cannot belatedly raise the issue with Us in order to extricate itself from the dire effects of
an unconstitutional law.

At any rate, We find the doctrine inapplicable. The general rule is that an unconstitutional law is void. It
produces no rights, imposes no duties and affords no protection. It has no legal effect. It is, in legal
contemplation, inoperative as if it has not been passed. [54] Being void, Fertiphil is not required to pay the levy.All
levies paid should be refunded in accordance with the general civil code principle against unjust enrichment. The
general rule is supported by Article 7 of the Civil Code, which provides:

ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance
shall not be excused by disuse or custom or practice to the contrary.

When the courts declare a law to be inconsistent with the Constitution, the former shall be
void and the latter shall govern.

The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity and
fair play.[55] It nullifies the effects of an unconstitutional law by recognizing that the existence of a statute prior to

a determination of unconstitutionality is an operative fact and may have consequences which cannot always be
ignored. The past cannot always be erased by a new judicial declaration.[56]

The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden on those
who have relied on the invalid law. Thus, it was applied to a criminal case when a declaration of
unconstitutionality would put the accused in double jeopardy[57] or would put in limbo the acts done by a
municipality in reliance upon a law creating it.[58]

Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by Fertiphil under LOI
No. 1465. It unduly benefited from the levy.It was proven during the trial that the levies paid were remitted and
deposited to its bank account. Quite the reverse, it would be inequitable and unjust not to order a refund. To do
so would unjustly enrich PPI at the expense of Fertiphil. Article 22 of the Civil Code explicitly provides that every
person who, through an act of performance by another comes into possession of something at the expense of the
latter without just or legal ground shall return the same to him. We cannot allow PPI to profit from an
unconstitutional law. Justice and equity dictate that PPI must refund the amounts paid by Fertiphil.

WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November 28, 2003 is AFFIRMED.

SO ORDERED.

G.R. No. L-34150 October 16, 1971

ARTURO M. TOLENTINO, petitioner,
vs.
COMMISSION ON ELECTIONS, and THE CHIEF ACCOUNTANT, THE AUDITOR, and THE DISBURSING
OFFICER OF THE 1971 CONSTITUTIONAL CONVENTION, respondents, RAUL S. MANGLAPUS, JESUS G.
BARRERA, PABLO S. TRILLANA III, VICTOR DE LA SERNA, MARCELO B. FERNAN, JOSE Y. FERIA,
LEONARDO SIGUION REYNA, VICTOR F. ORTEGA, and JUAN V. BORRA, Intervenors.
Arturo M. Tolentino in his own behalf.
Ramon A. Gonzales for respondents Chief Accountant and Auditor of the 1971 Constitutional Convention.
Emmanuel Pelaez, Jorge M. Juco and Tomas L. Echivarre for respondent Disbursing Officer of the 1971
Constitutional Convention.
Intervenors in their own behalf.

BARREDO, J.:
Petition for prohibition principally to restrain the respondent Commission on Elections "from
undertaking to hold a plebiscite on November 8, 1971," at which the proposed constitutional
amendment "reducing the voting age" in Section 1 of Article V of the Constitution of the Philippines
to eighteen years "shall be, submitted" for ratification by the people pursuant to Organic Resolution
No. 1 of the Constitutional Convention of 1971, and the subsequent implementing resolutions, by

declaring said resolutions to be without the force and effect of law in so far as they direct the
holding of such plebiscite and by also declaring the acts of the respondent Commission (COMELEC) performed
and to be done by it in obedience to the aforesaid Convention resolutions to be null and void, for being violative
of the Constitution of the Philippines.
As a preliminary step, since the petition named as respondent only the COMELEC, the Count required that copies
thereof be served on the Solicitor General and the Constitutional Convention, through its President, for such
action as they may deem proper to take. In due time, respondent COMELEC filed its answer joining issues with
petitioner. To further put things in proper order, and considering that the fiscal officers of the Convention are
indispensable parties in a proceeding of this nature, since the acts sought to be enjoined involve the expenditure
of funds appropriated by law for the Convention, the Court also ordered that the Disbursing Officer, Chief
Accountant and Auditor of the Convention be made respondents. After the petition was so amended, the first
appeared thru Senator Emmanuel Pelaez and the last two thru Delegate Ramon Gonzales. All said respondents,
thru counsel, resist petitioner's action.
For reasons of orderliness and to avoid unnecessary duplication of arguments and even possible confusion, and
considering that with the principal parties being duly represented by able counsel, their interests would be
adequately protected already, the Court had to limit the number of intervenors from the ranks of the delegates to
the Convention who, more or less, have legal interest in the success of the respondents, and so, only Delegates
Raul S. Manglapus, Jesus G. Barrera, Pablo S. Trillana III, Victor de la Serna, Marcelo B. Fernan, Jose Y. Feria,
Leonardo Siguion Reyna, Victor Ortega and Juan B. Borra, all distinguished lawyers in their own right, have been
allowed to intervene jointly. The Court feels that with such an array of brilliant and dedicated counsel, all interests
involved should be duly and amply represented and protected. At any rate, notwithstanding that their
corresponding motions for leave to intervene or to appear as amicus curiae 1 have been denied, the pleadings
filed by the other delegates and some private parties, the latter in representation of their minor children
allegedly to be affected by the result of this case with the records and the Court acknowledges that
they have not been without value as materials in the extensive study that has been undertaken in
this case.
The background facts are beyond dispute. The Constitutional Convention of 1971 came into being by
virtue of two resolutions of the Congress of the Philippines approved in its capacity as a constituent
assembly convened for the purpose of calling a convention to propose amendments to the
Constitution namely, Resolutions 2 and 4 of the joint sessions of Congress held on March 16, 1967
and June 17, 1969 respectively. The delegates to the said Convention were all elected under and by
virtue of said resolutions and the implementing legislation thereof, Republic Act 6132. The pertinent
portions of Resolution No 2 read as follows:
SECTION 1. There is hereby called a convention to propose amendments to the Constitution of the
Philippines, to be composed of two elective Delegates from each representative district who shall
have the same qualifications as those required of Members of the House of Representatives.
xxx xxx xxx
SECTION 7. The amendments proposed by the Convention shall be valid and considered part of
the Constitution when approved by a majority of the votes cast in an election at which they are
submitted to the people for their ratification pursuant to Article XV of the Constitution.
Resolution No. 4 merely modified the number of delegates to represent the different cities and provinces fixed
originally in Resolution No 2.
After the election of the delegates held on November 10, 1970, the Convention held its inaugural session on June
1, 1971. Its preliminary labors of election of officers, organization of committees and other preparatory works
over, as its first formal proposal to amend the Constitution, its session which began on September 27, 1971, or
more accurately, at about 3:30 in the morning of September 28, 1971, the Convention approved Organic
Resolution No. 1 reading thus: .

CC ORGANIC RESOLUTION NO. 1

A RESOLUTION AMENDING SECTION ONE OF ARTICLE V OF THE CONSTITUTION OF THE
PHILIPPINES SO AS TO LOWER THE VOTING AGE TO 18
BE IT RESOLVED as it is hereby resolved by the 1971 Constitutional Convention:
Section 1. Section One of Article V of the Constitution of the Philippines is amended to as follows:
Section 1. Suffrage may be exercised by (male) citizens of the Philippines not
otherwise disqualified by law, who are (twenty-one) EIGHTEEN years or over and
are able to read and write, and who shall have resided in the Philippines for one
year and in the municipality wherein they propose to vote for at least six months
preceding the election.
Section 2. This amendment shall be valid as part of the Constitution of the Philippines when
approved by a majority of the votes cast in a plebiscite to coincide with the local elections in
November 1971.
Section 3. This partial amendment, which refers only to the age qualification for the exercise of
suffrage shall be without prejudice to other amendments that will be proposed in the future by the
1971 Constitutional Convention on other portions of the amended Section or on other portions of
the entire Constitution.
Section 4. The Convention hereby authorizes the use of the sum of P75,000.00 from its savings or
from its unexpended funds for the expense of the advanced plebiscite; provided, however that
should there be no savings or unexpended sums, the Delegates waive P250.00 each or the
equivalent of 2-1/2 days per diem.
By a letter dated September 28, 1971, President Diosdado Macapagal, called upon respondent Comelec "to help
the Convention implement (the above) resolution." The said letter reads:
September 28, 1971
The Commission on Elections Manila
Thru the Chairman
Gentlemen:
Last night the Constitutional Convention passed Resolution No. 1 quoted as follows:
xxx xxx xxx
(see above)
Pursuant to the provision of Section 14, Republic Act No. 6132 otherwise known as the
Constitutional Convention Act of 1971, may we call upon you to help the Convention implement
this resolution:
Sincerely,
(Sgd.) DIOSDADO P. MACAPAGAL
DIOSDADO P. MACAPAGAL
President

On September 30, 1971, COMELEC "RESOLVED to inform the Constitutional Convention that it will hold the
plebiscite on condition that:
(a) The Constitutional Convention will undertake the printing of separate official ballots, election
returns and tally sheets for the use of said plebiscite at its expense;
(b) The Constitutional Convention will adopt its own security measures for the printing and
shipment of said ballots and election forms; and
(c) Said official ballots and election forms will be delivered to the Commission in time so that they
could be distributed at the same time that the Commission will distribute its official and sample
ballots to be used in the elections on November 8, 1971.
What happened afterwards may best be stated by quoting from intervenors' Governors' statement of the genesis
of the above proposal:
The President of the Convention also issued an order forming an Ad Hoc Committee to implement
the Resolution.
This Committee issued implementing guidelines which were approved by the President who then
transmitted them to the Commission on Elections.
The Committee on Plebiscite and Ratification filed a report on the progress of the implementation
of the plebiscite in the afternoon of October 7,1971, enclosing copies of the order, resolution and
letters of transmittal above referred to (Copy of the report is hereto attached as Annex 8Memorandum).
RECESS RESOLUTION
In its plenary session in the evening of October 7, 1971, the Convention approved a resolution
authored by Delegate Antonio Olmedo of Davao Oriental, calling for a recess of the Convention
from November 1, 1971 to November 9, 1971 to permit the delegates to campaign for the
ratification of Organic Resolution No. 1. (Copies of the resolution and the transcript of debate
thereon are hereto attached as Annexes 9 and 9-A Memorandum, respectively).
RESOLUTION CONFIRMING IMPLEMENTATION
On October 12, 1971, the Convention passed Resolution No. 24 submitted by Delegate Jose
Ozamiz confirming the authority of the President of the Convention to implement Organic
Resolution No. 1, including the creation of the Ad Hoc Committee ratifying all acts performed in
connection with said implementation.
Upon these facts, the main thrust of the petition is that Organic Resolution No. 1 and the other
implementing resolutions thereof subsequently approved by the Convention have no force and
effect as laws in so far as they provide for the holding of a plebiscite co-incident with the elections
of eight senators and all city, provincial and municipal officials to be held on November 8, 1971,
hence all of Comelec's acts in obedience thereof and tending to carry out the holding of the
plebiscite directed by said resolutions are null and void, on the ground that the calling and holding
of such a plebiscite is, by the Constitution, a power lodged exclusively in Congress, as a legislative
body, and may not be exercised by the Convention, and that, under Section 1, Article XV of the
Constitution, the proposed amendment in question cannot be presented to the people for
ratification separately from each and all of the other amendments to be drafted and proposed by the
Convention. On the other hand, respondents and intervenors posit that the power to provide for, fix
the date and lay down the details of the plebiscite for the ratification of any amendment the
Convention may deem proper to propose is within the authority of the Convention as a necessary
consequence and part of its power to propose amendments and that this power includes that of

submitting such amendments either individually or jointly at such time and manner as the
Convention may direct in discretion. The Court's delicate task now is to decide which of these two
poses is really in accord with the letter and spirit of the Constitution.
As a preliminary and prejudicial matter, the intervenors raise the question of jurisdiction. They contend that the
issue before Us is a political question and that the Convention being legislative body of the highest order is
sovereign, and as such, its acts impugned by petitioner are beyond the control of the Congress and the courts. In
this connection, it is to be noted that none of the respondent has joined intervenors in this posture. In fact,
respondents Chief Accountant and Auditor of the convention expressly concede the jurisdiction of this Court in
their answer acknowledging that the issue herein is a justifiable one.
Strangely, intervenors cite in support of this contention portions of the decision of this Court in the case of
Gonzales v. Comelec, 21 SCRA 774, wherein the members of the Court, despite their being divided in their
opinions as to the other matters therein involved, were precisely unanimous in upholding its jurisdiction.
Obviously, distinguished counsel have either failed to grasp the full impact of the portions of Our decision they
have quoted or would misapply them by taking them out of context.
There should be no more doubt as to the position of this Court regarding its jurisdiction vis-a-vis the
constitutionality of the acts of the Congress, acting as a constituent assembly, and, for that matter, those of a
constitutional convention called for the purpose of proposing amendments to the Constitution, which concededly
is at par with the former. A simple reading of Our ruling in that very case of Gonzales relied upon by intervenors
should dispel any lingering misgivings as regards that point. Succinctly but comprehensively, Chief Justice
Concepcion held for the Court thus: .
As early as Angara vs. Electoral Commission (63 Phil. 139, 157), this Court speaking through
one of the leading members of the Constitutional Convention and a respected professor of
Constitutional Law, Dr. Jose P. Laurel declared that "the judicial department is the only
constitutional organ which can be called upon to determine the proper allocation of powers
between the several departments and among the integral or constituent units thereof."
It is true that in Mabanag v. Lopez Vito (supra), this Court characterizing the issue submitted
thereto as a political one declined to pass upon the question whether or not a given number of
votes cast in Congress in favor of a proposed amendment to the Constitution which was being
submitted to the people for ratification satisfied the three-fourths vote requirement of the
fundamental law. The force of this precedent has been weakened, however, by Suanes v. Chief
Accountant of the Senate (81 Phil. 818), Avelino v. Cuenco, (L-2851, March 4 & 14, 1949), Taada
v. Cuenco, (L-10520, Feb. 28, 1957) and Macias v. Commission on Elections, (L-18684, Sept. 14,
1961). In the first we held that the officers and employees of the Senate Electoral Tribunal are
under its supervision and control, not of that of the Senate President, as claimed by the latter; in
the second, this Court proceeded to determine the number of Senators necessary for quorum in
the Senate; in the third, we nullified the election, by Senators belonging to the party having the
largest number of votes in said chamber, purporting to act, on behalf of the party having the
second largest number of votes therein of two (2) Senators belonging to the first party, as
members, for the second party, of the Senate Electoral Tribunal; and in the fourth, we declared
unconstitutional an act of Congress purporting to apportion the representatives districts for the
House of Representatives, upon the ground that the apportionment had not been made as may be
possible according to the number of inhabitants of each province. Thus we rejected the theory,
advanced in these four (4) cases that the issues therein raised were political questions the
determination of which is beyond judicial review.
Indeed, the power to amend the Constitution or to propose amendments thereto is not included in
the general grant of legislative powers to Congress (Section 1, Art. VI, Constitution of the
Philippines). It is part of the inherent powers of the people as the repository sovereignty in a
republican state, such as ours (Section 1, Art. 11, Constitution of the Philippines) to make, and,
hence, to amend their own Fundamental Law. Congress may propose amendments to the
Constitution merely because the same explicitly grants such power. (Section 1, Art. XV,

Constitution of the Philippines) Hence, when exercising the same, it is said that Senators and
members of the House of Representatives act, not as members of Congress, but as component
elements of a constituent assembly. When acting as such, the members of Congress derive their
authority from the Constitution, unlike the people, when performing the same function, (Of
amending the Constitution) for their authority does not emanate from the Constitution they
are the very source of all powers of government including the Constitution itself.
Since, when proposing, as a constituent assembly, amendments to the Constitution, the members
of Congress derive their authority from the Fundamental Law, it follows, necessarily, that they do
not have the final say on whether or not their acts are within or beyond constitutional limits.
Otherwise, they could brush aside and set the same at naught, contrary to the basic tenet that
ours is a government of laws, not of men, and to the rigid nature of our Constitution. Such rigidity
is stressed by the fact that the Constitution expressly confers upon the Supreme Court, (And,
inferentially, to lower courts.) the power to declare a treaty unconstitutional. (Sec. 2(1), Art. VIII of
the Constitution), despite the eminently political character of treaty-making power.
In short, the issue whether or not a Resolution of Congress acting as a constituent assembly
violates the Constitution is essentially justiciable not political, and, hence, subject to judicial
review, and, to the extent that this view may be inconsistent with the stand taken in Mabanag v.
Lopez Vito, (supra) the latter should be deemed modified accordingly. The Members of the Court
are unanimous on this point.
No one can rightly claim that within the domain of its legitimate authority, the Convention is not supreme.
Nowhere in his petition and in his oral argument and memoranda does petitioner point otherwise. Actually, what
respondents and intervenors are seemingly reluctant to admit is that the Constitutional Convention of 1971, as
any other convention of the same nature, owes its existence and derives all its authority and power from the
existing Constitution of the Philippines. This Convention has not been called by the people directly as in the case
of a revolutionary convention which drafts the first Constitution of an entirely new government born of either a
war of liberation from a mother country or of a revolution against an existing government or of a bloodless
seizure of power a la coup d'etat. As to such kind of conventions, it is absolutely true that the convention is
completely without restrain and omnipotent all wise, and it is as to such conventions that the remarks of
Delegate Manuel Roxas of the Constitutional Convention of 1934 quoted by Senator Pelaez refer. No amount of
rationalization can belie the fact that the current convention came into being only because it was called by a
resolution of a joint session of Congress acting as a constituent assembly by authority of Section 1, Article XV of
the present Constitution which provides:
ARTICLE XV AMENDMENTS
SECTION 1. The Congress in joint session assembled, by a vote of three-fourths of all the Members
of the Senate and of the House of Representatives voting separately, may propose amendments
to this Constitution or call a convention for the purpose. Such amendments shall be valid as part
of this Constitution when approved by a majority of the votes cast at an election at which the
amendments are submitted to the people for their ratification.
True it is that once convened, this Convention became endowed with extra ordinary powers generally beyond the
control of any department of the existing government, but the compass of such powers can be co-extensive only
with the purpose for which the convention was called and as it may propose cannot have any effect as part of the
Constitution until the same are duly ratified by the people, it necessarily follows that the acts of convention, its
officers and members are not immune from attack on constitutional grounds. The present Constitution is in full
force and effect in its entirety and in everyone of its parts the existence of the Convention notwithstanding, and
operates even within the walls of that assembly. While it is indubitable that in its internal operation and the
performance of its task to propose amendments to the Constitution it is not subject to any degree of restraint or
control by any other authority than itself, it is equally beyond cavil that neither the Convention nor any of its
officers or members can rightfully deprive any person of life, liberty or property without due process of law, deny
to anyone in this country the equal protection of the laws or the freedom of speech and of the press in disregard
of the Bill of Rights of the existing Constitution. Nor, for that matter, can such Convention validly pass any

resolution providing for the taking of private property without just compensation or for the imposition or exacting
of any tax, impost or assessment, or declare war or call the Congress to a special session, suspend the privilege
of the writ of habeas corpus, pardon a convict or render judgment in a controversy between private individuals or
between such individuals and the state, in violation of the distribution of powers in the Constitution.
It being manifest that there are powers which the Convention may not and cannot validly assert, much less
exercise, in the light of the existing Constitution, the simple question arises, should an act of the Convention be
assailed by a citizen as being among those not granted to or inherent in it, according to the existing Constitution,
who can decide whether such a contention is correct or not? It is of the very essence of the rule of law that
somehow somewhere the Power and duty to resolve such a grave constitutional question must be lodged on
some authority, or we would have to confess that the integrated system of government established by our
founding fathers contains a wide vacuum no intelligent man could ignore, which is naturally unworthy of their
learning, experience and craftsmanship in constitution-making.
We need not go far in search for the answer to the query We have posed. The very decision of Chief Justice
Concepcion in Gonzales, so much invoked by intervenors, reiterates and reinforces the irrefutable logic and
wealth of principle in the opinion written for a unanimous Court by Justice Laurel in Angara vs. Electoral
Commission, 63 Phil., 134, reading:
... (I)n the main, the Constitution has blocked out with deft strokes and in bold lines, allotment of
power to the executive, the legislative and the judicial departments of the government. The
overlapping and interlacing of functions and duties between the several departments, however,
sometimes makes it hard to say where the one leaves off and the other begins. In times of social
disquietude or political excitement, the great landmark of the Constitution are apt to be forgotten
or marred, if not entirely obliterated. In cases of conflict, the judicial department is the only
constitutional organ which can be called upon to determine the proper allocation of powers
between the several departments and among the integral or constituent units thereof.
As any human production our Constitution is of course lacking perfection and perfectibility, but as
much as it was within the power of our people, acting through their delegates to so provide, that
instrument which is the expression of their sovereignty however limited, has established a
republican government intended to operate and function as a harmonious whole, under a system
of check and balances and subject to specific limitations and restrictions provided in the said
instrument. The Constitution sets forth in no uncertain language the restrictions and limitations
upon governmental powers and agencies. If these restrictions and limitations are transcended it
would be inconceivable if the Constitution had not provided for a mechanism by which to direct
the course of government along constitutional channels, for then the distribution of powers would
be mere verbiage, the bill of rights mere expressions of sentiment and the principles of good
government mere political apothegms. Certainly the limitations and restrictions embodied in our
Constitution are real as they should be in any living Constitution. In the United States where no
express constitutional grant is found in their constitution, the possession of this moderating power
of the courts, not to speak of its historical origin and development there, has been set at rest by
popular acquiescence for a period of more than one and half centuries. In our case, this
moderating power is granted, if not expressly, by clear implication from section 2 of Article VIII of
our Constitution.
The Constitution is a definition of the powers or government. Who is to determine the nature,
scope and extent of such powers? The Constitution itself has provided for the instrumentality of
the judiciary as the rational way. And when the judiciary mediates to allocate constitutional
boundaries, it does not assert any superiority over the other departments; it does not in reality
nullify or invalidate an act of the legislature, but only asserts the solemn and sacred obligation
assigned to it by the Constitution to determine conflicting claims of authority under the
Constitution and to establish for the parties in an actual controversy the rights which that
instrument secures and guarantees to them. This is in truth all that is involved in what is termed
"judicial supremacy" which properly is the power of judicial review under the Constitution. Even
then, this power of judicial review is limited to actual cases and controversies to be exercised after
full opportunity of argument by the parties, and limited further to the constitutional question

raised or the very lis mota presented. Any attempt at abstraction could only lead to dialectics and
barren legal questions and to strike conclusions unrelated to actualities. Narrowed as its functions
is in this manner the judiciary does not pass upon questions of wisdom, justice or expediency of
legislation. More than that, courts accord the presumption of constitutionality to legislative
enactments, not only because the legislature is presumed to abide by the Constitution but also
because the judiciary in the determination of actual cases and controversies must reflect the
wisdom and justice of the people as expressed through their representatives in the executive and
legislative departments of the government.
But much as we might postulate on the internal checks of power provided in our Constitution, it
ought not the less to be remembered that, in the language of James Madison, the system itself is
not "the chief palladium of constitutional liberty ... the people who are authors of this blessing
must also be its guardians ... their eyes must be ever ready to mark, their voices to pronounce ...
aggression on the authority of their Constitution." In the last and ultimate analysis then, must the
success of our government in the unfolding years to come be tested in the crucible of Filipino
minds and hearts than in consultation rooms and court chambers.
In the case at bar, the National Assembly has by resolution (No. 8) of December 3, 1935,
confirmed the election of the herein petitioner to the said body. On the other hand, the Electoral
Commission has by resolution adopted on December 9, 1935, fixed said date as the last day for
the filing of protests against the election, returns and qualifications of members of the National
Assembly; notwithstanding the previous confirmations made by the National Assembly as
aforesaid. If, as contended by the petitioner, the resolution of the National Assembly has the effect
of cutting off the power of the Electoral Commission to entertain protests against the election,
returns and qualifications of members of the National Assembly, submitted after December 3,
1935 then the resolution of the Electoral Commission of December 9, 1935, is mere surplusage
and had no effect. But, if, as contended by the respondents, the Electoral Commission has the sole
power of regulating its proceedings to the exclusion of the National Assembly, then the resolution
of December 9, 1935, by which the Electoral Commission fixed said date as the last day for filing
protests against the election, returns and qualifications of members of the National Assembly,
should be upheld.
Here is then presented an actual controversy involving as it does a conflict of a grave
constitutional nature between the National Assembly on the one hand and the Electoral
Commission on the other. From the very nature of the republican government established in our
country in the light of American experience and of our own, upon the judicial department is thrown
the solemn and inescapable obligation of interpreting the Constitution and defining constitutional
boundaries. The Electoral Commission as we shall have occasion to refer hereafter, is a
constitutional organ, created for a specific purpose, namely, to determine all contests relating to
the election, returns and qualifications of the members of the National Assembly. Although the
Electoral Commission may not be interfered with, when and while acting within the limits of its
authority, it does not follow that it is beyond the reach of the constitutional mechanism adopted
by the people and that it is not subject to constitutional restriction. The Electoral Commission is
not a separate department of the government, and even if it were, conflicting claims of authority
under the fundamental law between departmental powers and agencies of the government are
necessarily determined by the judiciary in justiciable and appropriate cases. Discarding the
English type and other European types of constitutional government, the framers of our
Constitution adopted the American type where the written constitution is interpreted and given
effect by the judicial department. In some countries which have declined to follow the American
example, provisions have been inserted in their constitutions prohibiting the courts from
exercising the power to interpret the fundamental law. This is taken as a recognition of what
otherwise would be the rule that in the absence of direct prohibition, courts are bound to assume
what is logically their function. For instance, the Constitution of Poland of 1921 expressly provides
that courts shall have no power to examine the validity of statutes (art. 81, Chap. IV). The former
Austrian Constitution contained a similar declaration. In countries whose constitution are silent in
this respect, courts have assumed this power. This is true in Norway, Greece, Australia and South
Africa. Whereas, in Czechoslovakia (arts. 2 and 3, Preliminary Law to Constitutional Charter of the

Czechoslavak, Republic, February 29, 1920) and Spain (arts. 121-123, Title IX, Constitution of the
Republic of 1931) especial constitutional courts are established to pass upon the validity of
ordinary laws. In our case, the nature of the present controversy shows the necessity of a final
constitutional arbiter to determine the conflict of authority between two agencies created by the
Constitution. Were we to decline to take cognizance of the controversy, who will determine the
conflict? And if the conflict were left undecided and undetermined, would not a void be thus
created in our constitutional system which may in the long run prove destructive of the entire
framework? To ask these questions is to answer them. Natura vacuum abhorret, so must we avoid
exhaustion in our constitutional system. Upon principle, reason, and authority, we are clearly of
the opinion that upon the admitted facts of the present case, this court has jurisdiction over the
Electoral Commission and the subject matter of the present controversy for the purpose of
determining the character, scope and extent of the constitutional grant to the Electoral
Commission as "the sole judge of all contests relating to the election, returns and qualifications of
the members of the National Assembly." .
As the Chief Justice has made it clear in Gonzales, like Justice Laurel did in Angara, these postulates just quoted
do not apply only to conflicts of authority between the three existing regular departments of the government but
to all such conflicts between and among these departments, or, between any of them, on the one hand, and any
other constitutionally created independent body, like the electoral tribunals in Congress, the Comelec and the
Constituent assemblies constituted by the House of Congress, on the other. We see no reason of logic or principle
whatsoever, and none has been convincingly shown to Us by any of the respondents and intervenors, why the
same ruling should not apply to the present Convention, even if it is an assembly of delegate elected directly by
the people, since at best, as already demonstrated, it has been convened by authority of and under the terms of
the present Constitution..
Accordingly, We are left with no alternative but to uphold the jurisdiction of the Court over the present case. It
goes without saying that We do this not because the Court is superior to the Convention or that the Convention is
subject to the control of the Court, but simply because both the Convention and the Court are subject to the
Constitution and the rule of law, and "upon principle, reason and authority," per Justice Laurel, supra, it is within
the power as it is the solemn duty of the Court, under the existing Constitution to resolve the issues in which
petitioner, respondents and intervenors have joined in this case.
II
The issue of jurisdiction thus resolved, We come to the crux of the petition. Is it within the powers of the
Constitutional Convention of 1971 to order, on its own fiat, the holding of a plebiscite for the ratification of the
proposed amendment reducing to eighteen years the age for the exercise of suffrage under Section 1 of Article V
of the Constitution proposed in the Convention's Organic Resolution No. 1 in the manner and form provided for in
said resolution and the subsequent implementing acts and resolution of the Convention?
At the threshold, the environmental circumstances of this case demand the most accurate and unequivocal
statement of the real issue which the Court is called upon to resolve. Petitioner has very clearly stated that he is
not against the constitutional extension of the right of suffrage to the eighteen-year-olds, as a matter of fact, he
has advocated or sponsored in Congress such a proposal, and that, in truth, the herein petition is not intended by
him to prevent that the proposed amendment here involved be submitted to the people for ratification, his only
purpose in filing the petition being to comply with his sworn duty to prevent, Whenever he can, any violation of
the Constitution of the Philippines even if it is committed in the course of or in connection with the most laudable
undertaking. Indeed, as the Court sees it, the specific question raised in this case is limited solely and only to the
point of whether or not it is within the power of the Convention to call for a plebiscite for the ratification by the
people of the constitutional amendment proposed in the abovequoted Organic Resolution No. 1, in the manner
and form provided in said resolution as well as in the subject question implementing actions and resolution of the
Convention and its officers, at this juncture of its proceedings, when as it is a matter of common knowledge and
judicial notice, it is not set to adjourn sine die, and is, in fact, still in the preliminary stages of considering other
reforms or amendments affecting other parts of the existing Constitution; and, indeed, Organic Resolution No. 1
itself expressly provides, that the amendment therein proposed "shall be without prejudice to other amendments
that will be proposed in the future by the 1971 Constitutional Convention on other portions of the amended
section or on other portions of the entire Constitution." In other words, nothing that the Court may say or do, in

this case should be understood as reflecting, in any degree or means the individual or collective stand of the
members of the Court on the fundamental issue of whether or not the eighteen-year-olds should be allowed to
vote, simply because that issue is not before Us now. There should be no doubt in the mind of anyone that, once
the Court finds it constitutionally permissible, it will not hesitate to do its part so that the said proposed
amendment may be presented to the people for their approval or rejection.
Withal, the Court rests securely in the conviction that the fire and enthusiasm of the youth have not blinded them
to the absolute necessity, under the fundamental principles of democracy to which the Filipino people is
committed, of adhering always to the rule of law. Surely, their idealism, sincerity and purity of purpose cannot
permit any other line of conduct or approach in respect of the problem before Us. The Constitutional Convention
of 1971 itself was born, in a great measure, because of the pressure brought to bear upon the Congress of the
Philippines by various elements of the people, the youth in particular, in their incessant search for a peaceful and
orderly means of bringing about meaningful changes in the structure and bases of the existing social and
governmental institutions, including the provisions of the fundamental law related to the well-being and economic
security of the underprivileged classes of our people as well as those concerning the preservation and protection
of our natural resources and the national patrimony, as an alternative to violent and chaotic ways of achieving
such lofty ideals. In brief, leaving aside the excesses of enthusiasm which at times have justifiably or unjustifiably
marred the demonstrations in the streets, plazas and campuses, the youth of the Philippines, in general, like the
rest of the people, do not want confusion and disorder, anarchy and violence; what they really want are law and
order, peace and orderliness, even in the pursuit of what they strongly and urgently feel must be done to change
the present order of things in this Republic of ours. It would be tragic and contrary to the plain compulsion of
these perspectives, if the Court were to allow itself in deciding this case to be carried astray by considerations
other than the imperatives of the rule of law and of the applicable provisions of the Constitution. Needless to say,
in a larger measure than when it binds other departments of the government or any other official or entity, the
Constitution imposes upon the Court the sacred duty to give meaning and vigor to the Constitution, by
interpreting and construing its provisions in appropriate cases with the proper parties, and by striking down any
act violative thereof. Here, as in all other cases, We are resolved to discharge that duty.
During these twice when most anyone feels very strongly the urgent need for constitutional reforms, to the point
of being convinced that meaningful change is the only alternative to a violent revolution, this Court would be the
last to put any obstruction or impediment to the work of the Constitutional Convention. If there are respectable
sectors opining that it has not been called to supplant the existing Constitution in its entirety, since its enabling
provision, Article XV, from which the Convention itself draws life expressly speaks only of amendments which
shall form part of it, which opinion is not without persuasive force both in principle and in logic, the seemingly
prevailing view is that only the collective judgment of its members as to what is warranted by the present
condition of things, as they see it, can limit the extent of the constitutional innovations the Convention may
propose, hence the complete substitution of the existing constitution is not beyond the ambit of the Convention's
authority. Desirable as it may be to resolve, this grave divergence of views, the Court does not consider this case
to be properly the one in which it should discharge its constitutional duty in such premises. The issues raised by
petitioner, even those among them in which respondents and intervenors have joined in an apparent wish to
have them squarely passed upon by the Court do not necessarily impose upon Us the imperative obligation to
express Our views thereon. The Court considers it to be of the utmost importance that the Convention should be
untrammelled and unrestrained in the performance of its constitutionally as signed mission in the manner and
form it may conceive best, and so the Court may step in to clear up doubts as to the boundaries set down by the
Constitution only when and to the specific extent only that it would be necessary to do so to avoid a
constitutional crisis or a clearly demonstrable violation of the existing Charter. Withal, it is a very familiar
principle of constitutional law that constitutional questions are to be resolved by the Supreme Court only when
there is no alternative but to do it, and this rule is founded precisely on the principle of respect that the Court
must accord to the acts of the other coordinate departments of the government, and certainly, the Constitutional
Convention stands almost in a unique footing in that regard.
In our discussion of the issue of jurisdiction, We have already made it clear that the Convention came into being
by a call of a joint session of Congress pursuant to Section I of Article XV of the Constitution, already quoted
earlier in this opinion. We reiterate also that as to matters not related to its internal operation and the
performance of its assigned mission to propose amendments to the Constitution, the Convention and its officers
and members are all subject to all the provisions of the existing Constitution. Now We hold that even as to its
latter task of proposing amendments to the Constitution, it is subject to the provisions of Section I of Article XV.

This must be so, because it is plain to Us that the framers of the Constitution took care that the process of
amending the same should not be undertaken with the same ease and facility in changing an ordinary legislation.
Constitution making is the most valued power, second to none, of the people in a constitutional democracy such
as the one our founding fathers have chosen for this nation, and which we of the succeeding generations
generally cherish. And because the Constitution affects the lives, fortunes, future and every other conceivable
aspect of the lives of all the people within the country and those subject to its sovereignty, every degree of care
is taken in preparing and drafting it. A constitution worthy of the people for which it is intended must not be
prepared in haste without adequate deliberation and study. It is obvious that correspondingly, any amendment of
the Constitution is of no less importance than the whole Constitution itself, and perforce must be conceived and
prepared with as much care and deliberation. From the very nature of things, the drafters of an original
constitution, as already observed earlier, operate without any limitations, restraints or inhibitions save those that
they may impose upon themselves. This is not necessarily true of subsequent conventions called to amend the
original constitution. Generally, the framers of the latter see to it that their handiwork is not lightly treated and as
easily mutilated or changed, not only for reasons purely personal but more importantly, because written
constitutions are supposed to be designed so as to last for some time, if not for ages, or for, at least, as long as
they can be adopted to the needs and exigencies of the people, hence, they must be insulated against
precipitate and hasty actions motivated by more or less passing political moods or fancies. Thus, as a rule, the
original constitutions carry with them limitations and conditions, more or less stringent, made so by the people
themselves, in regard to the process of their amendment. And when such limitations or conditions are so
incorporated in the original constitution, it does not lie in the delegates of any subsequent convention to claim
that they may ignore and disregard such conditions because they are as powerful and omnipotent as their
original counterparts.
Nothing of what is here said is to be understood as curtailing in any degree the number and nature and the scope
and extent of the amendments the Convention may deem proper to propose. Nor does the Court propose to pass
on the issue extensively and brilliantly discussed by the parties as to whether or not the power or duty to call a
plebiscite for the ratification of the amendments to be proposed by the Convention is exclusively legislative and
as such may be exercised only by the Congress or whether the said power can be exercised concurrently by the
Convention with the Congress. In the view the Court takes of present case, it does not perceive absolute
necessity to resolve that question, grave and important as it may be. Truth to tell, the lack of unanimity or even
of a consensus among the members of the Court in respect to this issue creates the need for more study and
deliberation, and as time is of the essence in this case, for obvious reasons, November 8, 1971, the date set by
the Convention for the plebiscite it is calling, being nigh, We will refrain from making any pronouncement or
expressing Our views on this question until a more appropriate case comes to Us. After all, the basis of this
decision is as important and decisive as any can be.
The ultimate question, therefore boils down to this: Is there any limitation or condition in Section 1 of Article XV of
the Constitution which is violated by the act of the Convention of calling for a plebiscite on the sole amendment
contained in Organic Resolution No. 1? The Court holds that there is, and it is the condition and limitation that all
the amendments to be proposed by the same Convention must be submitted to the people in a single "election"
or plebiscite. It being indisputable that the amendment now proposed to be submitted to a plebiscite is only the
first amendment the Convention propose We hold that the plebiscite being called for the purpose of submitting
the same for ratification of the people on November 8, 1971 is not authorized by Section 1 of Article XV of the
Constitution, hence all acts of the Convention and the respondent Comelec in that direction are null and void.
We have arrived at this conclusion for the following reasons:
1. The language of the constitutional provision aforequoted is sufficiently clear. lt says distinctly that either
Congress sitting as a constituent assembly or a convention called for the purpose "may propose amendments to
this Constitution," thus placing no limit as to the number of amendments that Congress or the Convention may
propose. The same provision also as definitely provides that "such amendments shall be valid as part of this
Constitution when approved by a majority of the votes cast at an election at which the amendments are
submitted to the people for their ratification," thus leaving no room for doubt as to how many "elections" or
plebiscites may be held to ratify any amendment or amendments proposed by the same constituent assembly of
Congress or convention, and the provision unequivocably says "an election" which means only one.

(2) Very little reflection is needed for anyone to realize the wisdom and appropriateness of this provision. As
already stated, amending the Constitution is as serious and important an undertaking as constitution making
itself. Indeed, any amendment of the Constitution is as important as the whole of it if only because the
Constitution has to be an integrated and harmonious instrument, if it is to be viable as the framework of the
government it establishes, on the one hand, and adequately formidable and reliable as the succinct but
comprehensive articulation of the rights, liberties, ideology, social ideals, and national and nationalistic policies
and aspirations of the people, on the other. lt is inconceivable how a constitution worthy of any country or people
can have any part which is out of tune with its other parts..
A constitution is the work of the people thru its drafters assembled by them for the purpose. Once the original
constitution is approved, the part that the people play in its amendment becomes harder, for when a whole
constitution is submitted to them, more or less they can assumed its harmony as an integrated whole, and they
can either accept or reject it in its entirety. At the very least, they can examine it before casting their vote and
determine for themselves from a study of the whole document the merits and demerits of all or any of its parts
and of the document as a whole. And so also, when an amendment is submitted to them that is to form part of
the existing constitution, in like fashion they can study with deliberation the proposed amendment in relation to
the whole existing constitution and or any of its parts and thereby arrive at an intelligent judgment as to its
acceptability.
This cannot happen in the case of the amendment in question. Prescinding already from the fact that under
Section 3 of the questioned resolution, it is evident that no fixed frame of reference is provided the voter, as to
what finally will be concomitant qualifications that will be required by the final draft of the constitution to be
formulated by the Convention of a voter to be able to enjoy the right of suffrage, there are other considerations
which make it impossible to vote intelligently on the proposed amendment, although it may already be observed
that under Section 3, if a voter would favor the reduction of the voting age to eighteen under conditions he feels
are needed under the circumstances, and he does not see those conditions in the ballot nor is there any possible
indication whether they will ever be or not, because Congress has reserved those for future action, what kind of
judgment can he render on the proposal?
But the situation actually before Us is even worse. No one knows what changes in the fundamental principles of
the constitution the Convention will be minded to approve. To be more specific, we do not have any means of
foreseeing whether the right to vote would be of any significant value at all. Who can say whether or not later on
the Convention may decide to provide for varying types of voters for each level of the political units it may divide
the country into. The root of the difficulty in other words, lies in that the Convention is precisely on the verge of
introducing substantial changes, if not radical ones, in almost every part and aspect of the existing social and
political order enshrined in the present Constitution. How can a voter in the proposed plebiscite intelligently
determine the effect of the reduction of the voting age upon the different institutions which the Convention may
establish and of which presently he is not given any idea?
We are certain no one can deny that in order that a plebiscite for the ratification of an amendment to the
Constitution may be validly held, it must provide the voter not only sufficient time but ample basis for an
intelligent appraisal of the nature of the amendment per se as well as its relation to the other parts of the
Constitution with which it has to form a harmonious whole. In the context of the present state of things, where
the Convention has hardly started considering the merits of hundreds, if not thousands, of proposals to amend
the existing Constitution, to present to the people any single proposal or a few of them cannot comply with this
requirement. We are of the opinion that the present Constitution does not contemplate in Section 1 of Article XV a
plebiscite or "election" wherein the people are in the dark as to frame of reference they can base their judgment
on. We reject the rationalization that the present Constitution is a possible frame of reference, for the simple
reason that intervenors themselves are stating that the sole purpose of the proposed amendment is to enable the
eighteen year olds to take part in the election for the ratification of the Constitution to be drafted by the
Convention. In brief, under the proposed plebiscite, there can be, in the language of Justice Sanchez, speaking for
the six members of the Court in Gonzales, supra, "no proper submission".
III

The Court has no desire at all to hamper and hamstring the noble work of the Constitutional Convention. Much
less does the Court want to pass judgment on the merits of the proposal to allow these eighteen years old to
vote. But like the Convention, the Court has its own duties to the people under the Constitution which is to decide
in appropriate cases with appropriate parties Whether or not the mandates of the fundamental law are being
complied with. In the best light God has given Us, we are of the conviction that in providing for the questioned
plebiscite before it has finished, and separately from, the whole draft of the constitution it has been called to
formulate, the Convention's Organic Resolution No. 1 and all subsequent acts of the Convention implementing
the same violate the condition in Section 1, Article XV that there should only be one "election" or plebiscite for
the ratification of all the amendments the Convention may propose. We are not denying any right of the people
to vote on the proposed amendment; We are only holding that under Section 1, Article XV of the Constitution, the
same should be submitted to them not separately from but together with all the other amendments to be
proposed by this present Convention.
IN VIEW OF ALL THE FOREGOING, the petition herein is granted. Organic Resolution No. 1 of the Constitutional
Convention of 1971 and the implementing acts and resolutions of the Convention, insofar as they provide for the
holding of a plebiscite on November 8, 1971, as well as the resolution of the respondent Comelec complying
therewith (RR Resolution No. 695) are hereby declared null and void. The respondents Comelec, Disbursing
Officer, Chief Accountant and Auditor of the Constitutional Convention are hereby enjoined from taking any action
in compliance with the said organic resolution. In view of the peculiar circumstances of this case, the Court
declares this decision immediately executory. No costs.
G.R. No. L-44640 October 12, 1976
PABLO C. SANIDAD and PABLITO V. SANIDAD, petitioner,
vs.
HONORABLE COMMISSION ON ELECTIONS and HONORABLE NATIONAL TREASURER, respondents.
G.R. No. L-44684. October 12,1976
VICENTE M. GUZMAN, petitioner,
vs.
COMMISSION ELECTIONS, respondent.
G.R. No. L-44714. October 12,1976
RAUL M. GONZALES, RAUL T. GONZALES, JR., and ALFREDO SALAPANTAN, petitioners,
vs.
HONORABLE COMMISSION ON SELECTIONS and HONORABLE NATIONAL TREASURER, respondents.
MARTIN, J,:
The capital question raised in these prohibition suits with preliminary injunction relates to the power of the
incumbent President of the Philippines to propose amendments to the present Constitution in the absence of the
interim National Assembly which has not been convened.
On September 2, 1976, President Ferdinand E. Marcos issued Presidential Decree No. 991 calling for a national
referendum on October 16, 1976 for the Citizens Assemblies ("barangays") to resolve, among other things, the
issues of martial law, the I . assembly, its replacement, the powers of such replacement, the period of its
existence, the length of the period for tile exercise by the President of his present powers.1
Twenty days after or on September 22, 1976, the President issued another related decree, Presidential Decree No.
1031, amending the previous Presidential Decree No. 991, by declaring the provisions of presidential Decree No.
229 providing for the manner of voting and canvass of votes in "barangays" (Citizens Assemblies) applicable to
the national referendum-plebiscite of October 16, 1976. Quite relevantly, Presidential Decree No. 1031 repealed
Section 4, of Presidential Decree No. 991, the full text of which (Section 4) is quoted in the footnote below. 2
On the same date of September 22, 1976, the President issued Presidential Decree No. 1033, stating
the questions to be submitted to the people in the referendum-plebiscite on October 16, 1976. The
Decree recites in its "whereas" clauses that the people's continued opposition to the convening of

the National Assembly evinces their desire to have such body abolished and replaced thru a
constitutional amendment, providing for a legislative body, which will be submitted directly to the
people in the referendum-plebiscite of October 16.
The questions ask, to wit:
(1) Do you want martial law to be continued?
(2) Whether or not you want martial law to be continued, do you approve the following amendments
to the Constitution? For the purpose of the second question, the referendum shall have the effect of
a plebiscite within the contemplation of Section 2 of Article XVI of the Constitution.
PROPOSED AMENDMENTS:
1. There shall be, in lieu of the interim National Assembly, an interim Batasang Pambansa. Members of the
interim Batasang Pambansa which shall not be more than 120, unless otherwise provided by law, shall include
the incumbent President of the Philippines, representatives elected from the different regions of the nation, those
who shall not be less than eighteen years of age elected by their respective sectors, and those chosen by the
incumbent President from the members of the Cabinet. Regional representatives shall be apportioned among the
regions in accordance with the number of their respective inhabitants and on the basis of a uniform and
progressive ratio while the sectors shall be determined by law. The number of representatives from each region
or sector and the, manner of their election shall be prescribed and regulated by law.
2. The interim Batasang Pambansa shall have the same powers and its members shall have the same functions,
responsibilities, rights, privileges, and disqualifications as the interim National Assembly and the regular National
Assembly and the members thereof. However, it shall not exercise the power provided in Article VIII, Section 14(l)
of the Constitution.
3. The incumbent President of the Philippines shall, within 30 days from the election and selection of the
members, convene the interim Batasang Pambansa and preside over its sessions until the Speaker shall have
been elected. The incumbent President of the Philippines shall be the Prime Minister and he shall continue to
exercise all his powers even after the interim Batasang Pambansa is organized and ready to discharge its
functions and likewise he shall continue to exercise his powers and prerogatives under the nineteen hundred and
thirty five. Constitution and the powers vested in the President and the Prime Minister under this Constitution.
4. The President (Prime Minister) and his Cabinet shall exercise all the powers and functions, and discharge the
responsibilities of the regular President (Prime Minister) and his Cabinet, and shall be subject only to such
disqualifications as the President (Prime Minister) may prescribe. The President (Prime Minister) if he so desires
may appoint a Deputy Prime Minister or as many Deputy Prime Ministers as he may deem necessary.
5. The incumbent President shall continue to exercise legislative powers until martial law shall have been lifted.
6. Whenever in the judgment of the President (Prime Minister), there exists a grave emergency or a threat or
imminence thereof, or whenever the interim Batasang Pambansa or the regular National Assembly fails or is
unable to act adequately on any matter for any reason that in his judgment requires immediate action, he may,
in order to meet the exigency, issue the necessary decrees, orders or letters of instructions, which shall form part
of the law of the land.
7. The barangays and sanggunians shall continue as presently constituted but their functions, powers, and
composition may be altered by law.
Referenda conducted thru the barangays and under the Supervision of the Commission on Elections may be
called at any time the government deems it necessary to ascertain the will of the people regarding any important
matter whether of national or local interest.
8. All provisions of this Constitution not inconsistent with any of these amendments shall continue in full force
and effect.
9. These amendments shall take effect after the incumbent President shall have proclaimed that they have been
ratified by I majority of the votes cast in the referendum-plebiscite."

The Commission on Elections was vested with the exclusive supervision and control of the October 1976 National
Referendum-Plebiscite.
On September 27, 1976, PABLO C. SANIDAD and PABLITO V. SANIDAD, father and son, commenced L44640 for Prohibition with Preliminary Injunction seeking to enjoin the Commission on Elections
from holding and conducting the Referendum Plebiscite on October 16; to declare without force and
effect Presidential Decree Nos. 991 and 1033, insofar as they propose amendments to the
Constitution, as well as Presidential Decree No. 1031, insofar as it directs the Commission on
Elections to supervise, control, hold, and conduct the Referendum-Plebiscite scheduled on October
16, 1976.
Petitioners contend that under the 1935 and 1973 Constitutions there is no grant to the incumbent
President to exercise the constituent power to propose amendments to the new Constitution. As a
consequence, the Referendum-Plebiscite on October 16 has no constitutional or legal basis.
On October 5, 1976, the Solicitor General filed the comment for respondent Commission on
Elections, The Solicitor General principally maintains that petitioners have no standing to sue; the
issue raised is political in nature, beyond judicial cognizance of this Court; at this state of the
transition period, only the incumbent President has the authority to exercise constituent power; the
referendum-plebiscite is a step towards normalization.
On September 30, 1976, another action for Prohibition with Preliminary Injunction, docketed as L44684, was instituted by VICENTE M. GUZMAN, a delegate to the 1971 Constitutional Convention,
asserting that the power to propose amendments to, or revision of the Constitution during the
transition period is expressly conferred on the interim National Assembly under Section 16, Article
XVII of the Constitution.3
Still another petition for Prohibition with Preliminary Injunction was filed on October 5, 1976 by
RAUL M. GONZALES, his son RAUL, JR., and ALFREDO SALAPANTAN, docketed as L- 44714, to restrain the
implementation of Presidential Decrees relative to the forthcoming Referendum-Plebiscite of October 16.
These last petitioners argue that even granting him legislative powers under Martial Law, the incumbent
President cannot act as a constituent assembly to propose amendments to the Constitution; a referendumplebiscite is untenable under the Constitutions of 1935 and 1973; the submission of the proposed amendments in
such a short period of time for deliberation renders the plebiscite a nullity; to lift Martial Law, the President need
not consult the people via referendum; and allowing 15-.year olds to vote would amount to an amendment of the
Constitution, which confines the right of suffrage to those citizens of the Philippines 18 years of age and above.
We find the petitions in the three entitled cases to be devoid of merit.
I
Justiciability of question raised.
1. As a preliminary resolution, We rule that the petitioners in L-44640 (Pablo C. Sanidad and Pablito V. Sanidad)
possess locus standi to challenge the constitutional premise of Presidential Decree Nos. 991, 1031, and 1033. It is
now an ancient rule that the valid source of a stature Presidential Decrees are of such nature-may be contested
by one who will sustain a direct injuries as a in result of its enforcement. At the instance of taxpayers, laws
providing for the disbursement of public funds may be enjoined, upon the theory that the expenditure of public
funds by an officer of the State for the purpose of executing an unconstitutional act constitutes a misapplication
of such funds. 4 The breadth of Presidential Decree No. 991 carries all appropriation of Five Million Pesos for the
effective implementation of its purposes. 5 Presidential Decree No. 1031 appropriates the sum of Eight Million
Pesos to carry out its provisions. 6 The interest of the aforenamed petitioners as taxpayers in the lawful
expenditure of these amounts of public money sufficiently clothes them with that personality to litigate the
validity of the Decrees appropriating said funds. Moreover, as regards taxpayer's suits, this Court enjoys that
open discretion to entertain the same or not. 7 For the present case, We deem it sound to exercise that discretion
affirmatively so that the authority upon which the disputed Decrees are predicated may be inquired into.
2. The Solicitor General would consider the question at bar as a pure political one, lying outside the domain of
judicial review. We disagree. The amending process both as to proposal and ratification, raises a judicial question.
8This is especially true in cases where the power of the Presidency to initiate the of normally exercised by the
legislature, is seriously doubted. Under the terms of the 1973 Constitution, the power to propose amendments o
the constitution resides in the interim National Assembly in the period of transition (See. 15, Transitory

provisions). After that period, and the regular National Assembly in its active session, the power to propose
amendments becomes ipso facto the prerogative of the regular National Assembly (Sec. 1, pars. 1 and 2 of Art.
XVI, 1973 constitution). The normal course has not been followed. Rather than calling the National Assembly to
constitute itself into a constituent assembly the incumbent President undertook the proposal of amendments and
submitted the proposed amendments thru Presidential Decree 1033 to the people in a Referendum-Plebiscite on
October 16. Unavoidably, the regularity regularity of the procedure for amendments, written in lambent words in
the very Constitution sought to be amended, raises a contestable issue. The implementing Presidential Decree
Nos. 991, 1031, and 1033, which commonly purport to have the force and effect of legislation are assailed as
invalid, thus the issue of the validity of said Decrees is plainly a justiciable one, within the competence of this
Court to pass upon. Section 2 (2), Article X of the new Constitution provides: "All cases involving the
constitutionality of a treaty, executive agreement, or law may shall be heard and decided by the Supreme Court
en banc and no treaty, executive agreement, or law may be declared unconstitutional without the concurrence of
at least ten Members. ..." The Supreme Court has the last word in the construction not only of treaties and
statutes, but also of the Constitution itself The amending, like all other powers organized in the Constitution, is in
form a delegated and hence a limited power, so that the Supreme Court is vested with that authorities to
determine whether that power has been discharged within its limits.
Political questions are neatly associated with the wisdom, of the legality of a particular act. Where the vortex of
the controversy refers to the legality or validity of the contested act, that matter is definitely justiciable or nonpolitical. What is in the heels of the Court is not the wisdom of the act of the incumbent President in proposing
amendments to the Constitution, but his constitutional authority to perform such act or to assume the power of a
constituent assembly. Whether the amending process confers on the President that power to propose
amendments is therefore a downright justiciable question. Should the contrary be found, the actuation of the
President would merely be abrutum fulmen. If the Constitution provides how it may be amended, the judiciary as
the interpreter of that Constitution, can declare whether the procedure followed or the authority assumed was
valid or not. 10
We cannot accept the view of the Solicitor General, in pursuing his theory of non-justiciability, that the question
of the President's authority to propose amendments and the regularity of the procedure adopted for submission
of the proposal to the people ultimately lie in the judgment of the A clear Descartes fallacy of vicious circle. Is it
not that the people themselves, by their sovereign act, provided for the authority and procedure for the
amending process when they ratified the present Constitution in 1973? Whether, therefore, the constitutional
provision has been followed or not is the proper subject of inquiry, not by the people themselves of course who
exercise no power of judicial but by the Supreme Court in whom the people themselves vested that power, a
power which includes the competence to determine whether the constitutional norms for amendments have been
observed or not. And, this inquiry must be done a prior not a posterior i.e., before the submission to and
ratification by the people.
Indeed, the precedents evolved by the Court or, prior constitutional cases underline the preference of the Court's
majority to treat such issue of Presidential role in the amending process as one of non-political impression. In the
Plebiscite Cases, 11 the contention of the Solicitor General that the issue on the legality of Presidential Decree No.
73 "submitting to the Pilipino people (on January 15, 1973) for ratification or rejection the Constitution of the
Republic of the Philippines proposed by the 1971 Constitutional Convention and appropriating fund s therefore "is
a political one, was rejected and the Court unanimously considered the issue as justiciable in nature.
Subsequently in the Ratification Cases 12involving the issue of whether or not the validity of Presidential
Proclamation No. 1102. announcing the Ratification by the Filipino people of the constitution proposed by the
1971 Constitutional Convention," partakes of the nature of a political question, the affirmative stand of' the
Solicitor General was dismissed, the Court ruled that the question raised is justiciable. Chief Justice Concepcion,
expressing the majority view, said, Thus, in the aforementioned plebiscite cases, We rejected the theory of the
respondents therein that the question whether Presidential Decree No. 73 calling a plebiscite to be held on
January 15, 1973, for the ratification or rejection of the proposed new Constitution, was valid or not, was not a
proper subject of judicial inquiry because, they claimed, it partook of a political nature, and We unanimously
declared that the issue was a justiciable one. With Identical unanimity. We overruled the respondent's contention
in the 1971 habeas corpus cases, questioning Our authority to determine the constitutional sufficiency of the
factual bases of the Presidential proclamation suspending the privilege of the writ of habeas corpus on August 21,
1971, despite the opposite view taken by this Court in Barcelon vs. Baker and Montenegro vs. Castaneda, insofar
as it adhered to the former case, which view We, accordingly, abandoned and refused to apply. For the same
reason, We did not apply and expressly modified, in Gonzales vs. Commission on Elections, the political-question
theory adopted in Mabanag vs. Lopez Vito." 13 The return to Barcelon vs. Baker and Mabanag vs. Lopez Vito,
urged by the Solicitor General, was decisively refused by the Court. Chief Justice Concepcion continued: "The
reasons adduced in support thereof are, however, substantially the same as those given in support on the
political question theory advanced in said habeas corpus and plebiscite cases, which were carefully considered by
this Court and found by it to be legally unsound and constitutionally untenable. As a consequence. Our decisions
in the aforementioned habeas corpus cases partakes of the nature and effect of a stare decisis which gained
added weight by its virtual reiteration."

II
The amending process as laid out
in the new Constitution.
1. Article XVI of the 1973 Constitution on Amendments ordains:
SECTION 1. (1) Any amendment to, or revision of, this Constitution may be proposed by the
National Assembly upon a vote of three-fourths of all its Members, or by a constitutional
convention. (2) The National Assembly may, by a vote of two-thirds of all its Members, call a
constitutional convention or, by a majority vote of all its Members, submit the question of calling
such a convention to the electorate in an election.
SECTION 2. Any amendment to, or revision of, this Constitution shall be valid when ratified by a
majority of the votes cast in a plebiscite which shall be held not later than three months after the
approval of such amendment or revision.
In the present period of transition, the interim National Assembly instituted in the Transitory Provisions is
conferred with that amending power. Section 15 of the Transitory Provisions reads:
SECTION 15. The interim National Assembly, upon special call by the interim Prime Minister, may,
by a majority vote of all its Members, propose amendments to this Constitution. Such
amendments shall take effect when ratified in accordance with Article Sixteen hereof.
There are, therefore, two periods contemplated in the constitutional life of the nation, i.e., period of normalcy and
period of transition. In times of normally, the amending process may be initiated by the proposals of the (1)
regular National Assembly upon a vote of three-fourths of all its members; or (2) by a Constitutional Convention
called by a vote of two-thirds of all the Members of the National Assembly. However the calling of a Constitutional
Convention may be submitted to the electorate in an election voted upon by a majority vote of all the members
of the National Assembly. In times of transition, amendments may be proposed by a majority vote of all the
Members of the National Assembly upon special call by the interim Prime Minister,.
2. This Court in Aquino v. COMELEC," had already settled that the incumbent President is vested with that
prerogative of discretion as to when he shall initially convene the interim National Assembly. Speaking for the
majority opinion in that case, Justice Makasiar said: "The Constitutional Convention intended to leave to the
President the determination of the time when he shall initially convene the interim National Assembly, consistent
with the prevailing conditions of peace and order in the country." Concurring, Justice Fernandez, himself a
member of that Constitutional Convention, revealed: "(W)hen the Delegates to the Constitutional Convention
voted on the Transitory Provisions, they were aware of the fact that under the same, the incumbent President was
given the discretion as to when he could convene the interim National Assembly; it was so stated plainly by the
sponsor, Delegate Yaneza; as a matter of fact, the proposal that it be convened 'immediately', made by Delegate
Pimentel (V) was rejected. The President's decision to defer the convening of the interim National Assembly soon
found support from the people themselves. In the plebiscite of January 10-15, 1973, at which the ratification of
the 1973 Constitution was submitted, the people voted against the convening of the interim National Assembly.
In the referendum of July 24, 1973, the Citizens Assemblies ("bagangays") reiterated their sovereign will to
withhold the convening of the interim National Assembly. Again, in the referendum of February 27, 1975, the
proposed question of whether the interim National Assembly shall be initially convened was eliminated, because
some of the members of Congress and delegates of the Constitutional Convention, who were deemed
automatically members of the I interim National Assembly, were against its inclusion since in that referendum of
January, 1973, the people had already resolved against it.
3. In sensu strictiore, when the legislative arm of the state undertakes the proposals of amendment to a
Constitution, that body is not in the usual function of lawmaking. lt is not legislating when engaged in the
amending process.16 Rather, it is exercising a peculiar power bestowed upon it by the fundamental charter itself.
In the Philippines, that power is provided for in Article XVI of the 1973 Constitution (for the regular National
Assembly) or in Section 15 of the Transitory Provisions (for the National Assembly). While ordinarily it is the
business of the legislating body to legislate for the nation by virtue of constitutional conferment amending of the
Constitution is not legislative in character. In political science a distinction is made between constitutional
content of an organic character and that of a legislative character'. The distinction, however, is one of policy, not
of law. 17 Such being the case, approval of the President of any proposed amendment is a misnomer 18 The
prerogative of the President to approve or disapprove applies only to the ordinary cases of legislation. The
President has nothing to do with proposition or adoption of amendments to the Constitution. 19

III
Concentration of Powers
in the President during
crisis government.
1. In general, the governmental powers in crisis government the Philippines is a crisis government today are
more or less concentrated in the President. 20 According to Rossiter, "(t)he concentration of government power in
a democracy faced by an emergency is a corrective to the crisis inefficiencies inherent in the doctrine of the
separation of powers. In most free states it has generally been regarded as imperative that the total power of the
government be parceled out among three mutually independent branches executive, legislature, and judiciary. It
is believed to be destructive of constitutionalism if any one branch should exercise any two or more types of
power, and certainly a total disregard of the separation of powers is, as Madison wrote in the Federalist, No. 47,
'the very definition of tyranny.' In normal times the separation of powers forms a distinct obstruction to arbitrary
governmental action. By this same token, in abnormal times it may form an insurmountable barrier to a decisive
emergency action in behalf of the state and its independent existence. There are moments in the life of any
government when all powers must work together in unanimity of purpose and action, even if this means the
temporary union of executive, legislative, and judicial power in the hands of one man. The more complete the
separation of powers in a constitutional system, the more difficult and yet the more necessary will be their fusion
in time of crisis. This is evident in a comparison of the crisis potentialities of the cabinet and presidential systems
of government. In the former the all-important harmony of legislature and executive is taken for granted; in the
latter it is neither guaranteed nor to be to confidently expected. As a result, cabinet is more easily established
and more trustworthy than presidential dictatorship. The power of the state in crisis must not only be
concentrated and expanded; it must also be freed from the normal system of constitutional and legal
limitations. 21 John Locke, on the other hand, claims for the executive in its own right a broad discretion capable
even of setting aside the ordinary laws in the meeting of special exigencies for which the legislative power had
not provided. 22 The rationale behind such broad emergency powers of the Executive is the release of the
government from "the paralysis of constitutional restrains" so that the crisis may be ended and normal times
restored.
2. The presidential exercise of legislative powers in time of martial law is now a conceded valid at. That sun clear
authority of the President is saddled on Section 3 (pars. 1 and 2) of the Transitory Provisions, thus: 23
The incumbent President of the Philippines shall initially convene the interim National Assembly
and shall preside over its sessions until the interim Speaker shall have been elected. He shall
continue to exercise his powers and prerogatives under the nineteen hundred and thirty-five
Constitution and the powers vested in the President and the Prime Minister under this Constitution
until the calls upon the interim National Assembly to elect the interim President and the interim
Prime Minister, who shall then exercise their respective powers vested by this Constitution.
All proclamations, orders, decrees, instructions, and acts promulgated, issued, or done by the
incumbent President shall be part of the law of the land, and shall remain valid, binding, and
effective even after lifting of martial law or the ratification of this Constitution, unless modified,
revoked, or superseded by subsequent proclamations, orders, decrees, instructions, or other acts
of the incumbent President, or unless expressly and explicitly modified or repealed by the regular
National Assembly.
"It is unthinkable," said Justice Fernandez, a 1971 Constitutional Convention delegate, "that the Constitutional
Convention, while giving to the President the discretion when to call the interim National Assembly to session,
and knowing that it may not be convened soon, would create a vacuum in the exercise of legislative powers.
Otherwise, with no one to exercise the lawmaking powers, there would be paralyzation of the entire
governmental machinery."24 Paraphrasing Rossiter, this is an extremely important factor in any constitutional
dictatorship which extends over a period of time. The separation of executive and legislature ordained in the
Constitution presents a distinct obstruction to efficient crisis government. The steady increase in executive power
is not too much a cause for as the steady increase in the magnitude and complexity of the problems the
President has been called upon by the Filipino people to solve in their behalf, which involve rebellion, subversion,
secession, recession, inflation, and economic crisis-a crisis greater than war. In short, while conventional
constitutional law just confines the President's power as Commander-in-Chief to the direction of the operation of
the national forces, yet the facts of our political, social, and economic disturbances had convincingly shown that
in meeting the same, indefinite power should be attributed to tile President to take emergency measures 25

IV
Authority of the incumbent
President t to propose
amendments to the Constitution.
1. As earlier pointed out, the power to legislate is constitutionally consigned to the interim National Assembly
during the transition period. However, the initial convening of that Assembly is a matter fully addressed to the
judgment of the incumbent President. And, in the exercise of that judgment, the President opted to defer
convening of that body in utter recognition of the people's preference. Likewise, in the period of transition, the
power to propose amendments to the Constitution lies in the interim National Assembly upon special call by the
President (See. 15 of the Transitory Provisions). Again, harking to the dictates of the sovereign will, the President
decided not to call the interim National Assembly. Would it then be within the bounds of the Constitution and of
law for the President to assume that constituent power of the interim Assembly vis-a-vis his assumption of that
body's legislative functions? The answer is yes. If the President has been legitimately discharging the legislative
functions of the interim Assembly, there is no reason why he cannot validly discharge the function of that
Assembly to propose amendments to the Constitution, which is but adjunct, although peculiar, to its gross
legislative power. This, of course, is not to say that the President has converted his office into a constituent
assembly of that nature normally constituted by the legislature. Rather, with the interim National Assembly not
convened and only the Presidency and the Supreme Court in operation, the urges of absolute necessity render it
imperative upon the President to act as agent for and in behalf of the people to propose amendments to the
Constitution. Parenthetically, by its very constitution, the Supreme Court possesses no capacity to propose
amendments without constitutional infractions. For the President to shy away from that actuality and decline to
undertake the amending process would leave the governmental machineries at a stalemate or create in the
powers of the State a destructive vacuum, thereby impeding the objective of a crisis government "to end the
crisis and restore normal times." In these parlous times, that Presidential initiative to reduce into concrete forms
the constant voices of the people reigns supreme. After all, constituent assemblies or constitutional conventions,
like the President now, are mere agents of the people .26
2. The President's action is not a unilateral move. As early as the referendums of January 1973 and February
1975, the people had already rejected the calling of the interim National Assembly. The Lupong Tagapagpaganap
of the Katipunan ng mga Sanggunian, the Pambansang Katipunan ng mga Barangay, and the Pambansang
Katipunan ng mga Barangay, representing 42,000 barangays, about the same number of Kabataang Barangay
organizations, Sanggunians in 1,458 municipalities, 72 provinces, 3 sub-provinces, and 60 cities had informed the
President that the prevailing sentiment of the people is for the abolition of the interim National Assembly. Other
issues concerned the lifting of martial law and amendments to the Constitution .27 The national organizations of
Sangguniang Bayan presently proposed to settle the issues of martial law, the interim Assembly, its replacement,
the period of its existence, the length of the period for the exercise by the President of its present powers in a
referendum to be held on October 16 . 28 The Batasang Bayan (legislative council) created under Presidential
Decree 995 of September 10, 1976, composed of 19 cabinet members, 9 officials with cabinet rank, 91 members
of the Lupong Tagapagpaganap (executive committee) of the Katipunan ng mga Sangguniang Bayan voted in
session to submit directly to the people in a plebiscite on October 16, the previously quoted proposed
amendments to the Constitution, including the issue of martial law .29 Similarly, the "barangays" and the
"sanggunians" endorsed to the President the submission of the proposed amendments to the people on October
16. All the foregoing led the President to initiate the proposal of amendments to the Constitution and the
subsequent issuance of Presidential Decree No, 1033 on September 22, 1976 submitting the questions (proposed
amendments) to the people in the National Referendum-Plebiscite on October 16.
V
The People is Sovereign
1. Unlike in a federal state, the location of sovereignty in a unitary state is easily seen. In the Philippines, a
republican and unitary state, sovereignty "resides in the people and all government authority emanates from
them .30In its fourth meaning, Savigny would treat people as "that particular organized assembly of individuals
in which, according to the Constitution, the highest power exists."31 This is the concept of popular sovereignty. It
means that the constitutional legislator, namely the people, is sovereign 32In consequence, the people may thus
write into the Constitution their convictions on any subject they choose in the absence of express constitutional
prohibition. 33 This is because, as Holmes said, the Constitution "is an experiment, as all life is all
experiment." 34 "The necessities of orderly government," wrote Rottschaefer, "do not require that one generation

should be permitted to permanently fetter all future generations." A constitution is based, therefore, upon a selflimiting decision of the people when they adopt it. 35
2. The October 16 referendum-plebiscite is a resounding call to the people to exercise their sovereign power as
constitutional legislator. The proposed amendments, as earlier discussed, proceed not from the thinking of a
single man. Rather, they are the collated thoughts of the sovereign will reduced only into enabling forms by the
authority who can presently exercise the powers of the government. In equal vein, the submission of those
proposed amendments and the question of martial law in a referendum-plebiscite expresses but the option of the
people themselves implemented only by the authority of the President. Indeed, it may well be said that the
amending process is a sovereign act, although the authority to initiate the same and the procedure to be followed
reside somehow in a particular body.
VI
Referendum-Plebiscite not
rendered nugatory by the
participation of the 15-year olds.
1. October 16 is in parts a referendum and a plebiscite. The question - (1) Do you want martial law to be
continued? - is a referendum question, wherein the 15-year olds may participate. This was prompted by the
desire of the Government to reach the larger mas of the people so that their true pulse may be felt to guide the
President in pursuing his program for a New Order. For the succeeding question on the proposed amendments,
only those of voting age of 18 years may participate. This is the plebiscite aspect, as contemplated in Section 2,
Article XVI of the new Constitution. 36 On this second question, it would only be the votes of those 18 years old
and above which will have valid bearing on the results. The fact that the voting populace are simultaneously
asked to answer the referendum question and the plebiscite question does not infirm the referendum-plebiscite.
There is nothing objectionable in consulting the people on a given issue, which is of current one and submitting to
them for ratification of proposed constitutional amendments. The fear of commingled votes (15-year olds and 18year olds above) is readily dispelled by the provision of two ballot boxes for every barangay center, one
containing the ballots of voters fifteen years of age and under eighteen, and another containing the ballots of
voters eighteen years of age and above. 37 The ballots in the ballot box for voters fifteen years of age and under
eighteen shall be counted ahead of the ballots of voters eighteen years and above contained in another ballot
box. And, the results of the referendum-plebiscite shall be separately prepared for the age groupings, i.e., ballots
contained in each of the two boxes. 38
2. It is apt to distinguish here between a "referendum" and a "plebiscite." A "referendum" is merely consultative
in character. It is simply a means of assessing public reaction to the given issues submitted to the people foe
their consideration, the calling of which is derived from or within the totality of the executive power of the
President. 39 It is participated in by all citizens from the age of fifteen, regardless of whether or not they are
illiterates, feeble-minded, or ex- convicts . 40 A "plebiscite," on the other hand, involves the constituent act of
those "citizens of the Philippines not otherwise disqualified by law, who are eighteen years of age or over, and
who shall have resided in the Philippines for at least one year and in the place wherein they propose to vote for at
least six months preceding the election Literacy, property or any other substantive requirement is not imposed. It
is generally associated with the amending process of the Constitution, more particularly, the ratification aspect.
VII
1. There appeals to be no valid basis for the claim that the regime of martial law stultifies in main the freedom to
dissent. That speaks of a bygone fear. The martial law regime which, in the observation of Justice Fernando, 41 is
impressed with a mild character recorded no State imposition for a muffled voice. To be sure, there are restraints
of the individual liberty, but on certain grounds no total suppression of that liberty is aimed at. The for the
referendum-plebiscite on October 16 recognizes all the embracing freedoms of expression and assembly The
President himself had announced that he would not countenance any suppression of dissenting views on the
issues, as he is not interested in winning a "yes" or "no" vote, but on the genuine sentiment of the people on the
issues at hand. 42 Thus, the dissenters soon found their way to the public forums, voicing out loud and clear their
adverse views on the proposed amendments and even (in the valid ratification of the 1973 Constitution, which is
already a settled matter. 43 Even government employees have been held by the Civil Service Commission free to
participate in public discussion and even campaign for their stand on the referendum-plebiscite issues. 44
VIII

Time for deliberation

is not short.
1. The period from September 21 to October 16 or a period of 3 weeks is not too short for free debates or
discussions on the referendum-plebiscite issues. The questions are not new. They are the issues of the day. The
people have been living with them since the proclamation of martial law four years ago. The referendums of 1973
and 1975 carried the same issue of martial law. That notwithstanding, the contested brief period for discussion is
not without counterparts in previous plebiscites for constitutional amendments. Justice Makasiar, in the
Referendum Case, recalls: "Under the old Society, 15 days were allotted for the publication in three consecutive
issues of the Official Gazette of the women's suffrage amendment to the Constitution before the scheduled
plebiscite on April 30, 1937 (Com. Act No. 34). The constitutional amendment to append as ordinance the
complicated Tydings-Kocialskowski was published in only three consecutive issues of the Official Gazette for 10
days prior to the scheduled plebiscite (Com. Act 492). For the 1940 Constitutional amendments providing for the
bicameral Congress, the reelection of the President and Vice President, and the creation of the Commission on
Elections, 20 days of publication in three consecutive issues of the Official Gazette was fixed (Com Act No. 517).
And the Parity Amendment, an involved constitutional amendment affecting the economy as well as the
independence of the Republic was publicized in three consecutive issues of the Official Gazette for 20 days prior
to the plebiscite (Rep. Act No. 73)." 45
2. It is worthy to note that Article XVI of the Constitution makes no provision as to the specific date when the
plebiscite shall be held, but simply states that it "shall be held not later than three months after the approval of
such amendment or revision." In Coleman v. Miller, 46 the United States Supreme court held that this matter of
submission involves "an appraisal of a great variety of relevant conditions, political, social and economic," which
"are essentially political and not justiciable." The constituent body or in the instant cases, the President, may fix
the time within which the people may act. This is because proposal and ratification are not treated as unrelated
acts, but as succeeding steps in a single endeavor, the natural inference being that they are not to be widely
separated in time; second, it is only when there is deemed to be a necessity therefor that amendments are to be
proposed, the reasonable implication being that when proposed, they are to be considered and disposed of
presently, and third, ratification is but the expression of the approbation of the people, hence, it must be done
contemporaneously. 47 In the words of Jameson, "(a)n alteration of the Constitution proposed today has relation to
the sentiment and the felt needs of today, and that, if not ratified early while that sentiment may fairly be
supposed to exist. it ought to be regarded as waived, and not again to be voted upon, unless a second time
proposed by proper body
IN RESUME
The three issues are
1. Is the question of the constitutionality of Presidential Decrees Nos. 991, 1031 and 1033 political or justiciable?
2. During the present stage of the transition period, and under, the environmental circumstances now obtaining,
does the President possess power to propose amendments to the Constitution as well as set up the required
machinery and prescribe the procedure for the ratification of his proposals by the people?
3. Is the submission to the people of the proposed amendments within the time frame allowed therefor a
sufficient and proper submission?
Upon the first issue, Chief Justice Fred Ruiz Castro and Associate Justices Enrique M. Fernando, Claudio
Teehankee, Antonio P. Barredo, Cecilia Munoz Palma, Hermogenes Concepcion Jr. and Ruperto G. Martin are of the
view that the question posed is justiciable, while Associate Justices Felix V. Makasiar, Felix Q. Antonio and Ramon
C. Aquino hold the view that the question is political.
Upon the second issue, Chief Justice Castro and Associate Justices Barredo, Makasiar, Antonio, Aquino,
Concepcion Jr. and Martin voted in the affirmative, while Associate Justices Teehankee and Munoz Palma voted in
the negative. Associate Justice Fernando, conformably to his concurring and dissenting opinion in Aquino vs.
Enrile (59 SCRA 183), specifically dissents from the proposition that there is concentration of powers in the
Executive during periods of crisis, thus raising serious doubts as to the power of the President to propose
amendments.
Upon the third issue, Chief Justice Castro and Associate Justices Barredo, Makasiar, Aquino, Concepcion Jr. and
Martin are of the view that there is a sufficient and proper submission of the proposed amendments for
ratification by the people. Associate Justices Barredo and Makasiar expressed the hope, however that the period

of time may be extended. Associate Justices Fernando, Makasiar and Antonio are of the view that the question is
political and therefore beyond the competence and cognizance of this Court, Associate Justice Fernando adheres
to his concurrence in the opinion of Chief Justice Concepcion in Gonzales vs. COMELEC (21 SCRA 774).Associate
Justices Teehankee and MUNOZ Palma hold that prescinding from the President's lack of authority to exercise the
constituent power to propose the amendments, etc., as above stated, there is no fair and proper submission with
sufficient information and time to assure intelligent consent or rejection under the standards set by this Court in
the controlling cases of Gonzales, supra, and Tolentino vs. COMELEC (41 SCRA 702).
Chief Justice Castro and Associate Justices Barredo, Makasiar, Antonio, Aquino, Concepcion Jr. and Martin voted to
dismiss the three petitions at bar. For reasons as expressed in his separate opinion, Associate Justice Fernando
concurs in the result. Associate Justices Teehankee and Munoz Palma voted to grant the petitions.
ACCORDINGLY, the vote being 8 to 2 to dismiss, the said petitions are hereby dismissed. This decision is
immediately executory.
SO ORDERED.
G.R. No. 155650

July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE, SANGGUNIANG
PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and CITY TREASURER OF
PARAAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA)
Complex in Paraaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila
International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then
President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter.
As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land,3 including the runways and
buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation.4 The MIAA Charter further
provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode
unless specifically approved by the President of the Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC
opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA
under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to pay the real
estate tax imposed by the City. MIAA then paid some of the real estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the
taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:

TAX
DECLARATION

TAXABLE YEAR

TAX DUE

PENALTY

TOTAL

E-016-01370

1992-2001

19,558,160.00

11,201,083.20

30,789,243.20

E-016-01374

1992-2001

111,689,424.90

68,149,479.59

179,838,904.49

E-016-01375

1992-2001

20,276,058.00

12,371,832.00

32,647,890.00

E-016-01376

1992-2001

58,144,028.00

35,477,712.00

93,621,740.00

E-016-01377

1992-2001

18,134,614.65

11,065,188.59

29,199,803.24

E-016-01378

1992-2001

111,107,950.40

67,794,681.59

178,902,631.99

E-016-01379

1992-2001

4,322,340.00

2,637,360.00

6,959,700.00

E-016-01380

1992-2001

7,776,436.00

4,744,944.00

12,521,380.00

*E-016-013-85

1998-2001

6,444,810.00

2,900,164.50

9,344,974.50

*E-016-01387

1998-2001

34,876,800.00

5,694,560.00

50,571,360.00

*E-016-01396

1998-2001

75,240.00

33,858.00

109,098.00

GRAND TOTAL

P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on
the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction the
Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a
clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that
Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of
exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real
estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with
prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of
Paraaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and
Buildings. The petition was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day
reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration
and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for
review.7

Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay Halls of
Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La Huerta; and in the
main lobby of the Paraaque City Hall. The City of Paraaque published the notices in the 3 and 10 January 2003
issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The notices
announced the public auction sale of the Airport Lands and Buildings to the highest bidder on 7 February 2003,
10:00 a.m., at the Legislative Session Hall Building of Paraaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent ExParte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain
respondents the City of Paraaque, City Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque, City
Treasurer of Paraaque, and the City Assessor of Paraaque ("respondents") from auctioning the Airport Lands
and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court
ordered respondents to cease and desist from selling at public auction the Airport Lands and Buildings.
Respondents received the TRO on the same day that the Court issued it. However, respondents received the TRO
only at 1:25 p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during
the hearing, MIAA, respondent City of Paraaque, and the Solicitor General subsequently submitted their
respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the
name of MIAA. However, MIAA points out that it cannot claim ownership over these properties since
the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA
Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general
public. Since the Airport Lands and Buildings are devoted to public use and public service, the
ownership of these properties remains with the State. The Airport Lands and Buildings are thus
inalienable and are not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the
payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234
of the Local Government Code because the Airport Lands and Buildings are owned by the Republic.
To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA
points out that the reason for tax exemption of public property is that its taxation would not inure
to any public advantage, since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax
exemption privileges of "government-owned and-controlled corporations" upon the effectivity of the
Local Government Code. Respondents also argue that a basic rule of statutory construction is that the express
mention of one person, thing, or act excludes all others. An international airport is not among the exceptions
mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim that
the Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held that
the Local Government Code has withdrawn the exemption from real estate tax granted to international airports.
Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is now
estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real
estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of
Paraaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other issues
raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real
estate tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by
its charter" in Section 234(e) of the Local Government Code withdrew the real estate tax exemption of
government-owned or controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real
Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real
estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the
Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation
as follows:
SEC. 2. General Terms Defined. x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or nonstock corporation, vested with functions relating to public needs whether governmental or proprietary
in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital
stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or non-stock corporation."
MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no
capital stock divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA
Charter9 provides:
SECTION 10. Capital. The capital of the Authority to be contributed by the National Government shall
be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00)
Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and equipment and such other
properties, movable and immovable[,] which may be contributed by the National Government or
transferred by it from any of its agencies, the valuation of which shall be determined jointly with the
Department of Budget and Management and the Commission on Audit on the date of such contribution or
transfer after making due allowances for depreciation and other deductions taking into account the loans
and other liabilities of the Authority at the time of the takeover of the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum
(70%) of the unremitted share of the National Government from 1983 to 1986 to be remitted to the
National Treasury as provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the
equity of the National Government in the Authority. Thereafter, the Government contribution to the capital
of the Authority shall be provided in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided into
shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has
capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a
stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines
a non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees
or officers." A non-stock corporation must have members. Even if we assume that the Government is considered
as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot
distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit
20% of its annual gross operating income to the National Treasury.11 This prevents MIAA from qualifying as a nonstock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes.
MIAA, a public utility, is organized to operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or
controlled corporation. What then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with
corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government
"instrumentality" as follows:
SEC. 2. General Terms Defined. x x x x
(10) 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. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises
the governmental powers of eminent domain,12 police authority13 and the levying of fees and charges.14 At the
same time, MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers
are not inconsistent with the provisions of this Executive Order."15
Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality
remains part of the National Government machinery although not integrated with the department framework.
The MIAA Charter expressly states that transforming MIAA into a "separate and autonomous body" 16 will make its
operation more "financially viable."17
Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned
or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority,
the University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of
the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes
loosely called government corporate entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative Code, which is the governing law defining
the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalitiesand local government units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may only exercise such power "subject to
such guidelines and limitations as the Congress may provide."18
When local governments invoke the power to tax on national government instrumentalities, such power is
construed strictly against local governments. The rule is that a tax is never presumed and there must be clear
language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved

against taxation. This rule applies with greater force when local governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However,
when Congress grants an exemption to a national government instrumentality from local taxation, such
exemption is construed liberally in favor of the national government instrumentality. As this Court declared
in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the government
itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of
money that has to be handled by government in the course of its operations. For these reasons,
provisions granting exemptions to government agencies may be construed liberally, in favor of non taxliability of such agencies.19
There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for rendering essential
public services to inhabitants of local governments. The only exception is when the legislature clearly
intended to tax government instrumentalities for the delivery of essential public services for sound
and compelling policy considerations. There must be express language in the law empowering local
governments to tax national government instrumentalities. Any doubt whether such power exists is resolved
against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner
control the operation of constitutional laws enacted by Congress to carry into execution the
powers vested in the federal government. (MC Culloch v. 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, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for
regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland,
supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the
inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State
or the Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public
service or for the development of the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article,
is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service,
shall form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads,
canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term
"ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed
by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public
dominion and thus owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal fees
and other charges from the public does not remove the character of the Airport Lands and Buildings
as properties for public use. The operation by the government of a tollway does not change the
character of the road as one for public use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the government, or only those among the
public who actually use the road through the toll fees they pay upon using the road. The tollway
system is even a more efficient and equitable manner of taxing the public for the maintenance of
public roads.
The charging of fees to the public does not determine the character of the property whether it is of public
dominion or not. Article 420 of the Civil Code defines property of public dominion as one "intended for public
use." Even if the government collects toll fees, the road is still "intended for public use" if anyone can use the
road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the
kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not
affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the
bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the
character of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those
among the public who actually use a public facility instead of taxing all the public including those who never use
the particular public facility. A user's tax is more equitable a principle of taxation mandated in the 1987
Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both
international and domestic air traffic,"22 are properties of public dominion because they are intended for public
use.As properties of public dominion, they indisputably belong to the State or the Republic of the
Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As
properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The
Court has ruled repeatedly that properties of public dominion are outside the commerce of man. As early as
1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are
outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public
works of general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in
1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the
defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use

the plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract over
a thing of which it could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be
the object of a contract, and plazas and streets are outside of this commerce, as was decided by the
supreme court of Spain in its decision of February 12, 1895, which says: "Communal things that
cannot be sold because they are by their very nature outside of commerce are those for
public use, such as the plazas, streets, common lands, rivers, fountains, etc." (Emphasis
supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the
commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public use and to be made
available to the public in general. They are outside the commerce of man and cannot be disposed of
or even leased by the municipality to private parties. While in case of war or during an emergency, town
plazas may be occupied temporarily by private individuals, as was done and as was tolerated by the
Municipality of Pozorrubio, when the emergency has ceased, said temporary occupation or use must also
cease, and the town officials should see to it that the town plazas should ever be kept open to the public
and free from encumbrances or illegal private constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the
subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through
public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is
void for being contrary to public policy. Essential public services will stop if properties of public dominion are
subject to encumbrances, foreclosures and auction sale. This will happen if the City of Paraaque can foreclose
and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public
usethe Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141,
which "remains to this day the existing general law governing the classification and disposition of lands of the
public domain other than timber and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the
President may designate by proclamation any tract or tracts of land of the public domain as reservations
for the use of the Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in
accordance with regulations prescribed for this purposes, or for quasi-public uses or purposes when the
public interest requires it, including reservations for highways, rights of way for railroads, hydraulic power
sites, irrigation systems, communal pastures or lequas communales, public parks, public quarries, public
fishponds, working men's village and other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three
shall benon-alienable and shall not be subject to occupation, entry, sale, lease, or other
disposition until again declared alienable under the provisions of this Act or by proclamation
of the President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use,
these properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings
are inalienable in their present status as properties of public dominion, they are not subject to levy on execution
or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership
remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and to withdraw such public
use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. (1) The
President shall have the power to reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which is not otherwise directed by
law. The reserved land shall thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation;

x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of public dominion, owned by the Republic and outside the
commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12,
Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties
owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is
authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government
by the following:
(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President,
unless the authority therefor is expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in the name of any
political subdivision or of any corporate agency or instrumentality, by the executive head of the
agency or instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its
executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic
can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau
of Air Transportation of the Department of Transportation and Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. x x x x
The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to the
ownership and administration of the Authority, subject to existing rights, if any. The Bureau of
Lands and other appropriate government agencies shall undertake an actual survey of the area
transferred within one year from the promulgation of this Executive Order and the corresponding title to
be issued in the name of the Authority. Any portion thereof shall not be disposed through sale or
through any other mode unless specifically approved by the President of the Philippines.
(Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities,
runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and
all assets, powers, rights, interests and privileges belonging to the Bureau of Air
Transportation relating to airport works or air operations, including all equipment which are necessary
for the operation of crash fire and rescue facilities, are hereby transferred to the Authority. (Emphasis
supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation
and Transitory Provisions. The Manila International Airport including the Manila Domestic Airport as a
division under the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash,
promissory notes or even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings
to MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international
and domestic air traffic, is required to provide standards of airport accommodation and service
comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to
meet the current and future air traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives of providing high
standards of accommodation and service within the context of a financially viable operation,
will best be achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the
President of the Philippines is given continuing authority to reorganize the National Government,
which authority includes the creation of new entities, agencies and instrumentalities of the
Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to
transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize
a division in the Bureau of Air Transportation into a separate and autonomous body. The Republic
remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No
party claims any ownership rights over MIAA's assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale
or through any other mode unless specifically approved by the President of the Philippines." This only
means that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under
Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose
of the Airport Lands and Buildings, MIAA does not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the
Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who
can authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands
and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property
owned by the Republic of the Philippines." Section 234(a) 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 has been granted, for consideration or otherwise, to a
taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing "[t]axes, fees or charges of any kind on the National Government,
its agencies and instrumentalitiesx x x." The real properties owned by the Republic are titled either
in the name of the Republic itself or in the name of agencies or instrumentalities of the National
Government. The Administrative Code allows real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national government. Such real properties remain
owned by the Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of the
national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement
does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states
that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof
has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus,

even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and
Buildings, such fact does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real
estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to
real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to
ataxable person and therefore such land area is subject to real estate tax. In Lung Center of the Philippines
v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of
the land occupied by the hospital and portions of the hospital used for its patients, whether paying or
non-paying, are exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local
Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon
the effectivity of the Code. Section 193 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. No. 6938, non-stock and non-profit hospitals and educational
institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local
Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real
estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code that the withdrawn
exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay
down the explicit proposition that the withdrawal of realty tax exemption applies to all persons. The
reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons recognized under our laws,
natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the
determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical person
at all. (Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status
whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined
in isolation from Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the
tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the
Local Government Code expressly provides otherwise, specifically prohibiting local governments from
imposing any kind of tax on national government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities,
and local government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local governments are devoid of power to tax the national
government, its agencies and instrumentalities. The taxing powers of local governments do not extend to the
national government, its agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in

the saving clause of Section 133. The saving clause refers to Section 234(a) on the exception to the exemption
from real estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to
tax by local governments. The minority insists that the juridical persons exempt from local taxation are limited to
the three classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly
registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational
institutions. It would be belaboring the obvious why the MIAA does not fall within any of the exempt
entities under Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code.
This theory will result in gross absurdities. It will make the national government, which itself is a juridical person,
subject to tax by local governments since the national government is not included in the enumeration of exempt
entities in Section 193. Under this theory, local governments can impose any kind of local tax, and not only real
estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with juridical personalities will also be
subject to any kind of local tax, and not only real estate tax. Some of the national government instrumentalities
vested by law with juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research
Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development
Authority,34Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port
Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local
governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does not
distinguish between national government instrumentalities with or without juridical personalities. Where the law
does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government
instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from
local taxation is not whether MIAA is a juridical person, but whether it is a national government instrumentality
under Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting
local governments from imposing any kind of tax on the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this
Code." This means that unless the Local Government Code grants an express authorization, local governments
have no power to tax the national government, its agencies and instrumentalities. Clearly, the rule is local
governments have no power to tax the national government, its agencies and instrumentalities. As an exception
to this rule, local governments may tax the national government, its agencies and instrumentalities only if the
Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which
makes the national government subject to real estate tax when it gives the beneficial use of its real properties to
a taxable entity. Section 234(a) of the Local Government Code 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 has been granted, for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this
exemption is when the government gives the beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies
and instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies
only to real estate tax and not to any other tax. The justification for the exception to the exemption is that the

real property, although owned by the Republic, is not devoted to public use or public service but devoted to the
private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code,
the later provisions prevail over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of
construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical
person, is subject to real property taxes, the general exemptions attaching to instrumentalities under
Section 133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same law.
(Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193
and 234 on the other. No one has urged that there is such a conflict, much less has any one presenteda
persuasive argument that there is such a conflict. The minority's assumption of an irreconcilable conflict in the
statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code."
By its own words, Section 193 admits the superiority of other provisions of the Local Government Code that limit
the exercise of the taxing power in Section 193. When a provision of law grants a power but withholds such
power on certain matters, there is no conflict between the grant of power and the withholding of power. The
grantee of the power simply cannot exercise the power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section
133 limits the grant to local governments of the power to tax, and not merely the exercise of a delegated power
to tax. Section 133 states that the taxing powers of local governments "shall not extend to the levy" of any kind
of tax on the national government, its agencies and instrumentalities. There is no clearer limitation on the taxing
power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133
logically prevails over Section 193 which grants local governments such taxing powers. By their very meaning
and purpose, the "common limitations" on the taxing power prevail over the grant or exercise of the taxing
power. If the taxing power of local governments in Section 193 prevails over the limitations on such taxing power
in Section 133, then local governments can impose any kind of tax on the national government, its agencies and
instrumentalities a gross absurdity.
Local governments have no power to tax the national government, its agencies and instrumentalities, except as
otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless
otherwise provided in this Code." This exception which is an exception to the exemption of the Republic from
real estate tax imposed by local governments refers to Section 234(a) of the Code. The exception to the
exemption in Section 234(a) subjects real property owned by the Republic, whether titled in the name of the
national government, its agencies or instrumentalities, to real estate tax if the beneficial use of such property is
given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase "government-owned or
controlled corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of
the Administrative Code admits that its definitions are not controlling when it provides:
SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a
particular statute, shall require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute
may require a different meaning than that defined in the Administrative Code. However, this does not
automatically mean that the definition in the Administrative Code does not apply to the Local Government Code.
Section 2 of the Administrative Code clearly states that "unless the specific words x x x of a particular statute
shall require a different meaning," the definition in Section 2 of the Administrative Code shall apply. Thus, unless
there is specific language in the Local Government Code defining the phrase "government-owned or controlled

corporation" differently from the definition in the Administrative Code, the definition in the Administrative Code
prevails.
The minority does not point to any provision in the Local Government Code defining the phrase "governmentowned or controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none.
The Local Government Code is silent on the definition of the phrase "government-owned or controlled
corporation." The Administrative Code, however, expressly defines the phrase "government-owned or controlled
corporation." The inescapable conclusion is that the Administrative Code definition of the phrase "governmentowned or controlled corporation" applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the
major structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is
the governing law defining the status and relationship of government departments, bureaus, offices, agencies
and instrumentalities. Unless a statute expressly provides for a different status and relationship for a specific
government unit or entity, the provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled corporation" should apply only to
corporations organized under the Corporation Code, the general incorporation law, and not to corporations
created by special charters. The minority sees no reason why government corporations with special charters
should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under the Administrative
Code refer to those corporations owned by the government or its instrumentalities which are created not
by legislative enactment, but formed and organized under the Corporation Code through registration with
the Securities and Exchange Commission. In short, these are GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs
whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to
declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing
legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not
distinguish between one incorporated under the Corporation Code or under a special charter. Where the law does
not distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-owned corporations organized as
stock corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the
Philippines. The special charter40 of the Land Bank of the Philippines provides:
SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos, divided into
seven hundred and eighty million common shares with a par value of ten pesos each, which shall be fully
subscribed by the Government, and one hundred and twenty million preferred shares with a par value of
ten pesos each, which shall be issued in accordance with the provisions of Sections seventy-seven and
eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be Five Billion
Pesos to be divided into Fifty Million common shares with par value of P100 per share. These shares are
available for subscription by the National Government. Upon the effectivity of this Charter, the National
Government shall subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred
Million which shall be deemed paid for by the Government with the net asset values of the Bank
remaining after the transfer of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special charters are the
Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the Philippine National
Bank44 before it was reorganized as a stock corporation under the Corporation Code. All these government-owned
corporations organized under special charters as stock corporations are subject to real estate tax on real

properties owned by them. To rule that they are not government-owned or controlled corporations because they
are not registered with the Securities and Exchange Commission would remove them from the reach of Section
234 of the Local Government Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special charters are those that meet the
two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the governmentowned or controlled corporation must be established for the common good. The second condition is that the
government-owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of
the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations"
through special charters only if these entities are required to meet the twin conditions of common good and
economic viability. In other words, Congress has no power to create government-owned or controlled corporations
with special charters unless they are made to comply with the two conditions of common good and economic
viability. The test of economic viability applies only to government-owned or controlled corporations that perform
economic or commercial activities and need to compete in the market place. Being essentially economic vehicles
of the State for the common good meaning for economic development purposes these government-owned
or controlled corporations with special charters are usually organized as stock corporations just like ordinary
private corporations.
In contrast, government instrumentalities vested with corporate powers and performing governmental or public
functions need not meet the test of economic viability. These instrumentalities perform essential public services
for the common good, services that every modern State must provide its citizens. These instrumentalities need
not be economically viable since the government may even subsidize their entire operations. These
instrumentalities are not the "government-owned or controlled corporations" referred to in Section 16, Article XII
of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested
with corporate powers but performing essential governmental or public functions. Congress has plenary authority
to create government instrumentalities vested with corporate powers provided these instrumentalities perform
essential government functions or public services. However, when the legislature creates through special
charters corporations that perform economic or commercial activities, such entities known as "governmentowned or controlled corporations" must meet the test of economic viability because they compete in the
market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar
government-owned or controlled corporations, which derive their income to meet operating expenses solely from
commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations that cannot survive on their own in the market place
and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional
Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government creates a
corporation, there is a sense in which this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government corporation loses, then it makes its
claim upon the taxpayers' money through new equity infusions from the government and what is always
invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the
entire government, about P28 billion of this will go into equity infusions to support a few government
financial institutions. And this is all taxpayers' money which could have been relocated to agrarian reform,
to social services like health and education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this
becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable. And so, Madam President, I
reiterate, for the committee's consideration and I am glad that I am joined in this proposal by

Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST,"
together with the common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant addition,
however, is the phrase "in the interest of the common good and subject to the test of economic viability."
The addition includes the ideas that they must show capacity to function efficiently in business and that
they should not go into activities which the private sector can do better. Moreover, economic viability is
more than financial viability but also includes capability to make profit and generate benefits not
quantifiable in financial terms.46(Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with corporate powers and
performing essential public services. The State is obligated to render essential public services regardless of the
economic viability of providing such service. The non-economic viability of rendering such essential public service
does not excuse the State from withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized essentially for economic
or commercial objectives, must meet the test of economic viability. These are the government-owned or
controlled corporations that are usually organized under their special charters as stock corporations, like the Land
Bank of the Philippines and the Development Bank of the Philippines. These are the government-owned or
controlled corporations, along with government-owned or controlled corporations organized under the
Corporation Code, that fall under the definition of "government-owned or controlled corporations" in Section
2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in
the market place. MIAA does not compete in the market place because there is no competing international airport
operated by the private sector. MIAA performs an essential public service as the primary domestic and
international airport of the Philippines. The operation of an international airport requires the presence of
personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers,
screening out those without visas or travel documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;
3. The quarantine office of the Department of Health, to enforce health measures against the spread of
infectious diseases into the country;
4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases
into the country;
5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and
the escape of criminals, as well as to secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to
enter or leave Philippine airspace, as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises such as runway and buildings for the government
personnel, passengers, and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an international
airport.
MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its
revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The
terminal fees that MIAA charges every passenger are regulatory or administrative fees47 and not income from
commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions
of the Administrative Code, which provides:
SEC. 2. General Terms Defined. x x x x
(10) 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. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or
controlled corporation. Without a change in its capital structure, MIAA remains a government instrumentality
under Section 2(10) of the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA
renders essential public services, it need not comply with the test of economic viability. Thus, MIAA is outside the
scope of the phrase "government-owned or controlled corporations" under Section 16, Article XII of the 1987
Constitution.
The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled
corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit
conditions for the creation of "government-owned or controlled corporations." The Administrative Code defines
what constitutes a "government-owned or controlled corporation." To belittle this phrase as "clarificatory or
illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is
MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution
because MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested
with corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by
local governments under Section 133(o) of the Local Government Code. The exception to the exemption in
Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code.
Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable
entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of
public dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil
Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by
the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public
service or for the development of the national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of
MIAA are intended for public use, and at the very least intended for public service. Whether intended for public
use or public service, the Airport Lands and Buildings are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under
Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal
relation and status of government units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the
Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject
to "[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real
property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the
specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Paraaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are
properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420
specifically mentions "ports x x x constructed by the State," which includes public airports and seaports, as
properties of public dominion and owned by the Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real
estate tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that
properties of public dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5
October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of
the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of Paraaque. We
declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies,
issued by the City of Paraaque on the Airport Lands and Buildings of the Manila International Airport Authority,
except for the portions that the Manila International Airport Authority has leased to private parties. We also
declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila
International Airport Authority.
No costs.
SO ORDERED.
[G.R. No. 137377. December 18, 2001]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MARUBENI CORPORATION, respondent.
DECISION
PUNO, J.:
In this petition for review, the Commissioner of Internal Revenue assails the decision dated January 15, 1999
of the Court of Appeals in CA-G.R. SP No. 42518 which affirmed the decision dated July 29, 1996 of the Court of
Tax Appeals in CTA Case No. 4109. The tax court ordered the Commissioner of Internal Revenue to desist from
collecting the 1985 deficiency income, branch profit remittance and contractors taxes from Marubeni Corporation
after finding the latter to have properly availed of the tax amnesty under Executive Orders Nos. 41 and 64, as
amended.
Respondent Marubeni Corporation is a foreign corporation organized and existing under the laws of Japan. It
is engaged in general import and export trading, financing and the construction business. It is duly registered to
engage in such business in the Philippines and maintains a branch office in Manila.
Sometime in November 1985, petitioner Commissioner of Internal Revenue issued a letter of authority to
examine the books of accounts of the Manila branch office of respondent corporation for the fiscal year ending
March 1985. In the course of the examination, petitioner found respondent to have undeclared income from two
(2) contracts in the Philippines, both of which were completed in 1984. One of the contracts was with the National
Development Company (NDC) in connection with the construction and installation of a wharf/port complex at the
Leyte Industrial Development Estate in the municipality of Isabel, province of Leyte. The other contract was with
the Philippine Phosphate Fertilizer Corporation (Philphos) for the construction of an ammonia storage complex
also at the Leyte Industrial Development Estate.
On March 1, 1986, petitioners revenue examiners recommended an assessment for deficiency income,
branch profit remittance, contractors and commercial brokers taxes. Respondent questioned this assessment in a
letter dated June 5, 1986.
On August 27, 1986, respondent corporation received a letter dated August 15, 1986 from petitioner
assessing respondent several deficiency taxes. The assessed deficiency internal revenue taxes, inclusive of
surcharge and interest, were as follows:
I. DEFICIENCY INCOME TAX

FY ended March 31, 1985

Undeclared gross income (Philphos and
and NDC construction projects). . . . . . . . . . . . P 967,269,811.14
Less: Cost and expenses (50%) . . . . . . . . . . . . . . . 483,634,905.57
Net undeclared income . . . . . . . . . . . . . . . . . . . . . . . 483,634,905.57
Income tax due thereon . . . . . . . . . . . . . . . . . . . . . . . 169,272,217.00
Add: 50% surcharge . . . . . . . . . . . . . . . . . . . . . . . 84,636,108.50
20% int. p.a. fr. 7-15-85 to
to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 36,675,646.90
TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . P 290,583,972.40
II. DEFICIENCY BRANCH PROFIT REMITTANCE TAX
FY ended March 31, 1985
Undeclared net income from
Philphos and NDC construction projects . . . . . P 483,634,905.57
Less: Income tax thereon . . . . . . . . . . . . . . . . . . . . . 169,272,217.00
Amount subject to Tax . . . . . . . . . . . . . . . . . . . . . . . 314,362,688.57
Tax due thereon . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,154,403.00
Add: 50% surcharge . . . . . . . . . . . . . . . . . . . . . . 23,577,201.50
20% int. p.a. fr. 4-26-85
to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 12,305,360.66
TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . P 83,036,965.16
III. DEFICIENCY CONTRACTORS TAX
FY ended March 31, 1985
Undeclared gross receipts/ gross income from
Philphos and NDC construction projects . . . . P 967,269,811.14
Contractors tax due thereon (4%). . . . . . . . . . . . . . . 38,690,792.00
Add: 50% surcharge for non-declaration. . . . . . 19,345,396.00

25% surcharge for late payment . . . . . . . . . 9,672,698.00

Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,708,886.00
Add: 20% int. p.a. fr. 4-21-85 to
to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 17,854,739.46
TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . P 85,563,625.46
IV. DEFICIENCY COMMERCIAL BROKERS TAX
FY ended March 31, 1985
Undeclared share from commission income
(denominated as subsidy from Home
Office). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,683,114.50
Tax due thereon . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 1,628,569.00
Add: 50% surcharge for non-declaration. . . . . . . 814,284.50
25% surcharge for late payment . . . . . . . . . 407,142.25
Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2,849,995.75
Add: 20% int. p.a. fr. 4-21-85
to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 751,539.98
TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . P 3,600,535.68
The 50% surcharge was imposed for your clients failure to report for tax purposes the aforesaid taxable revenues
while the 25% surcharge was imposed because of your clients failure to pay on time the above deficiency
percentage taxes.
x x x x x x x x x. [1]
Petitioner found that the NDC and Philphos contracts were made on a turn-key basis and that the gross income
from the two projects amounted to P967,269,811.14. Each contract was for a piece of work and since the projects
called for the construction and installation of facilities in the Philippines, the entire income therefrom constituted
income from Philippine sources, hence, subject to internal revenue taxes. The assessment letter further stated
that the same was petitioners final decision and that if respondent disagreed with it, respondent may file an
appeal with the Court of Tax Appeals within thirty (30) days from receipt of the assessment.
On September 26, 1986, respondent filed two (2) petitions for review with the Court of Tax Appeals. The first
petition, CTA Case No. 4109, questioned the deficiency income, branch profit remittance and contractors tax
assessments in petitioners assessment letter. The second, CTA Case No. 4110, questioned the deficiency
commercial brokers assessment in the same letter.
Earlier, on August 2, 1986, Executive Order (E.O.) No. 41[2] declaring a one-time amnesty covering unpaid
income taxes for the years 1981 to 1985 was issued. Under this E.O., a taxpayer who wished to avail of the
income tax amnesty should, on or before October 31, 1986: (a) file a sworn statement declaring his net worth as

of December 31, 1985; (b) file a certified true copy of his statement declaring his net worth as of December 31,
1980 on record with the Bureau of Internal Revenue (BIR), or if no such record exists, file a statement of said net
worth subject to verification by the BIR; and (c) file a return and pay a tax equivalent to ten per cent (10%) of the
increase in net worth from December 31, 1980 to December 31, 1985.
In accordance with the terms of E.O. No. 41, respondent filed its tax amnesty return dated October 30, 1986
and attached thereto its sworn statement of assets and liabilities and net worth as of Fiscal Year (FY) 1981 and FY
1986. The return was received by the BIR on November 3, 1986 and respondent paid the amount
of P2,891,273.00 equivalent to ten percent (10%) of its net worth increase between 1981 and 1986.
The period of the amnesty in E.O. No. 41 was later extended from October 31, 1986 to December 5, 1986 by
E.O. No. 54 dated November 4, 1986.
On November 17, 1986, the scope and coverage of E.O. No. 41 was expanded by Executive Order (E.O.) No.
64. In addition to the income tax amnesty granted by E.O. No. 41 for the years 1981 to 1985, E.O. No.
64[3] included estate and donors taxes under Title III and the tax on business under Chapter II, Title V of the
National Internal Revenue Code, also covering the years 1981 to 1985. E.O. No. 64 further provided that the
immunities and privileges under E.O. No. 41 were extended to the foregoing tax liabilities, and the period within
which the taxpayer could avail of the amnesty was extended to December 15, 1986. Those taxpayers who
already filed their amnesty return under E.O. No. 41, as amended, could avail themselves of the benefits,
immunities and privileges under the new E.O. by filing an amended return and paying an additional 5% on the
increase in net worth to cover business, estate and donors tax liabilities.
The period of amnesty under E.O. No. 64 was extended to January 31, 1987 by E.O No. 95 dated December
17, 1986.
On December 15, 1986, respondent filed a supplemental tax amnesty return under the benefit of E.O. No. 64
and paid a further amount of P1,445,637.00 to the BIR equivalent to five percent (5%) of the increase of its net
worth between 1981 and 1986.
On July 29, 1996, almost ten (10) years after filing of the case, the Court of Tax Appeals rendered a decision
in CTA Case No. 4109. The tax court found that respondent had properly availed of the tax amnesty under E.O.
Nos. 41 and 64 and declared the deficiency taxes subject of said case as deemed cancelled and withdrawn. The
Court of Tax Appeals disposed of as follows:
WHEREFORE, the respondent Commissioner of Internal Revenue is hereby ORDERED to DESIST from collecting
the 1985 deficiency taxes it had assessed against petitioner and the same are deemed considered [sic]
CANCELLED and WITHDRAWN by reason of the proper availment by petitioner of the amnesty under Executive
Order No. 41, as amended.[4]
Petitioner challenged the decision of the tax court by filing CA-G.R. SP No. 42518 with the Court of Appeals.
On January 15, 1999, the Court of Appeals dismissed the petition and affirmed the decision of the Court of
Tax Appeals. Hence, this recourse.
Before us, petitioner raises the following issues:
(1) Whether or not the Court of Appeals erred in affirming the Decision of the Court of Tax Appeals which ruled
that herein respondents deficiency tax liabilities were extinguished upon respondents availment of tax amnesty
under Executive Orders Nos. 41 and 64.
(2) Whether or not respondent is liable to pay the income, branch profit remittance, and contractors taxes
assessed by petitioner.[5]
The main controversy in this case lies in the interpretation of the exception to the amnesty coverage of E.O.
Nos. 41 and 64. There are three (3) types of taxes involved herein income tax, branch profit remittance tax and

contractors tax. These taxes are covered by the amnesties granted by E.O. Nos. 41 and 64. Petitioner claims,
however, that respondent is disqualified from availing of the said amnesties because the latter falls under the
exception in Section 4 (b) of E.O. No. 41.
Section 4 of E.O. No. 41 enumerates which taxpayers cannot avail of the amnesty granted thereunder, viz:
Sec. 4. Exceptions.The following taxpayers may not avail themselves of the amnesty herein granted:
a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14;
b) Those with income tax cases already filed in Court as of the effectivity hereof;
c) Those with criminal cases involving violations of the income tax law already filed in court as of the
effectivity hereof;
d) Those that have withholding tax liabilities under the National Internal Revenue Code, as amended,
insofar as the said liabilities are concerned;
e) Those with tax cases pending investigation by the Bureau of Internal Revenue as of the effectivity
hereof as a result of information furnished under Section 316 of the National Internal Revenue Code,
as amended;
f) Those with pending cases involving unexplained or unlawfully acquired wealth before the
Sandiganbayan;
g) Those liable under Title Seven, Chapter Three (Frauds, Illegal Exactions and Transactions) and Chapter
Four (Malversation of Public Funds and Property) of the Revised Penal Code, as amended.
Petitioner argues that at the time respondent filed for income tax amnesty on October 30, 1986, CTA Case No.
4109 had already been filed and was pending before the Court of Tax Appeals. Respondent therefore fell under
the exception in Section 4 (b) of E.O. No. 41.
Petitioners claim cannot be sustained. Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts
from income tax amnesty those taxpayers with income tax cases already filed in court as of the effectivity hereof.
The point of reference is the date of effectivity of E.O. No. 41. The filing of income tax cases in court must have
been made before and as of the date of effectivity of E.O. No. 41. Thus, for a taxpayer not to be disqualified
under Section 4 (b) there must have been no income tax cases filed in court against him when E.O. No. 41 took
effect. This is regardless of when the taxpayer filed for income tax amnesty, provided of course he files it on or
before the deadline for filing.
E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109 questioning the 1985 deficiency income,
branch profit remittance and contractors tax assessments was filed by respondent with the Court of Tax Appeals
on September 26, 1986. When E.O. No. 41 became effective on August 22, 1986, CTA Case No. 4109 had not yet
been filed in court. Respondent corporation did not fall under the said exception in Section 4 (b), hence,
respondent was not disqualified from availing of the amnesty for income tax under E.O. No. 41.
The same ruling also applies to the deficiency branch profit remittance tax assessment. A branch profit
remittance tax is defined and imposed in Section 24 (b) (2) (ii), Title II, Chapter III of the National Internal
Revenue Code.[6] In the tax code, this tax falls under Title II on Income Tax. It is a tax on income. Respondent
therefore did not fall under the exception in Section 4 (b) when it filed for amnesty of its deficiency branch profit
remittance tax assessment.
The difficulty herein is with respect to the contractors tax assessment and respondents availment of the
amnesty under E.O. No. 64. E.O. No. 64 expanded the coverage of E.O. No. 41 by including estate and donors
taxes and tax on business. Estate and donors taxes fall under Title III of the Tax Code while business taxes fall

under Chapter II, Title V of the same. The contractors tax is provided in Section 205, Chapter II, Title V of the Tax
Code; it is defined and imposed under the title on business taxes, and is therefore a tax on business.[7]
When E.O. No. 64 took effect on November 17, 1986, it did not provide for exceptions to the coverage of the
amnesty for business, estate and donors taxes. Instead, Section 8 ofE.O. No. 64 provided that:
Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or inconsistent with this
amendatory Executive Order shall remain in full force and effect.
By virtue of Section 8 as afore-quoted, the provisions of E.O. No. 41 not contrary to or inconsistent with the
amendatory act were reenacted in E.O. No. 64. Thus, Section 4 ofE.O. No. 41 on the exceptions to amnesty
coverage also applied to E.O. No. 64. With respect to Section 4 (b) in particular, this provision excepts from tax
amnesty coverage a taxpayer who has income tax cases already filed in court as of the effectivity hereof. As to
what Executive Order the exception refers to, respondent argues that because of the words income and hereof,
they refer to Executive Order No. 41.[8]
In view of the amendment introduced by E.O. No. 64, Section 4 (b) cannot be construed to refer to E.O. No.
41 and its date of effectivity. The general rule is that an amendatory act operates prospectively. [9] While an
amendment is generally construed as becoming a part of the original act as if it had always been contained
therein,[10] it may not be given a retroactive effect unless it is so provided expressly or by necessary implication
and no vested right or obligations of contract are thereby impaired.[11]
There is nothing in E.O. No. 64 that provides that it should retroact to the date of effectivity of E.O. No. 41,
the original issuance. Neither is it necessarily implied from E.O. No. 64 that it or any of its provisions should apply
retroactively. Executive Order No. 64 is a substantive amendment of E.O. No. 41. It does not merely change
provisions in E.O. No. 41. It supplements the original act by adding other taxes not covered in the first. [12] It has
been held that where a statute amending a tax law is silent as to whether it operates retroactively, the
amendment will not be given a retroactive effect so as to subject to tax past transactions not subject to tax under
the original act.[13] In an amendatory act, every case of doubt must be resolved against its retroactive effect. [14]
Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty is a general pardon or intentional
overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of
a revenue or tax law.[15] It partakes of an absolute forgiveness or waiver by the government of its right to collect
what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. [16] A tax amnesty,
much like a tax exemption, is never favored nor presumed in law.[17] If granted, the terms of the amnesty, like that
of a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority.
[18]
For the right of taxation is inherent in government. The State cannot strip itself of the most essential power of
taxation by doubtful words. He who claims an exemption (or an amnesty) from the common burden must justify
his claim by the clearest grant of organic or state law. It cannot be allowed to exist upon a vague implication. If a
doubt arises as to the intent of the legislature, that doubt must be resolved in favor of the state. [19]
In the instant case, the vagueness in Section 4 (b) brought about by E.O. No. 64 should therefore be
construed strictly against the taxpayer. The term income tax cases should be read as to refer to estate and
donors taxes and taxes on business while the word hereof, to E.O. No. 64. Since Executive Order No. 64 took
effect on November 17, 1986, consequently, insofar as the taxes in E.O. No. 64 are concerned, the date of
effectivity referred to in Section 4 (b) of E.O. No. 41 should be November 17, 1986.
Respondent filed CTA Case No. 4109 on September 26, 1986. When E.O. No. 64 took effect on November 17,
1986, CTA Case No. 4109 was already filed and pending in court. By the time respondent filed its supplementary
tax amnesty return on December 15, 1986, respondent already fell under the exception in Section 4 (b) of E.O.
Nos. 41 and 64 and was disqualified from availing of the business tax amnesty granted therein.
It is respondents other argument that assuming it did not validly avail of the amnesty under the two
Executive Orders, it is still not liable for the deficiency contractors tax because the income from the projects
came from the Offshore Portion of the contracts. The two contracts were divided into two parts, i.e., the Onshore

Portion and the Offshore Portion. All materials and equipment in the contract under the Offshore Portion were
manufactured and completed in Japan, not in the Philippines, and are therefore not subject to Philippine taxes.
Before going into respondents arguments, it is necessary to discuss the background of the two contracts,
examine their pertinent provisions and implementation.
The NDC and Philphos are two government corporations. In 1980, the NDC, as the corporate investment arm
of the Philippine Government, established the Philphos to engage in the large-scale manufacture of phosphatic
fertilizer for the local and foreign markets. [20] The Philphos plant complex which was envisioned to be the largest
phosphatic fertilizer operation in Asia, and among the largest in the world, covered an area of 180 hectares within
the 435-hectare Leyte Industrial Development Estate in the municipality of Isabel, province of Leyte.
In 1982, the NDC opened for public bidding a project to construct and install a modern, reliable, efficient and
integrated wharf/port complex at the Leyte Industrial Development Estate. The wharf/ port complex was intended
to be one of the major facilities for the industrial plants at the Leyte Industrial Development Estate. It was to be
specifically adapted to the site for the handling of phosphate rock, bagged or bulk fertilizer products, liquid
materials and other products of Philphos, the Philippine Associated Smelting and Refining Corporation (Pasar),
[21]
and other industrial plants within the Estate. The bidding was participated in by Marubeni Head Office in
Japan.
Marubeni, Japan pre-qualified and on March 22, 1982, the NDC and respondent entered into an agreement
entitled Turn-Key Contract for Leyte Industrial Estate Port Development Project Between National Development
Company and Marubeni Corporation.[22] The Port Development Project would consist of a wharf, berths,
causeways, mechanical and liquids unloading and loading systems, fuel oil depot, utilities systems, storage and
service buildings, offsite facilities, harbor service vessels, navigational aid system, fire-fighting system, area
lighting, mobile equipment, spare parts and other related facilities.[23] The scope of the works under the contract
covered turn-key supply, which included grants of licenses and the transfer of technology and know-how,[24] and:
x x x the design and engineering, supply and delivery, construction, erection and installation, supervision,
direction and control of testing and commissioning of the Wharf-Port Complex as set forth in Annex I of this
Contract, as well as the coordination of tie-ins at boundaries and schedule of the use of a part or the whole of the
Wharf/Port Complex through the Owner, with the design and construction of other facilities around the site. The
scope of works shall also include any activity, work and supply necessary for, incidental to or appropriate under
present international industrial port practice, for the timely and successful implementation of the object of this
Contract, whether or not expressly referred to in the abovementioned Annex I.[25]
The contract price for the wharf/ port complex was Y12,790,389,000.00 and P44,327,940.00. In the contract,
the price in Japanese currency was broken down into two portions: (1) the Japanese Yen Portion I; (2) the Japanese
Yen Portion II, while the price in Philippine currency was referred to as the Philippine Pesos Portion. The Japanese
Yen Portions I and II were financed in two (2) ways: (a) by yen credit loan provided by the Overseas Economic
Cooperation Fund (OECF); and (b) by suppliers credit in favor of Marubeni from the Export-Import Bank of Japan.
The OECF is a Fund under the Ministry of Finance of Japan extended by the Japanese government as assistance to
foreign governments to promote economic development.[26] The OECF extended to the Philippine Government a
loan of Y7,560,000,000.00 for the Leyte Industrial Estate Port Development Project and authorized the NDC to
implement the same.[27] The other type of financing is an indirect type where the supplier, i.e., Marubeni,
obtained a loan from the Export-Import Bank of Japan to advance payment to its sub-contractors.[28]
Under the financing schemes, the Japanese Yen Portions I and II and the Philippine Pesos Portion were further
broken down and subdivided according to the materials, equipment and services rendered on the project. The
price breakdown and the corresponding materials, equipment and services were contained in a list attached as
Annex III to the contract.[29]
A few months after execution of the NDC contract, Philphos opened for public bidding a project to construct
and install two ammonia storage tanks in Isabel. Like the NDC contract, it was Marubeni Head Office in Japan that
participated in and won the bidding. Thus, on May 2, 1982, Philphos and respondent corporation entered into an
agreement entitled Turn-Key Contract for Ammonia Storage Complex Between Philippine Phosphate Fertilizer

Corporation and Marubeni Corporation.[30] The object of the contract was to establish and place in operating
condition a modern, reliable, efficient and integrated ammonia storage complex adapted to the site for the
receipt and storage of liquid anhydrous ammonia [31]and for the delivery of ammonia to an integrated fertilizer
plant adjacent to the storage complex and to vessels at the dock. [32] The storage complex was to consist of
ammonia storage tanks, refrigeration system, ship unloading system, transfer pumps, ammonia heating system,
fire-fighting system, area lighting, spare parts, and other related facilities. [33] The scope of the works required for
the completion of the ammonia storage complex covered the supply, including grants of licenses and transfer of
technology and know-how,[34] and:
x x x the design and engineering, supply and delivery, construction, erection and installation, supervision,
direction and control of testing and commissioning of the Ammonia Storage Complex as set forth in Annex I of
this Contract, as well as the coordination of tie-ins at boundaries and schedule of the use of a part or the whole of
the Ammonia Storage Complex through the Owner with the design and construction of other facilities at and
around the Site. The scope of works shall also include any activity, work and supply necessary for, incidental to or
appropriate under present international industrial practice, for the timely and successful implementation of the
object of this Contract, whether or not expressly referred to in the abovementioned Annex I.[35]
The contract price for the project was Y3,255,751,000.00 and P17,406,000.00. Like the NDC contract, the
price was divided into three portions. The price in Japanese currency was broken down into the Japanese Yen
Portion I and Japanese Yen Portion II while the price in Philippine currency was classified as the Philippine Pesos
Portion. Both Japanese Yen Portions I and II were financed by suppliers credit from the Export-Import Bank of
Japan. The price stated in the three portions were further broken down into the corresponding materials,
equipment and services required for the project and their individual prices. Like the NDC contract, the breakdown
in the Philphos contract is contained in a list attached to the latter as Annex III.[36]
The division of the price into Japanese Yen Portions I and II and the Philippine Pesos Portion under the two
contracts corresponds to the two parts into which the contracts were classifiedthe Foreign Offshore Portion and
the Philippine Onshore Portion. In both contracts, the Japanese Yen Portion I corresponds to the Foreign Offshore
Portion.[37] Japanese Yen Portion II and the Philippine Pesos Portion correspond to the Philippine Onshore Portion.[38]
Under the Philippine Onshore Portion, respondent does not deny its liability for the contractors tax on the
income from the two projects. In fact respondent claims, which petitioner has not denied, that the income it
derived from the Onshore Portion of the two projects had been declared for tax purposes and the taxes thereon
already paid to the Philippine government.[39] It is with regard to the gross receipts from the Foreign Offshore
Portion of the two contracts that the liabilities involved in the assessments subject of this case arose. Petitioner
argues that since the two agreements are turn-key, [40] they call for the supply of both materials and services to
the client, they are contracts for a piece of work and are indivisible. The situs of the two projects is in the
Philippines, and the materials provided and services rendered were all done and completed within the territorial
jurisdiction of the Philippines.[41] Accordingly, respondents entire receipts from the contracts, including its receipts
from the Offshore Portion, constitute income from Philippine sources. The total gross receipts covering both labor
and materials should be subjected to contractors tax in accordance with the ruling in Commissioner of Internal
Revenue v. Engineering Equipment & Supply Co.[42]
A contractors tax is imposed in the National Internal Revenue Code (NIRC) as follows:
Sec. 205. Contractors, proprietors or operators of dockyards, and others.A contractors tax of four percent of the
gross receipts is hereby imposed on proprietors or operators of the following business establishments and/or
persons engaged in the business of selling or rendering the following services for a fee or compensation:
(a) General engineering, general building and specialty contractors, as defined in Republic Act No. 4566;
xxxxxxxxx
(q) Other independent contractors. The term independent contractors includes persons (juridical or
natural) not enumerated above (but not including individuals subject to the occupation tax under the
Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless

of whether or not the performance of the service calls for the exercise or use of the physical or mental
faculties of such contractors or their employees. It does not include regional or area headquarters
established in the Philippines by multinational corporations, including their alien executives, and which
headquarters do not earn or derive income from the Philippines and which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific
Region.
x x x x x x x x x.[43]
Under the afore-quoted provision, an independent contractor is a person whose activity consists essentially
of the sale of all kinds of services for a fee, regardless of whether or not the performance of the service calls for
the exercise or use of the physical or mental faculties of such contractors or their employees. The word
contractor refers to a person who, in the pursuit of independent business, undertakes to do a specific job or piece
of work for other persons, using his own means and methods without submitting himself to control as to the petty
details.[44]
A contractors tax is a tax imposed upon the privilege of engaging in business. [45] It is generally in the nature
of an excise tax on the exercise of a privilege of selling services or labor rather than a sale on products; [46] and is
directly collectible from the person exercising the privilege. [47] Being an excise tax, it can be levied by the taxing
authority only when the acts, privileges or business are done or performed within the jurisdiction of said
authority.[48] Like property taxes, it cannot be imposed on an occupation or privilege outside the taxing district.[49]
In the case at bar, it is undisputed that respondent was an independent contractor under the terms of the
two subject contracts. Respondent, however, argues that the work therein were not all performed in the
Philippines because some of them were completed in Japan in accordance with the provisions of the contracts.
An examination of Annex III to the two contracts reveals that the materials and equipment to be made and
the works and services to be performed by respondent are indeed classified into two. The first part, entitled
Breakdown of Japanese Yen Portion I provides:
Japanese Yen Portion I of the Contract Price has been subdivided according to discrete portions of
materials and equipment which will be shipped to Leyte as units and lots.This subdivision of price is to
be used by owner to verify invoice for Progress Payments under Article 19.2.1 of the Contract. The agreed
subdivision of Japanese Yen Portion I is as follows:
x x x x x x x x x. [50]
The subdivision of Japanese Yen Portion I covers materials and equipment while Japanese Yen Portion II and the
Philippine Pesos Portion enumerate other materials and equipment and the construction and installation work on
the project. In other words, the supplies for the project are listed under Portion I while labor and other supplies
are listed under Portion II and the Philippine Pesos Portion. Mr. Takeshi Hojo, then General Manager of the
Industrial Plant Section II of the Industrial Plant Department of Marubeni Corporation in Japan who supervised the
implementation of the two projects, testified that all the machines and equipment listed under Japanese Yen
Portion I in Annex III were manufactured in Japan. [51] The machines and equipment were designed, engineered
and fabricated by Japanese firms sub-contracted by Marubeni from the list of sub-contractors in the technical
appendices to each contract.[52] Marubeni sub-contracted a majority of the equipment and supplies to Kawasaki
Steel Corporation which did the design, fabrication, engineering and manufacture thereof; [53] Yashima & Co. Ltd.
which manufactured the mobile equipment; Bridgestone which provided the rubber fenders of the mobile
equipment;[54] and B.S. Japan for the supply of radio equipment. [55] The engineering and design works made by
Kawasaki Steel Corporation included the lay-out of the plant facility and calculation of the design in accordance
with the specifications given by respondent.[56] All sub-contractors and manufacturers are Japanese corporations
and are based in Japan and all engineering and design works were performed in that country.[57]
The materials and equipment under Portion I of the NDC Port Project is primarily composed of two (2) sets of
ship unloader and loader; several boats and mobile equipment.[58]The ship unloader unloads bags or bulk
products from the ship to the port while the ship loader loads products from the port to the ship. The unloader

and loader are big steel structures on top of each is a large crane and a compartment for operation of the crane.
Two sets of these equipment were completely manufactured in Japan according to the specifications of the
project. After manufacture, they were rolled on to a barge and transported to Isabel, Leyte. [59] Upon reaching
Isabel, the unloader and loader were rolled off the barge and pulled to the pier to the spot where they were
installed.[60] Their installation simply consisted of bolting them onto the pier.[61]
Like the ship unloader and loader, the three tugboats and a line boat were completely manufactured in
Japan. The boats sailed to Isabel on their own power. The mobile equipment, consisting of three to four sets of
tractors, cranes and dozers, trailers and forklifts, were also manufactured and completed in Japan.
They were loaded on to a shippingvessel and unloaded at the Isabel Port. These pieces of equipment were all on
wheels and self-propelled. Once unloaded at the port, they were ready to be driven and perform what they were
designed to do.[62]
In addition to the foregoing, there are other items listed in Japanese Yen Portion I in Annex III to the NDC
contract. These other items consist of supplies and materials for five (5) berths, two (2) roads, a causeway, a
warehouse, a transit shed, an administration building and a security building. Most of the materials consist of
steel sheets, steel pipes, channels and beams and other steel structures, navigational and communication as well
as electrical equipment. [63]
In connection with the Philphos contract, the major pieces of equipment supplied by respondent were the
ammonia storage tanks and refrigeration units. [64] The steel plates for the tank were manufactured and cut in
Japan according to drawings and specifications and then shipped to Isabel. Once there, respondents employees
put the steel plates together to form the storage tank. As to the refrigeration units, they were completed and
assembled in Japan and thereafter shipped to Isabel. The units were simply installed there. [65] Annex III to the
Philphos contract lists down under the Japanese Yen Portion I the materials for the ammonia storage tank,
incidental equipment, piping facilities, electrical and instrumental apparatus, foundation material and spare
parts.
All the materials and equipment transported to the Philippines were inspected and tested in Japan prior to
shipment in accordance with the terms of the contracts. [66] The inspection was made by representatives of
respondent corporation, of NDC and Philphos. NDC, in fact, contracted the services of a private consultancy firm
to verify the correctness of the tests on the machines and equipment[67]while Philphos sent a representative to
Japan to inspect the storage equipment.[68]
The sub-contractors of the materials and equipment under Japanese Yen Portion I were all paid by
respondent in Japan. In his deposition upon oral examination, Kenjiro Yamakawa, formerly the Assistant General
Manager and Manager of the Steel Plant Marketing Department, Engineering & Construction Division, Kawasaki
Steel Corporation, testified that the equipment and supplies for the two projects provided by Kawasaki under
Japanese Yen Portion I were paid by Marubeni in Japan. Receipts for such payments were duly issued by Kawasaki
in Japanese and English.[69] Yashima & Co. Ltd. and B.S. Japan were likewise paid by Marubeni in Japan.[70]
Between Marubeni and the two Philippine corporations, payments for all materials and equipment under
Japanese Yen Portion I were made to Marubeni by NDC and Philphos also in Japan. The NDC, through the
Philippine National Bank, established letters of credit in favor of respondent through the Bank of Tokyo. The
letters of credit were financed by letters of commitment issued by the OECF with the Bank of Tokyo. The Bank of
Tokyo, upon respondents submission of pertinent documents, released the amount in the letters of credit in favor
of respondent and credited the amount therein to respondents account within the same bank.[71]
Clearly, the service of design and engineering, supply and delivery, construction, erection and installation,
supervision, direction and control of testing and commissioning, coordination[72]of the two projects involved two
taxing jurisdictions. These acts occurred in two countries Japan and the Philippines. While the construction and
installation work were completed within the Philippines, the evidence is clear that some pieces of equipment and
supplies were completely designed and engineered in Japan. The two sets of ship unloader and loader, the boats
and mobile equipment for the NDC project and the ammonia storage tanks and refrigeration units were made and
completed in Japan. They were already finished products when shipped to the Philippines. The other construction
supplies listed under the Offshore Portion such as the steel sheets, pipes and structures, electrical and

instrumental apparatus, these were not finished products when shipped to the Philippines. They, however, were
likewise fabricated and manufactured by the sub-contractors in Japan. All services for the design, fabrication,
engineering and manufacture of the materials and equipment under Japanese Yen Portion I were made and
completed in Japan. These services were rendered outside the taxing jurisdiction of the Philippines and are
therefore not subject to contractors tax.
Contrary to petitioners claim, the case of Commissioner of Internal Revenue v. Engineering Equipment &
Supply Co[73]is not in point. In that case, the Court found that Engineering Equipment, although an independent
contractor, was not engaged in the manufacture of air conditioning units in the Philippines. Engineering
Equipment designed, supplied and installed centralized air-conditioning systems for clients who contracted its
services. Engineering, however, did not manufacture all the materials for the air-conditioning system. Itimported
some items for the system it designed and installed. [74] The issues in that case dealt with services performed
within the local taxing jurisdiction. There was no foreign element involved in the supply of materials and services.
With the foregoing discussion, it is unnecessary to discuss the other issues raised by the parties.
IN VIEW WHEREOF, the petition is denied. The decision in CA-G.R. SP No. 42518 is affirmed.
SO ORDERED.

G.R. No. L-29646 November 10, 1978

MAYOR ANTONIO J. VILLEGAS, petitioner,
vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.
Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner.
Sotero H. Laurel for respondents.

FERNANDEZ, J.:
This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent Judge Francisco
Arca of the Court of First Instance of Manila, Branch I, in Civil Case No. 72797, the dispositive portion of winch
reads.
Wherefore, judgment is hereby rendered in favor of the petitioner and against the respondents,
declaring Ordinance No. 6 37 of the City of Manila null and void. The preliminary injunction is
made permanent. No pronouncement as to cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.
(SGD.) FRANCISCO
ARCA
Judge 1
The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22, 1968 and
signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. 2

City Ordinance No. 6537 is entitled:

AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE PHILIPPINES TO
BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF TRADE,
BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA WITHOUT FIRST SECURING AN
EMPLOYMENT PERMIT FROM THE MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3
Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or participate in any
position or occupation or business enumerated therein, whether permanent, temporary or casual, without first
securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons
employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of
both the Philippine Government and any foreign government, and those working in their respective households,
and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind.
Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six (6) months
or fine of not less than P100.00 but not more than P200.00 or both such fine and imprisonment, upon
conviction. 5
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition with the
Court of First Instance of Manila, Branch I, denominated as Civil Case No. 72797, praying for the issuance of the
writ of preliminary injunction and restraining order to stop the enforcement of Ordinance No. 6537 as well as for a
judgment declaring said Ordinance No. 6537 null and void. 6
In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the ordinance declared
null and void:
1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537 is
discriminatory and violative of the rule of the uniformity in taxation;
2) As a police power measure, it makes no distinction between useful and non-useful occupations,
imposing a fixed P50.00 employment permit, which is out of proportion to the cost of registration
and that it fails to prescribe any standard to guide and/or limit the action of the Mayor, thus,
violating the fundamental principle on illegal delegation of legislative powers:
3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus, deprived
of their rights to life, liberty and property and therefore, violates the due process and equal
protection clauses of the Constitution. 7
On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17, 1968
rendered judgment declaring Ordinance No. 6537 null and void and making permanent the writ of preliminary
injunction. 8
Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the present petition
on March 27, 1969. Petitioner assigned the following as errors allegedly committed by respondent Judge in the
latter's decision of September 17,1968: 9
I
THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING THAT
ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF UNIFORMITY OF TAXATION.
II
RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF LAW IN RULING THAT
ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST UNDUE DESIGNATION OF LEGISLATIVE
POWER.

III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING
THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND EQUAL PROTECTION CLAUSES OF
THE CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the ground that it
violated the rule on uniformity of taxation because the rule on uniformity of taxation applies only to purely tax or
revenue measures and that Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police
power of the state, it being principally a regulatory measure in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is
regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an
employment permit from the Mayor involves the exercise of discretion and judgment in the processing and
approval or disapproval of applications for employment permits and therefore is regulatory in character the
second part which requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure.
There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is
obvious that the purpose of the ordinance is to raise money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial
differences in situation among individual aliens who are required to pay it. Although the equal protection clause
of the Constitution does not forbid classification, it is imperative that the classification should be based on real
and substantial differences having a reasonable relation to the subject of the particular legislation. The same
amount of P50.00 is being collected from every employed alien whether he is casual or permanent, part time or
full time or whether he is a lowly employee or a highly paid executive
Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his
discretion. It has been held that where an ordinance of a municipality fails to state any policy or to set up any
standard to guide or limit the mayor's action, expresses no purpose to be attained by requiring a permit,
enumerates no conditions for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor
arbitrary and unrestricted power to grant or deny the issuance of building permits, such ordinance is invalid,
being an undefined and unlimited delegation of power to allow or prevent an activity per se lawful. 10
In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a government agency
power to determine the allocation of wheat flour among importers, the Supreme Court ruled against the
interpretation of uncontrolled power as it vested in the administrative officer an arbitrary discretion to be
exercised without a policy, rule, or standard from which it can be measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse permits of all
classes conferred upon the Mayor of Manila by the Revised Charter of Manila is not uncontrolled discretion but
legal discretion to be exercised within the limits of the law.
Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor in
the exercise of the power which has been granted to him by the ordinance.
The ordinance in question violates the due process of law and equal protection rule of the Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold or
refuse it at will is tantamount to denying him the basic right of the people in the Philippines to engage in a means
of livelihood. While it is true that the Philippines as a State is not obliged to admit aliens within its territory, once
an alien is admitted, he cannot be deprived of life without due process of law. This guarantee includes the means
of livelihood. The shelter of protection under the due process and equal protection clause is given to all persons,
both aliens and citizens. 13
The trial court did not commit the errors assigned.

WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.
SO ORDERED.

COMMISSIONER OF CUSTOMS and the

DISTRICT COLLECTOR OF THE PORT OF
SUBIC,
Petitioners,

- versus -

G.R. No. 179579

Present:
CARPIO, J., Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.

Promulgated:
HYPERMIX FEEDS CORPORATION,
Respondent.
February 1, 2012
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
SERENO, J.:
Before us is a Petition for Review under Rule 45,[1] assailing the Decision[2] and the Resolution[3] of the
Court of Appeals (CA), which nullified the Customs Memorandum Order (CMO) No. 27-2003 [4] on the tariff
classification of wheat issued by petitioner Commissioner of Customs.
The antecedent facts are as follows:
On 7 November 2003, petitioner Commissioner of Customs issued CMO 27-2003. Under the
Memorandum, for tariff purposes, wheat was classified according to the following: (1) importer or consignee; (2)
country of origin; and (3) port of discharge. [5] The regulation provided an exclusive list of corporations, ports of
discharge, commodity descriptions and countries of origin. Depending on these factors, wheat would be classified
either as food grade or feed grade. The corresponding tariff for food grade wheat was 3%, for feed grade, 7%.
CMO 27-2003 further provided for the proper procedure for protest or Valuation and Classification Review
Committee (VCRC) cases. Under this procedure, the release of the articles that were the subject of protest
required the importer to post a cash bond to cover the tariff differential.[6]
A month after the issuance of CMO 27-2003, on 19 December 2003, respondent filed a Petition for
Declaratory Relief[7] with the Regional Trial Court (RTC) of Las Pias City. It anticipated the implementation of the
regulation on its imported and perishable Chinese milling wheat in transit from China. [8]Respondent contended
that CMO 27-2003 was issued without following the mandate of the Revised Administrative Code on public
participation, prior notice, and publication or registration with the University of the Philippines Law Center.
Respondent also alleged that the regulation summarily adjudged it to be a feed grade supplier without the
benefit of prior assessment and examination; thus, despite having imported food grade wheat, it would be
subjected to the 7% tariff upon the arrival of the shipment, forcing them to pay 133% more than was proper.
Furthermore, respondent claimed that the equal protection clause of the Constitution was violated when
the regulation treated non-flour millers differently from flour millers for no reason at all.
Lastly, respondent asserted that the retroactive application of the regulation was confiscatory in nature.
On 19 January 2004, the RTC issued a Temporary Restraining Order (TRO) effective for twenty (20) days
from notice.[9]
Petitioners thereafter filed a Motion to Dismiss.[10] They alleged that: (1) the RTC did not have jurisdiction
over the subject matter of the case, because respondent was asking for a judicial determination of the
classification of wheat; (2) an action for declaratory relief was improper; (3) CMO 27-2003 was an internal
administrative rule and not legislative in nature; and (4) the claims of respondent were speculative and
premature, because the Bureau of Customs (BOC) had yet to examine respondents products. They likewise
opposed the application for a writ of preliminary injunction on the ground that they had not inflicted any injury

through the issuance of the regulation; and that the action would be contrary to the rule that administrative
issuances are assumed valid until declared otherwise.
On 28 February 2005, the parties agreed that the matters raised in the application for preliminary
injunction and the Motion to Dismiss would just be resolved together in the main case. Thus, on 10 March 2005,
the RTC rendered its Decision[11] without having to resolve the application for preliminary injunction and the
Motion to Dismiss.
The trial court ruled in favor of respondent, to wit:
WHEREFORE, in view of the foregoing, the Petition is GRANTED and the subject Customs
Memorandum Order 27-2003 is declared INVALID and OF NO FORCE AND EFFECT. Respondents
Commissioner of Customs, the District Collector of Subic or anyone acting in their behalf are to
immediately cease and desist from enforcing the said Customs Memorandum Order 27-2003.
SO ORDERED.[12]
The RTC held that it had jurisdiction over the subject matter, given that the issue raised by respondent
concerned the quasi-legislative powers of petitioners. It likewise stated that a petition for declaratory relief was
the proper remedy, and that respondent was the proper party to file it. The court considered that respondent was
a regular importer, and that the latter would be subjected to the application of the regulation in future
transactions.
With regard to the validity of the regulation, the trial court found that petitioners had not followed the
basic requirements of hearing and publication in the issuance of CMO 27-2003. It likewise held that petitioners
had substituted the quasi-judicial determination of the commodity by a quasi-legislative predetermination. [13] The
lower court pointed out that a classification based on importers and ports of discharge were violative of the due
process rights of respondent.
Dissatisfied with the Decision of the lower court, petitioners appealed to the CA, raising the same
allegations in defense of CMO 27-2003. [14] The appellate court, however, dismissed the appeal. It held that, since
the regulation affected substantial rights of petitioners and other importers, petitioners should have observed the
requirements of notice, hearing and publication.
Hence, this Petition.
Petitioners raise the following issues for the consideration of this Court:
I.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE WHICH IS NOT IN ACCORD

WITH THE LAW AND PREVAILING JURISPRUDENCE.

II.

THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE TRIAL COURT HAS
JURISDICTION OVER THE CASE.

The Petition has no merit.

We shall first discuss the propriety of an action for declaratory relief.
Rule 63, Section 1 provides:
Who may file petition. Any person interested under a deed, will, contract or other written
instrument, or whose rights are affected by a statute, executive order or regulation, ordinance, or
any other governmental regulation may, before breach or violation thereof, bring an action in the
appropriate Regional Trial Court to determine any question of construction or validity arising, and
for a declaration of his rights or duties, thereunder.
The requirements of an action for declaratory relief are as follows: (1) there must be a justiciable
controversy; (2) the controversy must be between persons whose interests are adverse; (3) the party seeking
declaratory relief must have a legal interest in the controversy; and (4) the issue involved must be ripe for judicial
determination.[15] We find that the Petition filed by respondent before the lower court meets these requirements.
First, the subject of the controversy is the constitutionality of CMO 27-2003 issued by petitioner
Commissioner of Customs. In Smart Communications v. NTC,[16] we held:

The determination of whether a specific rule or set of rules issued by an administrative

agency contravenes the law or the constitution is within the jurisdiction of the regular
courts. Indeed, the Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement, presidential decree, order,
instruction, ordinance, or regulation in the courts, including the regional trial courts.
This is within the scope of judicial power, which includes the authority of the courts to
determine in an appropriate action the validity of the acts of the political
departments. Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied)
Meanwhile, in Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary, [17] we
said:
xxx [A] legislative rule is in the nature of subordinate legislation, designed to implement a
primary legislation by providing the details thereof. xxx
In addition such rule must be published. On the other hand, interpretative rules are designed to
provide guidelines to the law which the administrative agency is in charge of enforcing.
Accordingly, in considering a legislative rule a court is free to make three
inquiries: (i) whether the rule is within the delegated authority of the administrative
agency; (ii) whether it is reasonable; and (iii) whether it was issued pursuant to proper
procedure. But the court is not free to substitute its judgment as to the desirability or wisdom of
the rule for the legislative body, by its delegation of administrative judgment, has committed
those questions to administrative judgments and not to judicial judgments. In the case of an
interpretative rule, the inquiry is not into the validity but into the correctness or propriety of the
rule. As a matter of power a court, when confronted with an interpretative rule, is free to (i) give
the force of law to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give
some intermediate degree of authoritative weight to the interpretative rule. (Emphasis supplied)
Second, the controversy is between two parties that have adverse interests. Petitioners are summarily
imposing a tariff rate that respondent is refusing to pay.
Third, it is clear that respondent has a legal and substantive interest in the implementation of CMO 272003. Respondent has adequately shown that, as a regular importer of wheat, on 14 August 2003, it has actually
made shipments of wheat from China to Subic. The shipment was set to arrive in December 2003. Upon its
arrival, it would be subjected to the conditions of CMO 27-2003. The regulation calls for the imposition of different
tariff rates, depending on the factors enumerated therein. Thus, respondent alleged that it would be made to pay
the 7% tariff applied to feed grade wheat, instead of the 3% tariff on food grade wheat. In addition, respondent
would have to go through the procedure under CMO 27-2003, which would undoubtedly toll its time and
resources. The lower court correctly pointed out as follows:
xxx As noted above, the fact that petitioner is precisely into the business of importing
wheat, each and every importation will be subjected to constant disputes which will
result into (sic) delays in the delivery, setting aside of funds as cash bond required in
the CMO as well as the resulting expenses thereof. It is easy to see that business
uncertainty will be a constant occurrence for petitioner. That the sums involved are not
minimal is shown by the discussions during the hearings conducted as well as in the
pleadings filed. It may be that the petitioner can later on get a refund but such has been
foreclosed because the Collector of Customs and the Commissioner of Customs are bound by their
own CMO. Petitioner cannot get its refund with the said agency. We believe and so find that
Petitioner has presented such a stake in the outcome of this controversy as to vest it with standing
to file this petition.[18] (Emphasis supplied)
Finally, the issue raised by respondent is ripe for judicial determination, because litigation is
inevitable[19] for the simple and uncontroverted reason that respondent is not included in the enumeration of flour
millers classified as food grade wheat importers. Thus, as the trial court stated, it would have to file a protest
case each time it imports food grade wheat and be subjected to the 7% tariff.
case.

It is therefore clear that a petition for declaratory relief is the right remedy given the circumstances of the

Considering that the questioned regulation would affect the substantive rights of respondent as explained
above, it therefore follows that petitioners should have applied the pertinent provisions of Book VII, Chapter 2 of
the Revised Administrative Code, to wit:
Section 3. Filing. (1) Every agency shall file with the University of the Philippines Law
Center three (3) certified copies of every rule adopted by it. Rules in force on the date of
effectivity of this Code which are not filed within three (3) months from that date shall not
thereafter be the bases of any sanction against any party of persons.
xxx xxx xxx
Section 9. Public Participation. - (1) If not otherwise required by law, an agency shall, as far
as practicable, publish or circulate notices of proposed rules and afford interested parties the
opportunity to submit their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall
have been published in a newspaper of general circulation at least two (2) weeks before the first
hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed.
When an administrative rule is merely interpretative in nature, its applicability needs nothing further than
its bare issuance, for it gives no real consequence more than what the law itself has already prescribed. When, on
the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render
least cumbersome the implementation of the law but substantially increases the burden of those governed, it
behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly
informed, before that new issuance is given the force and effect of law.[20]
Likewise, in Taada v. Tuvera,[21] we held:
The clear object of the above-quoted provision is to give the general public
adequate notice of the various laws which are to regulate their actions and conduct as
citizens. Without such notice and publication, there would be no basis for the application of the
maxim ignorantia legis non excusat. It would be the height of injustice to punish or
otherwise burden a citizen for the transgression of a law of which he had no notice
whatsoever, not even a constructive one.
Perhaps at no time since the establishment of the Philippine Republic has the publication of
laws taken so vital significance that at this time when the people have bestowed upon the
President a power heretofore enjoyed solely by the legislature. While the people are kept abreast
by the mass media of the debates and deliberations in the Batasan Pambansa and for the diligent
ones, ready access to the legislative records no such publicity accompanies the law-making
process of the President. Thus, without publication, the people have no means of knowing
what presidential decrees have actually been promulgated, much less a definite way of
informing themselves of the specific contents and texts of such decrees. (Emphasis
supplied)
Because petitioners failed to follow the requirements enumerated by the Revised Administrative Code, the
assailed regulation must be struck down.
Going now to the content of CMO 27-3003, we likewise hold that it is unconstitutional for being violative of
the equal protection clause of the Constitution.
The equal protection clause means that no person or class of persons shall be deprived of the same
protection of laws enjoyed by other persons or other classes in the same place in like circumstances. Thus, the
guarantee of the equal protection of laws is not violated if there is a reasonable classification. For a classification
to be reasonable, it must be shown that (1) it rests on substantial distinctions; (2) it is germane to the purpose of
the law; (3) it is not limited to existing conditions only; and (4) it applies equally to all members of the same
class.[22]
Unfortunately, CMO 27-2003 does not meet these requirements. We do not see how the quality of wheat
is affected by who imports it, where it is discharged, or which country it came from.
Thus, on the one hand, even if other millers excluded from CMO 27-2003 have imported food grade
wheat, the product would still be declared as feed grade wheat, a classification subjecting them to 7% tariff. On
the other hand, even if the importers listed under CMO 27-2003 have imported feed grade wheat, they would

only be made to pay 3% tariff, thus depriving the state of the taxes due. The regulation, therefore, does not
become disadvantageous to respondent only, but even to the state.
It is also not clear how the regulation intends to monitor more closely wheat importations and thus
prevent their misclassification. A careful study of CMO 27-2003 shows that it not only fails to achieve this end,
but results in the opposite. The application of the regulation forecloses the possibility that other corporations that
are excluded from the list import food grade wheat; at the same time, it creates an assumption that those who
meet the criteria do not import feed grade wheat. In the first case, importers are unnecessarily burdened to
prove the classification of their wheat imports; while in the second, the state carries that burden.
Petitioner Commissioner of Customs also went beyond his powers when the regulation limited the
customs officers duties mandated by Section 1403 of the Tariff and Customs Law, as amended. The law provides:
Section 1403. Duties of Customs Officer Tasked to Examine, Classify, and Appraise
Imported Articles. The customs officer tasked to examine, classify, and appraise imported
articles shall determine whether the packages designated for examination and their
contents are in accordance with the declaration in the entry, invoice and other
pertinent documents and shall make return in such a manner as to indicate whether
the articles have been truly and correctly declared in the entry as regard their
quantity, measurement, weight, and tariff classification and not imported contrary to
law. He shall submit samples to the laboratory for analysis when feasible to do so and when such
analysis is necessary for the proper classification, appraisal, and/or admission into the Philippines
of imported articles.
Likewise, the customs officer shall determine the unit of quantity in which they
are usually bought and sold, and appraise the imported articles in accordance with
Section 201 of this Code.
Failure on the part of the customs officer to comply with his duties shall subject him to the
penalties prescribed under Section 3604 of this Code.
The provision mandates that the customs officer must first assess and determine the classification of the
imported article before tariff may be imposed. Unfortunately, CMO 23-2007 has already classified the article even
before the customs officer had the chance to examine it. In effect, petitioner Commissioner of Customs
diminished the powers granted by the Tariff and Customs Code with regard to wheat importation when it no
longer required the customs officersprior examination and assessment of the proper classification of the wheat.
It is well-settled that rules and regulations, which are the product of a delegated power to create new and
additional legal provisions that have the effect of law, should be within the scope of the statutory authority
granted by the legislature to the administrative agency. It is required that the regulation be germane to the
objects and purposes of the law; and that it be not in contradiction to, but in conformity with, the standards
prescribed by law.[23]
In summary, petitioners violated respondents right to due process in the issuance of CMO 27-2003 when
they failed to observe the requirements under the Revised Administrative Code. Petitioners likewise violated
respondents right to equal protection of laws when they provided for an unreasonable classification in the
application of the regulation. Finally, petitioner Commissioner of Customs went beyond his powers of delegated
authority when the regulation limited the powers of the customs officer to examine and assess imported articles.
WHEREFORE, in view of the foregoing, the Petition is DENIED.
SO ORDERED.

G.R. No. L-4817

May 26, 1954

SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,

vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants-appellants.

REYES, J.:
This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical practitioner, a public
accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf and in behalf of other
professionals practising in the City of Manila who may desire to join it." Object of the suit is the annulment of
Ordinance No. 3398 of the City of Manila together with the provision of the Manila charter authorizing it and the
refund of taxes collected under the ordinance but paid under protest.
The ordinance in question, which was approved by the municipal board of the City of Manila on July 25, 1950,
imposes a municipal occupation tax on persons exercising various professions in the city and penalizes nonpayment of the tax "by a fine of not more than two hundred pesos or by imprisonment of not more than six
months, or by both such fine and imprisonment in the discretion of the court." Among the professions taxed were
those to which plaintiffs belong. The ordinance was enacted pursuant to paragraph (1) of section 18 of the
Revised Charter of the City of Manila (as amended by Republic Act No. 409), which empowers the Municipal Board
of said city to impose a municipal occupation tax, not to exceed P50 per annum, on persons engaged in the
various professions above referred to.
Having already paid their occupation tax under section 201 of the National Internal Revenue Code, plaintiffs,
upon being required to pay the additional tax prescribed in the ordinance, paid the same under protest and then
brought the present suit for the purpose already stated. The lower court upheld the validity of the provision of law
authorizing the enactment of the ordinance but declared the ordinance itself illegal and void on the ground that
the penalty there in provided for non-payment of the tax was not legally authorized. From this decision both
parties appealed to this Court, and the only question they have presented for our determination is whether this
ruling is correct or not, for though the decision is silent on the refund of taxes paid plaintiffs make no assignment
of error on this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that the imposition of the
penalty provided for in the ordinance was without the authority of law. The last paragraph (kk) of the very section
that authorizes the enactment of this tax ordinance (section 18 of the Manila Charter) in express terms also
empowers the Municipal Board "to fix penalties for the violation of ordinances which shall not exceed to(sic) two
hundred pesos fine or six months" imprisonment, or both such fine and imprisonment, for a single
offense."Hence, the pronouncement below that the ordinance in question is illegal and void because it imposes a
penalty not authorized by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it constitute
class legislation, are unjust and oppressive, and authorize what amounts to double taxation.
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the professions to
which they respectively belong have been singled out for the imposition of this municipal occupation tax; and in
any event, the Legislature may, in its discretion, select what occupations shall be taxed, and in the exercise of
that discretion it may tax all, or it may select for taxation certain classes and leave the others untaxed. (Cooley
on Taxation, Vol. 4, 4th ed., pp. 3393-3395.) Plaintiffs' complaint is that while the law has authorized the City of
Manila to impose the said tax, it has withheld that authority from other chartered cities, not to mention
municipalities. We do not think it is for the courts to judge what particular cities or municipalities should be
empowered to impose occupation taxes in addition to those imposed by the National Government. That matter is
peculiarly within the domain of the political departments and the courts would do well not to encroach upon it.
Moreover, as the seat of the National Government and with a population and volume of trade many times that of
any other Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the practice of the
professions, so that it is but fair that the professionals in Manila be made to pay a higher occupation tax than
their brethren in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination within a class
in that while professionals with offices in Manila have to pay the tax, outsiders who have no offices in the city but
practice their profession therein are not subject to the tax. Plaintiffs make a distinction that is not found in the
ordinance. The ordinance imposes the tax upon every person "exercising" or "pursuing" in the City of Manila
naturally any one of the occupations named, but does not say that such person must have his office in Manila.

What constitutes exercise or pursuit of a profession in the city is a matter of judicial determination. The argument
against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by
the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing inherently
obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling
or activity by both the state and the political subdivisions thereof. (51 Am. Jur., 341.)
In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance No. 3398 of
the City of Manila illegal and void and affirmed in so far as it holds the validity of the provision of the Manila
charter authorizing it. With costs against plaintiffs-appellants.
G.R. No. L-25501 July 29, 1977
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
PHILIPPINE POWER AND DEVELOPMENT CO., INC, and THE COURT OF TAX APPEALS, respondents.
G.R. No. L-25507 July 29, 1977
PHILIPPINE POWER AND DEVELOPMENT CO., INC., and petitioner,
vs .
COMMISSIONER OF INTERNAL REVENUE, respondent.

TEEHANKEE, J:
On July 14, 1977 the parties and their respective counsels filed the following:
JOINT MANIFESTATION AND MOTION
COME NOW Commissioner of Internal Revenue, and the Philippine Power and Development Co.,
Inc., by their respective counsel, and to this Honorable Court respectfully manifest:
1. That on October 31, 1965, the Court of Tax Appeals rendered a decision in CTA Case No. 1152,
the dispositive portion of which is quoted as follows:
WHEREFORE, the assessment appealed from is hereby modified. -Petitioner is
hereby ordered to pay respondent Commissioner, within 30 days from the date this
decision becomes final, deficiency franchise tax for the period from October 1,
1955 to June 30, 1960 in the amount of ?138,175.52. If the said amount is not paid
within 30 days from the date this decision becomes final, the same shall be subject
to the surcharge of 25% for delinquency pursuant to Section 259 of the Revenue
Code.
2. That the said decision was appealed by the Commissioner of Internal Revenue and the
Philippine Power and Development Co., Inc., to this Honorable Court, which appeals, docketed as
G.R. No. L-25501 and G.R. No. L-25507, are pending resolution;
3. That the Philippine Power and Development Co., Inc. had availed of the privileges of Letter of
Instructions No. 308 and in the letter dated December 17, 1976, the Commissioner of Internal
Revenue informed the taxpayer herein that its offer to pay 15% of its deficiency franchise tax from
October 1, 1955 to June 30, 1960 was increased to 30% of P133,175.52 (the amount adjudged by
the Court of Tax Appeals and on appeal to the Supreme Court) or P33,952.66, in full and complete

settlement of the tax liabilities in question, a xerox copy of which letter is hereto attached as
Annex 'A' and made an integral part hereof;
4. That the Philippine Power and Development Co., Inc. applied its tax credit of P79,229.06 against
the said amount of P33,952.66 and accordingly, the Commissioner of Internal Revenue issued Tax
Debit memo dated January 17, 1977, a xerox copy of which is hereto attached as Annex 'B' and
made an integral part hereof;
5. That in view of the aforesaid application of the taxpayer's tax credit liability of P33,952.66, the
appeals of the Commissioner of Internal Revenue and the Philippine Power and Development Co.,
Inc. have become moot and academic.
WHEREFORE, it is respectfully prayed that the aforesaid appeals be dismiss without costs.
Manila, June 14, 1977.
(Sgd.) EFREN I. PLANA ESTELITO P. MENDOZA
Acting Commissioner of Solicitor General
Internal Revenue
(Sgd.) REYNATO S. PUNO
Assistant Solicitor General
PHILIPPINE POWER & (Sgd.) LOLITA O. GAL-LANG
DEVELOPMENT CO., Solicitor
INC.
By:
(Sgd.) RAMON A. AGULLANA
Special Attorney
(Sgd.) PELAGIO M. ACHACOSO
Vice-Pres. & Gen. Mgr.
POBLADOR, NAZARENO, AZADA,
TOMACRUZ & PAREDES
COUNSEL FOR PHILIPPINE POWER
& DEVELOPMENT CO., INC.
575 ATLANTA, PORT AREA, MANILA
By: (Sgd.) RUSTICO V. NAZARENO

ACCORDINGLY, as the herein appeals have become moot and as prayed for by the parties, the cases at bar are
dismissed without costs.

G.R. No. L-9637

April 30, 1957

AMERICAN BIBLE SOCIETY, plaintiff-appellant,

vs.
CITY OF MANILA, defendant-appellee.
City Fiscal Eugenio Angeles and Juan Nabong for appellant.
Assistant City Fiscal Arsenio Naawa for appellee.
FELIX, J.:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing
business in the Philippines through its Philippine agency established in Manila in November, 1898, with its
principal office at 636 Isaac Peral in said City. The defendant appellee is a municipal corporation with powers that
are to be exercised in conformity with the provisions of Republic Act No. 409, known as the Revised Charter of the
City of Manila.
In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles and/or gospel
portions thereof (except during the Japanese occupation) throughout the Philippines and translating the same
into several Philippine dialects. On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff
that it was conducting the business of general merchandise since November, 1945, without providing itself with
the necessary Mayor's permit and municipal license, in violation of Ordinance No. 3000, as amended, and
Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three days, the corresponding
permit and license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd
quarter of 1953, in the total sum of P5,821.45 (Annex A).
Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit and pay under
protest the sum of P5,891.45, if suit was to be taken in court regarding the same (Annex B). To avoid the closing
of its business as well as further fines and penalties in the premises on October 24, 1953, plaintiff paid to the
defendant under protest the said permit and license fees in the aforementioned amount, giving at the same time
notice to the City Treasurer that suit would be taken in court to question the legality of the ordinances under
which, the said fees were being collected (Annex C), which was done on the same date by filing the complaint
that gave rise to this action. In its complaint plaintiff prays that judgment be rendered declaring the said
Municipal Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and
unconstitutional, and that the defendant be ordered to refund to the plaintiff the sum of P5,891.45 paid under
protest, together with legal interest thereon, and the costs, plaintiff further praying for such other relief and
remedy as the court may deem just equitable.
Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the Municipal
Board of the City of Manila by virtue of the power granted to it by section 2444, subsection (m-2) of the Revised
Administrative Code, superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No. 409, known
as the Revised Charter of the City of Manila, and praying that the complaint be dismissed, with costs against
plaintiff. This answer was replied by the plaintiff reiterating the unconstitutionality of the often-repeated
ordinances.
Before trial the parties submitted the following stipulation of facts:
COME NOW the parties in the above-entitled case, thru their undersigned attorneys and respectfully
submit the following stipulation of facts:
1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral, Manila,
Bibles, New Testaments, bible portions and bible concordance in English and other foreign languages
imported by it from the United States as well as Bibles, New Testaments and bible portions in the local
dialects imported and/or purchased locally; that from the fourth quarter of 1945 to the first quarter of
1953 inclusive the sales made by the plaintiff were as follows:

Quarter

Amount of Sales

4th quarter 1945

P1,244.21

1st quarter 1946

2,206.85

2nd quarter 1946

1,950.38

3rd quarter 1946

2,235.99

4th quarter 1946

3,256.04

1st quarter 1947

13,241.07

2nd quarter 1947

15,774.55

3rd quarter 1947

14,654.13

4th quarter 1947

12,590.94

1st quarter 1948

11,143.90

2nd quarter 1948

14,715.26

3rd quarter 1948

38,333.83

4th quarter 1948

16,179.90

1st quarter 1949

23,975.10

2nd quarter 1949

17,802.08

3rd quarter 1949

16,640.79

4th quarter 1949

15,961.38

1st quarter 1950

18,562.46

2nd quarter 1950

21,816.32

3rd quarter 1950

25,004.55

4th quarter 1950

45,287.92

1st quarter 1951

37,841.21

2nd quarter 1951

29,103.98

3rd quarter 1951

20,181.10

4th quarter 1951

22,968.91

1st quarter 1952

23,002.65

2nd quarter 1952

17,626.96

3rd quarter 1952

17,921.01

4th quarter 1952

24,180.72

1st quarter 1953

29,516.21

2. That the parties hereby reserve the right to present evidence of other facts not herein stipulated.
WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties may present
further evidence on their behalf. (Record on Appeal, pp. 15-16).
When the case was set for hearing, plaintiff proved, among other things, that it has been in existence in the
Philippines since 1899, and that its parent society is in New York, United States of America; that its, contiguous
real properties located at Isaac Peral are exempt from real estate taxes; and that it was never required to pay any
municipal license fee or tax before the war, nor does the American Bible Society in the United States pay any
license fee or sales tax for the sale of bible therein. Plaintiff further tried to establish that it never made any profit
from the sale of its bibles, which are disposed of for as low as one third of the cost, and that in order to maintain
its operating cost it obtains substantial remittances from its New York office and voluntary contributions and gifts
from certain churches, both in the United States and in the Philippines, which are interested in its missionary
work. Regarding plaintiff's contention of lack of profit in the sale of bibles, defendant retorts that the admissions
of plaintiff-appellant's lone witness who testified on cross-examination that bibles bearing the price of 70 cents
each from plaintiff-appellant's New York office are sold here by plaintiff-appellant at P1.30 each; those bearing the
price of $4.50 each are sold here at P10 each; those bearing the price of $7 each are sold here at P15 each; and
those bearing the price of $11 each are sold here at P22 each, clearly show that plaintiff's contention that it
never makes any profit from the sale of its bible, is evidently untenable.
After hearing the Court rendered judgment, the last part of which is as follows:
As may be seen from the repealed section (m-2) of the Revised Administrative Code and the repealing
portions (o) of section 18 of Republic Act No. 409, although they seemingly differ in the way the legislative
intent is expressed, yet their meaning is practically the same for the purpose of taxing the merchandise
mentioned in said legal provisions, and that the taxes to be levied by said ordinances is in the nature of
percentage graduated taxes (Sec. 3 of Ordinance No. 3000, as amended, and Sec. 1, Group 2, of
Ordinance No. 2529, as amended by Ordinance No. 3364).
IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so holds that this case
should be dismissed, as it is hereby dismissed, for lack of merits, with costs against the plaintiff.
Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the case to Us for
the reason that the errors assigned to the lower Court involved only questions of law.
Appellant contends that the lower Court erred:
1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not unconstitutional;
2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under which
Ordinances Nos. 2592 and 3000 were promulgated, was not repealed by Section 18 of Republic Act No.
409;
3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in order to be
valid under the new Charter of the City of Manila, must first be approved by the President of the
Philippines; and

4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial proportions, it
cannot escape from the operation of said municipal ordinances under the cloak of religious privilege.
The issues. As may be seen from the proceeding statement of the case, the issues involved in the present
controversy may be reduced to the following: (1) whether or not the ordinances of the City of Manila, Nos. 3000,
as amended, and 2529, 3028 and 3364, are constitutional and valid; and (2) whether the provisions of said
ordinances are applicable or not to the case at bar.
Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides that:
(7) No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof,
and the free exercise and enjoyment of religious profession and worship, without discrimination or
preference, shall forever be allowed. No religion test shall be required for the exercise of civil or political
rights.
Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529 and 3000, as
respectively amended, are unconstitutional and illegal in so far as its society is concerned, because they provide
for religious censorship and restrain the free exercise and enjoyment of its religious profession, to wit: the
distribution and sale of bibles and other religious literature to the people of the Philippines.
Before entering into a discussion of the constitutional aspect of the case, We shall first consider the provisions of
the questioned ordinances in relation to their application to the sale of bibles, etc. by appellant. The records,
show that by letter of May 29, 1953 (Annex A), the City Treasurer required plaintiff to secure a Mayor's permit in
connection with the society's alleged business of distributing and selling bibles, etc. and to pay permit dues in the
sum of P35 for the period covered in this litigation, plus the sum of P35 for compromise on account of plaintiff's
failure to secure the permit required by Ordinance No. 3000 of the City of Manila, as amended. This Ordinance is
of general application and not particularly directed against institutions like the plaintiff, and it does not contain
any provisions whatever prescribing religious censorship nor restraining the free exercise and enjoyment of any
religious profession. Section 1 of Ordinance No. 3000 reads as follows:
SEC. 1. PERMITS NECESSARY. It shall be unlawful for any person or entity to conduct or engage in any of
the businesses, trades, or occupations enumerated in Section 3 of this Ordinance or other businesses,
trades, or occupations for which a permit is required for the proper supervision and enforcement of
existing laws and ordinances governing the sanitation, security, and welfare of the public and the health
of the employees engaged in the business specified in said section 3 hereof, WITHOUT FIRST HAVING
OBTAINED A PERMIT THEREFOR FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY
TREASURER.
The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in Section 3 of
the Ordinance, and the record does not show that a permit is required therefor under existing laws and
ordinances for the proper supervision and enforcement of their provisions governing the sanitation, security and
welfare of the public and the health of the employees engaged in the business of the plaintiff. However, sections
3 of Ordinance 3000 contains item No. 79, which reads as follows:
79. All other businesses, trades or occupations not
mentioned in this Ordinance, except those upon which the
City is not empowered to license or to tax P5.00
Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said
business, trade or occupation.
As to the license fees that the Treasurer of the City of Manila required the society to pay from the 4th quarter of
1945 to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of P50 as compromise, Ordinance No.
2529, as amended by Ordinances Nos. 2779, 2821 and 3028 prescribes the following:
SEC. 1. FEES. Subject to the provisions of section 578 of the Revised Ordinances of the City of Manila,
as amended, there shall be paid to the City Treasurer for engaging in any of the businesses or occupations
below enumerated, quarterly, license fees based on gross sales or receipts realized during the preceding
quarter in accordance with the rates herein prescribed: PROVIDED, HOWEVER, That a person engaged in
any businesses or occupation for the first time shall pay the initial license fee based on the probable gross
sales or receipts for the first quarter beginning from the date of the opening of the business as indicated
herein for the corresponding business or occupation.

xxx

xxx

xxx

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

xxx

xxx

As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No. 2529, as
amended, are not imposed directly upon any religious institution but upon those engaged in any of the business
or occupations therein enumerated, such as retail "dealers in general merchandise" which, it is alleged, cover the
business or occupation of selling bibles, books, etc.
Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of said legal body,
as amended by Act No. 3659, approved on December 8, 1929, empowers the Municipal Board of the City of
Manila:
(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both, and (b) retail
dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any
municipal tax.
For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in general
merchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles . . . (e) books, including
stationery, paper and office supplies, . . .: PROVIDED, HOWEVER, That the combined total tax of any
debtor or manufacturer, or both, enumerated under these subsections (m-1) and (m-2), whether dealing
in one or all of the articles mentioned herein, SHALL NOT BE IN EXCESS OF FIVE HUNDRED PESOS PER
ANNUM.
and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were enacted in virtue
of the power that said Act No. 3669 conferred upon the City of Manila. Appellant, however, contends that said
ordinances are longer in force and effect as the law under which they were promulgated has been expressly
repealed by Section 102 of Republic Act No. 409 passed on June 18, 1949, known as the Revised Manila Charter.
Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly repealed the
provisions of Chapter 60 of the Revised Administrative Code but in the opinion of the trial Judge, although Section
2444 (m-2) of the former Manila Charter and section 18 (o) of the new seemingly differ in the way the legislative
intent was expressed, yet their meaning is practically the same for the purpose of taxing the merchandise
mentioned in both legal provisions and, consequently, Ordinances Nos. 2529 and 3000, as amended, are to be
considered as still in full force and effect uninterruptedly up to the present.
Often the legislature, instead of simply amending the pre-existing statute, will repeal the old statute in its
entirety and by the same enactment re-enact all or certain portions of the preexisting law. Of course, the
problem created by this sort of legislative action involves mainly the effect of the repeal upon rights and
liabilities which accrued under the original statute. Are those rights and liabilities destroyed or preserved?
The authorities are divided as to the effect of simultaneous repeals and re-enactments. Some adhere to
the view that the rights and liabilities accrued under the repealed act are destroyed, since the statutes
from which they sprang are actually terminated, even though for only a very short period of time. Others,
and they seem to be in the majority, refuse to accept this view of the situation, and consequently
maintain that all rights an liabilities which have accrued under the original statute are preserved and may
be enforced, since the re-enactment neutralizes the repeal, therefore, continuing the law in force without
interruption. (Crawford-Statutory Construction, Sec. 322).
Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider concept of
taxation and is different from the provisions of Section 2444(m-2) that the former cannot be considered as a
substantial re-enactment of the provisions of the latter. We have quoted above the provisions of section 2444(m2) of the Revised Administrative Code and We shall now copy hereunder the provisions of Section 18, subdivision
(o) of Republic Act No. 409, which reads as follows:
(o) To tax and fix the license fee on dealers in general merchandise, including importers and indentors,
except those dealers who may be expressly subject to the payment of some other municipal tax under
the provisions of this section.

Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail dealers. For
purposes of the tax on retail dealers, general merchandise shall be classified into four main classes:
namely (1) luxury articles, (2) semi-luxury articles, (3) essential commodities, and (4) miscellaneous
articles. A separate license shall be prescribed for each class but where commodities of different classes
are sold in the same establishment, it shall not be compulsory for the owner to secure more than one
license if he pays the higher or highest rate of tax prescribed by ordinance. Wholesale dealers shall pay
the license tax as such, as may be provided by ordinance.
For purposes of this section, the term "General merchandise" shall include poultry and livestock,
agricultural products, fish and other allied products.
The only essential difference that We find between these two provisions that may have any bearing on the case
at bar, is that, while subsection (m-2) prescribes that the combined total tax of any dealer or manufacturer, or
both, enumerated under subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned
therein, shall not be in excess of P500 per annum, the corresponding section 18, subsection (o) of Republic Act
No. 409, does not contain any limitation as to the amount of tax or license fee that the retail dealer has to pay
per annum. Hence, and in accordance with the weight of the authorities above referred to that maintain that "all
rights and liabilities which have accrued under the original statute are preserved and may be enforced, since the
reenactment neutralizes the repeal, therefore continuing the law in force without interruption", We hold that the
questioned ordinances of the City of Manila are still in force and effect.
Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by the President of
the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which reads as follows:
(ii) To tax, license and regulate any business, trade or occupation being conducted within the City of
Manila,not otherwise enumerated in the preceding subsections, including percentage taxes based on
gross sales or receipts, subject to the approval of the PRESIDENT, except amusement taxes.
but this requirement of the President's approval was not contained in section 2444 of the former Charter of the
City of Manila under which Ordinance No. 2529 was promulgated. Anyway, as stated by appellee's counsel, the
business of "retail dealers in general merchandise" is expressly enumerated in subsection (o), section 18 of
Republic Act No. 409; hence, an ordinance prescribing a municipal tax on said business does not have to be
approved by the President to be effective, as it is not among those referred to in said subsection (ii). Moreover,
the questioned ordinances are still in force, having been promulgated by the Municipal Board of the City of Manila
under the authority granted to it by law.
The question that now remains to be determined is whether said ordinances are inapplicable, invalid or
unconstitutional if applied to the alleged business of distribution and sale of bibles to the people of the
Philippines by a religious corporation like the American Bible Society, plaintiff herein.
With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028, appellant contends
that it is unconstitutional and illegal because it restrains the free exercise and enjoyment of the religious
profession and worship of appellant.
Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the freedom of
religious profession and worship. "Religion has been spoken of as a profession of faith to an active power that
binds and elevates man to its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has reference to one's views of his
relations to His Creator and to the obligations they impose of reverence to His being and character, and
obedience to His Will (Davis vs. Beason, 133 U.S., 342). The constitutional guaranty of the free exercise and
enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any
restraints of such right can only be justified like other restraints of freedom of expression on the grounds that
there is a clear and present danger of any substantive evil which the State has the right to prevent". (Taada and
Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license fee herein
involved is imposed upon appellant for its distribution and sale of bibles and other religious literature:
In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a license be obtained
before a person could canvass or solicit orders for goods, paintings, pictures, wares or merchandise
cannot be made to apply to members of Jehovah's Witnesses who went about from door to door
distributing literature and soliciting people to "purchase" certain religious books and pamphlets, all
published by the Watch Tower Bible & Tract Society. The "price" of the books was twenty-five cents each,
the "price" of the pamphlets five cents each. It was shown that in making the solicitations there was a
request for additional "contribution" of twenty-five cents each for the books and five cents each for the

pamphlets. Lesser sum were accepted, however, and books were even donated in case interested persons
were without funds.
On the above facts the Supreme Court held that it could not be said that petitioners were engaged in
commercial rather than a religious venture. Their activities could not be described as embraced in the
occupation of selling books and pamphlets. Then the Court continued:
"We do not mean to say that religious groups and the press are free from all financial burdens of
government. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed. 660, 668, 56 S. Ct. 444.
We have here something quite different, for example, from a tax on the income of one who engages in
religious activities or a tax on property used or employed in connection with activities. It is one thing to
impose a tax on the income or property of a preacher. It is quite another to exact a tax from him for the
privilege of delivering a sermon. The tax imposed by the City of Jeannette is a flat license tax, payment of
which is a condition of the exercise of these constitutional privileges. The power to tax the exercise of a
privilege is the power to control or suppress its enjoyment. . . . Those who can tax the exercise of this
religious practice can make its exercise so costly as to deprive it of the resources necessary for its
maintenance. Those who can tax the privilege of engaging in this form of missionary evangelism can
close all its doors to all those who do not have a full purse. Spreading religious beliefs in this ancient and
honorable manner would thus be denied the needy. . . .
It is contended however that the fact that the license tax can suppress or control this activity is
unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license tax a flat
tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The power to impose a license
tax on the exercise of these freedom is indeed as potent as the power of censorship which this Court has
repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure to defray the
expenses of policing the activities in question. It is in no way apportioned. It is flat license tax levied and
collected as a condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional
liberties of press and religion and inevitably tends to suppress their exercise. That is almost uniformly
recognized as the inherent vice and evil of this flat license tax."
Nor could dissemination of religious information be conditioned upon the approval of an official or
manager even if the town were owned by a corporation as held in the case of Marsh vs. State of
Alabama (326 U.S. 501), or by the United States itself as held in the case of Tucker vs. Texas (326 U.S.
517). In the former case the Supreme Court expressed the opinion that the right to enjoy freedom of the
press and religion occupies a preferred position as against the constitutional right of property owners.
"When we balance the constitutional rights of owners of property against those of the people to enjoy
freedom of press and religion, as we must here, we remain mindful of the fact that the latter occupy a
preferred position. . . . In our view the circumstance that the property rights to the premises where the
deprivation of property here involved, took place, were held by others than the public, is not sufficient to
justify the State's permitting a corporation to govern a community of citizens so as to restrict their
fundamental liberties and the enforcement of such restraint by the application of a State statute." (Taada
and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 304-306).
Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, provides:
SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. The following organizations shall not be taxed
under this Title in respect to income received by them as such
(e) Corporations or associations organized and operated exclusively for religious, charitable, . . . or
educational purposes, . . .: Provided, however, That the income of whatever kind and character from any
of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition
made of such income, shall be liable to the tax imposed under this Code;
Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this tax and
says that such exemption clearly indicates that the act of distributing and selling bibles, etc. is purely religious
and does not fall under the above legal provisions.
It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in some
instances a little bit higher than the actual cost of the same but this cannot mean that appellant was engaged in
the business or occupation of selling said "merchandise" for profit. For this reason We believe that the provisions
of City of Manila Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would impair

its free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of
religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit before any
person can engage in any of the businesses, trades or occupations enumerated therein, We do not find that it
imposes any charge upon the enjoyment of a right granted by the Constitution, nor tax the exercise of religious
practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427, this point was elucidated as follows:
An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or otherwise,
circulars, handbooks, advertising, or literature of any kind, whether said articles are being delivered free,
or whether same are being sold within the city limits of the City of Griffin, without first obtaining written
permission from the city manager of the City of Griffin, shall be deemed a nuisance and punishable as an
offense against the City of Griffin, does not deprive defendant of his constitutional right of the free
exercise and enjoyment of religious profession and worship, even though it prohibits him from introducing
and carrying out a scheme or purpose which he sees fit to claim as a part of his religious system.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if applied to
plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not applicable to plaintiffappellant and defendant-appellee is powerless to license or tax the business of plaintiff Society involved herein
for, as stated before, it would impair plaintiff's right to the free exercise and enjoyment of its religious profession
and worship, as well as its rights of dissemination of religious beliefs, We find that Ordinance No. 3000, as
amended is also inapplicable to said business, trade or occupation of the plaintiff.
Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision appealed from,
sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from it. Without pronouncement as
to costs. It is so ordered.

G.R. No. 115455 October 30, 1995

ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their AUTHORIZED AGENTS
OR REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF
INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his
capacity as Secretary of Finance, respondents.

G.R. No. 115754 October 30, 1995

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR.,
JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L.
GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL,
MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"),
FREEDOM FROM DEBT COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
TAADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL
REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON. TEOFISTO
T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his
capacity as Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF PHILIPPINE BOOK
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity as the
Commissioner of Customs, respondents.
RESOLUTION

MENDOZA, J.:
These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the
declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The
motions, of which there are 10 in all, have been filed by the several petitioners in these cases, with the exception
of the Philippine Educational Publishers Association, Inc. and the Association of Philippine Booksellers, petitioners
in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to which the Philippine
Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc., petitioner in G.R. No. 115544,

and Juan T. David, petitioner in G.R. No. 115525, each filed a reply. In turn the Solicitor General filed on June 1,
1995 a rejoinder to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino, Kilosbayan,
Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders Association (CREBA)) reiterate
previous claims made by them that R.A. No. 7716 did not "originate exclusively" in the House of Representatives
as required by Art. VI, 24 of the Constitution. Although they admit that H. No. 11197 was filed in the House of
Representatives where it passed three readings and that afterward it was sent to the Senate where after first
reading it was referred to the Senate Ways and Means Committee, they complain that the Senate did not pass it
on second and third readings. Instead what the Senate did was to pass its own version (S. No. 1630) which it
approved on May 24, 1994. Petitioner Tolentino adds that what the Senate committee should have done was to
amend H. No. 11197 by striking out the text of the bill and substituting it with the text of S. No. 1630. That way, it
is said, "the bill remains a House bill and the Senate version just becomes the text (only the text) of the House
bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a House
revenue bill by enacting its own version of a revenue bill. On at least two occasions during the Eighth Congress,
the Senate passed its own version of revenue bills, which, in consolidation with House bills earlier passed,
became the enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM FIVE (5)
YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT)
which was approved by the President on April 10, 1992. This Act is actually a consolidation of H. No. 34254, which
was approved by the House on January 29, 1992, and S. No. 1920, which was approved by the Senate on
February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY FILIPINO ATHLETE
WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President on May 22, 1992. This Act is a
consolidation of H. No. 22232, which was approved by the House of Representatives on August 2, 1989, and S.
No. 807, which was approved by the Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws which were also the result of the consolidation of
House and Senate bills. These are the following, with indications of the dates on which the laws were approved by
the President and dates the separate bills of the two chambers of Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE THE
PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE PAYMENT OF
THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN
VAT REVENUE, AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992

Senate Bill No. 968, December 7, 1992

3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE PLACE FOR
PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24,
1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS,
INSTRUMENTALITIES OR AGENCIES INCLUDING GOVERNMENT-OWNED OR CONTROLLED
CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE
OF THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF GOODS AND SIX PERCENT
(6%) ON GROSS RECEIPTS FOR SERVICES RENDERED BY CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO DECLARE
DIVIDENDS UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER
PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE DOCUMENTARY
STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER
PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND
TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY
INSERTING A NEW SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993

Senate Bill No. 1127, March 23, 1994

Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to
propose amendments to bills required to originate in the House, passed its own version of a House revenue
measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners Tolentino and Roco, as members
of the Senate, voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a mere
matter of form. Petitioner has not shown what substantial difference it would make if, as the Senate actually did
in this case, a separate bill like S. No. 1630 is instead enacted as a substitute measure, "taking into
Consideration . . .H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one amendment to the original amendment shall be considered.
No amendment by substitution shall be entertained unless the text thereof is submitted in writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
69. No amendment which seeks the inclusion of a legislative provision foreign to the subject
matter of a bill (rider) shall be entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be amended by substituting it with another which covers a
subject distinct from that proposed in the original bill or resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate possesses
less power than the U.S. Senate because of textual differences between constitutional provisions giving them the
power to propose or concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may
propose or concur with amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the phrase "as on
other Bills" in the American version, according to petitioners, shows the intention of the framers of our
Constitution to restrict the Senate's power to propose amendments to revenue bills. Petitioner Tolentino contends
that the word "exclusively" was inserted to modify "originate" and "the words 'as in any other bills' (sic) were
eliminated so as to show that these bills were not to be like other bills but must be treated as a special kind."

The history of this provision does not support this contention. The supposed indicia of constitutional intent are
nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be recalled that the 1935
Constitution originally provided for a unicameral National Assembly. When it was decided in 1939 to change to a
bicameral legislature, it became necessary to provide for the procedure for lawmaking by the Senate and the
House of Representatives. The work of proposing amendments to the Constitution was done by the National
Assembly, acting as a constituent assembly, some of whose members, jealous of preserving the Assembly's
lawmaking powers, sought to curtail the powers of the proposed Senate. Accordingly they proposed the following
provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills
shall originate exclusively in the Assembly, but the Senate may propose or concur with
amendments. In case of disapproval by the Senate of any such bills, the Assembly may repass the
same by a two-thirds vote of all its members, and thereupon, the bill so repassed shall be deemed
enacted and may be submitted to the President for corresponding action. In the event that the
Senate should fail to finally act on any such bills, the Assembly may, after thirty days from the
opening of the next regular session of the same legislative term, reapprove the same with a vote
of two-thirds of all the members of the Assembly. And upon such reapproval, the bill shall be
deemed enacted and may be submitted to the President for corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It deleted
everything after the first sentence. As rewritten, the proposal was approved by the National Assembly and
embodied in Resolution No. 38, as amended by Resolution No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66
(1950)). The proposed amendment was submitted to the people and ratified by them in the elections held on
June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present Constitution
was derived. It explains why the word "exclusively" was added to the American text from which the framers of
the Philippine Constitution borrowed and why the phrase "as on other Bills" was not copied. Considering the
defeat of the proposal, the power of the Senate to propose amendments must be understood to be full, plenary
and complete "as on other Bills." Thus, because revenue bills are required to originate exclusively in the House of
Representatives, the Senate cannot enact revenue measures of its own without such bills. After a revenue bill is
passed and sent over to it by the House, however, the Senate certainly can pass its own version on the same
subject matter. This follows from the coequality of the two chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power to concur is clear from the
following commentaries:
The power of the Senate to propose or concur with amendments is apparently without restriction.
It would seem that by virtue of this power, the Senate can practically re-write a bill required to
come from the House and leave only a trace of the original bill. For example, a general revenue
bill passed by the lower house of the United States Congress contained provisions for the
imposition of an inheritance tax . This was changed by the Senate into a corporation tax. The
amending authority of the Senate was declared by the United States Supreme Court to be
sufficiently broad to enable it to make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107,
55 L. ed. 389].
(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by the House of Representatives because
it is more numerous in membership and therefore also more representative of the people.
Moreover, its members are presumed to be more familiar with the needs of the country in regard
to the enactment of the legislation involved.
The Senate is, however, allowed much leeway in the exercise of its power to propose or concur
with amendments to the bills initiated by the House of Representatives. Thus, in one case, a bill
introduced in the U.S. House of Representatives was changed by the Senate to make a proposed

inheritance tax a corporation tax. It is also accepted practice for the Senate to introduce what is
known as an amendment by substitution, which may entirely replace the bill initiated in the House
of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills must "originate exclusively in the House of
Representatives," it also adds, "but the Senate may propose or concur with amendments." In the exercise of this
power, the Senate may propose an entirely new bill as a substitute measure. As petitioner Tolentino states in a
high school text, a committee to which a bill is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding sections
or altering its language; (3) to make and endorse an entirely new bill as a substitute, in which case
it will be known as a committee bill; or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required to originate in the House by prescribing
that the number of the House bill and its other parts up to the enacting clause must be preserved although the
text of the Senate amendment may be incorporated in place of the original body of the bill is to insist on a mere
technicality. At any rate there is no rule prescribing this form. S. No. 1630, as a substitute measure, is therefore
as much an amendment of H. No. 11197 as any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S. No. 1630 is
an independent and distinct bill. Hence their repeated references to its certification that it was passed by the
Senate "in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197," implying
that there is something substantially different between the reference to S. No. 1129 and the reference to H. No.
11197. From this premise, they conclude that R.A. No. 7716 originated both in the House and in the Senate and
that it is the product of two "half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both
houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere amendments of the
corresponding provisions of H. No. 11197. The very tabular comparison of the provisions of H. No. 11197 and S.
No. 1630 attached as Supplement A to the basic petition of petitioner Tolentino, while showing differences
between the two bills, at the same time indicates that the provisions of the Senate bill were precisely intended to
be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a mere
amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate on second and
three readings. It was enough that after it was passed on first reading it was referred to the Senate Committee on
Ways and Means. Neither was it required that S. No. 1630 be passed by the House of Representatives before the
two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the House bill
and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits), were referred to a
conference committee, the question was raised whether the two bills could be the subject of such conference,
considering that the bill from one house had not been passed by the other and vice versa. As Congressman
Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is passed by
the House but not passed by the Senate, and a Senate bill of a similar nature is passed in the
Senate but never passed in the House, can the two bills be the subject of a conference, and can a
law be enacted from these two bills? I understand that the Senate bill in this particular instance
does not refer to investments in government securities, whereas the bill in the House, which was
introduced by the Speaker, covers two subject matters: not only investigation of deposits in banks

but also investigation of investments in government securities. Now, since the two bills differ in
their subject matter, I believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely in cases like this
where a conference should be had. If the House bill had been approved by the Senate, there would
have been no need of a conference; but precisely because the Senate passed another bill on the
same subject matter, the conference committee had to be created, and we are now considering
the report of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct and
unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that because the
President separately certified to the need for the immediate enactment of these measures, his certification was
ineffectual and void. The certification had to be made of the version of the same revenue bill which at the
moment was being considered. Otherwise, to follow petitioners' theory, it would be necessary for the President to
certify as many bills as are presented in a house of Congress even though the bills are merely versions of the bill
he has already certified. It is enough that he certifies the bill which, at the time he makes the certification, is
under consideration. Since on March 22, 1994 the Senate was considering S. No. 1630, it was that bill which had
to be certified. For that matter on June 1, 1993 the President had earlier certified H. No. 9210 for immediate
enactment because it was the one which at that time was being considered by the House. This bill was later
substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the main decision that the
phrase "except when the President certifies to the necessity of its immediate enactment, etc." in Art. VI, 26 (2)
qualifies not only the requirement that "printed copies [of a bill] in its final form [must be] distributed to the
members three days before its passage" but also the requirement that before a bill can become a law it must
have passed "three readings on separate days." There is not only textual support for such construction but
historical basis as well.
Art. VI, 21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been printed and copies thereof in
its final form furnished its Members at least three calendar days prior to its passage, except when
the President shall have certified to the necessity of its immediate enactment. Upon the last
reading of a bill, no amendment thereof shall be allowed and the question upon its passage shall
be taken immediately thereafter, and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):
(2) No bill shall become a law unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to the Members three days before its
passage, except when the Prime Minister certifies to the necessity of its immediate enactment to
meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall
be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of the present
Constitution, thus:
(2) No bill passed by either House shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been distributed to its Members
three days before its passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no

amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter,
and the yeas and nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings on separate days are
required and a bill has to be printed in final form before it can be passed, the need for a law may be rendered
academic by the occurrence of the very emergency or public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country like the
Philippines where budget deficit is a chronic condition. Even if this were the case, an enormous budget deficit
does not make the need for R.A. No. 7716 any less urgent or the situation calling for its enactment any less an
emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases) believed that there was
an urgent need for consideration of S. No. 1630, because they responded to the call of the President by voting on
the bill on second and third readings on the same day. While the judicial department is not bound by the Senate's
acceptance of the President's certification, the respect due coequal departments of the government in matters
committed to them by the Constitution and the absence of a clear showing of grave abuse of discretion caution a
stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it was
discussed for six days. Only its distribution in advance in its final printed form was actually dispensed with by
holding the voting on second and third readings on the same day (March 24, 1994). Otherwise, sufficient time
between the submission of the bill on February 8, 1994 on second reading and its approval on March 24, 1994
elapsed before it was finally voted on by the Senate on third reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform the
members of Congress of what they must vote on and (2) to give them notice that a measure is progressing
through the enacting process, thus enabling them and others interested in the measure to prepare their positions
with reference to it. (1 J. G. SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION 10.04, p. 282 (1972)).
These purposes were substantially achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the Movement of
Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of the constitutional policy of
full public disclosure and the people's right to know (Art. II, 28 and Art. III, 7) the Conference Committee met for
two days in executive session with only the conferees present.
As pointed out in our main decision, even in the United States it was customary to hold such sessions with only
the conferees and their staffs in attendance and it was only in 1975 when a new rule was adopted requiring open
sessions. Unlike its American counterpart, the Philippine Congress has not adopted a rule prescribing open
hearings for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least staff
members were present. These were staff members of the Senators and Congressmen, however, who may be
presumed to be their confidential men, not stenographers as in this case who on the last two days of the
conference were excluded. There is no showing that the conferees themselves did not take notes of their
proceedings so as to give petitioner Kilosbayan basis for claiming that even in secret diplomatic negotiations
involving state interests, conferees keep notes of their meetings. Above all, the public's right to know was fully
served because the Conference Committee in this case submitted a report showing the changes made on the
differing versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that conference committee reports must contain "a
detailed, sufficiently explicit statement of the changes in or other amendments." These changes are shown in the
bill attached to the Conference Committee Report. The members of both houses could thus ascertain what
changes had been made in the original bills without the need of a statement detailing the changes.

The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform Act of
1955) was reported by the Conference Committee. Congressman Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the report of the conference
committee regarding House Bill No. 2557 by reason of the provision of Section 11, Article XII, of
the Rules of this House which provides specifically that the conference report must be
accompanied by a detailed statement of the effects of the amendment on the bill of the House.
This conference committee report is not accompanied by that detailed statement, Mr. Speaker.
Therefore it is out of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with the point of
order raised by the gentleman from Pangasinan.
There is no question about the provision of the Rule cited by the gentleman from Pangasinan,
but this provision applies to those cases where only portions of the bill have been amended. In
this case before us an entire bill is presented; therefore, it can be easily seen from the reading of
the bill what the provisions are. Besides, this procedure has been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the provisions of
the Rules, and the reason for the requirement in the provision cited by the gentleman from
Pangasinan is when there are only certain words or phrases inserted in or deleted from the
provisions of the bill included in the conference report, and we cannot understand what those
words and phrases mean and their relation to the bill. In that case, it is necessary to make a
detailed statement on how those words and phrases will affect the bill as a whole; but when the
entire bill itself is copied verbatim in the conference report, that is not necessary. So when the
reason for the Rule does not exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the ruling was appealed, it was
upheld by viva voce and when a division of the House was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new provisions as long as these are
germane to the subject of the conference. As this Court held in Philippine Judges Association v. Prado, 227 SCRA
703 (1993), in an opinion written by then Justice Cruz, the jurisdiction of the conference committee is not limited
to resolving differences between the Senate and the House. It may propose an entirely new provision. What is
important is that its report is subsequently approved by the respective houses of Congress. This Court ruled that
it would not entertain allegations that, because new provisions had been added by the conference committee,
there was thereby a violation of the constitutional injunction that "upon the last reading of a bill, no amendment
thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners' charges that an
amendment was made upon the last reading of the bill that eventually became R.A. No. 7354 and
that copies thereof in its final form were not distributed among the members of each House. Both
the enrolled bill and the legislative journals certify that the measure was duly enacted i.e., in
accordance with Article VI, Sec. 26 (2) of the Constitution. We are bound by such official
assurances from a coordinate department of the government, to which we owe, at the very least,
a becoming courtesy.
(Id. at 710. (emphasis added))

It is interesting to note the following description of conference committees in the Philippines in a 1979 study:
Conference committees may be of two types: free or instructed. These committees may be given
instructions by their parent bodies or they may be left without instructions. Normally the
conference committees are without instructions, and this is why they are often critically referred to
as "the little legislatures." Once bills have been sent to them, the conferees have almost unlimited
authority to change the clauses of the bills and in fact sometimes introduce new measures that
were not in the original legislation. No minutes are kept, and members' activities on conference
committees are difficult to determine. One congressman known for his idealism put it this way: "I
killed a bill on export incentives for my interest group [copra] in the conference committee but I
could not have done so anywhere else." The conference committee submits a report to both
houses, and usually it is accepted. If the report is not accepted, then the committee is discharged
and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A
COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We cite it only to say that
conference committees here are no different from their counterparts in the United States whose vast powers we
noted in Philippine Judges Association v. Prado, supra. At all events, under Art. VI, 16(3) each house has the
power "to determine the rules of its proceedings," including those of its committees. Any meaningful change in
the method and procedures of Congress or its committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, 26 (1) of the
Constitution which provides that "Every bill passed by Congress shall embrace only one subject which shall be
expressed in the title thereof." PAL contends that the amendment of its franchise by the withdrawal of its
exemption from the VAT is not expressed in the title of the law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all other taxes,
duties, royalties, registration, license and other fees and charges of any kind, nature, or description, imposed,
levied, established, assessed or collected by any municipal, city, provincial or national authority or government
agency, now or in the future."
PAL was exempted from the payment of the VAT along with other entities by 103 of the National Internal
Revenue Code, which provides as follows:
103. Exempt transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements to which the
Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending 103, as follows:
103. Exempt transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under Presidential
Decree Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:

AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR
OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING ITS
TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES,"
Congress thereby clearly expresses its intention to amend any provision of the NIRC which stands in the way of
accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to
P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional requirement, since it is
already stated in the title that the law seeks to amend the pertinent provisions of the NIRC, among which is
103(q), in order to widen the base of the VAT. Actually, it is the bill which becomes a law that is required to
express in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically referred
to 103 of the NIRC as among the provisions sought to be amended. We are satisfied that sufficient notice had
been given of the pendency of these bills in Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was rejected. R.A.
No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS POWERS,
FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES
CONNECTED THEREWITH. It contained a provision repealing all franking privileges. It was contended that the
withdrawal of franking privileges was not expressed in the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including the repeal of franking privileges, this Court held:
To require every end and means necessary for the accomplishment of the general objectives of
the statute to be expressed in its title would not only be unreasonable but would actually render
legislation impossible. [Cooley, Constitutional Limitations, 8th Ed., p. 297] As has been correctly
explained:
The details of a legislative act need not be specifically stated in its title, but matter
germane to the subject as expressed in the title, and adopted to the
accomplishment of the object in view, may properly be included in the act. Thus, it
is proper to create in the same act the machinery by which the act is to be
enforced, to prescribe the penalties for its infraction, and to remove obstacles in
the way of its execution. If such matters are properly connected with the subject as
expressed in the title, it is unnecessary that they should also have special mention
in the title. (Southern Pac. Co. v. Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is not
exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits are
laws which single out the press or target a group belonging to the press for special treatment or which in any way
discriminate against the press on the basis of the content of the publication, and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those
granted to others, the law discriminates against the press. At any rate, it is averred, "even nondiscriminatory
taxation of constitutionally guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the
law could take back the privilege anytime without offense to the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the exercise of its sovereign prerogative.

Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other
businesses have long ago been subject. It is thus different from the tax involved in the cases invoked by the PPI.
The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be
discriminatory because it was laid on the gross advertising receipts only of newspapers whose weekly circulation
was over 20,000, with the result that the tax applied only to 13 out of 124 publishers in Louisiana. These large
papers were critical of Senator Huey Long who controlled the state legislature which enacted the license tax. The
censorial motivation for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L. Ed. 2d
295 (1983), the tax was found to be discriminatory because although it could have been made liable for the sales
tax or, in lieu thereof, for the use tax on the privilege of using, storing or consuming tangible goods, the press
was not. Instead, the press was exempted from both taxes. It was, however, later made to pay a special use tax
on the cost of paper and ink which made these items "the only items subject to the use tax that were component
of goods to be sold at retail." The U.S. Supreme Court held that the differential treatment of the press "suggests
that the goal of regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is constitutionally suspect. (See
the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely and
unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously granted to PAL,
petroleum concessionaires, enterprises registered with the Export Processing Zone Authority, and many more are
likewise totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort to broaden the
base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions, which are
profit oriented, continue to enjoy exemption under R.A. No. 7716. An enumeration of some of these transactions
will suffice to show that by and large this is not so and that the exemptions are granted for a purpose. As the
Solicitor General says, such exemptions are granted, in some cases, to encourage agricultural production and, in
other cases, for the personal benefit of the end-user rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural, marine and forest
products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn
livestock and poultry feeds) and goods or services to enhance agriculture (milling of palay, corn,
sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for the manufacture
of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens
returning to the Philippines) or for professional use, like professional instruments and implements,
by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of
petroleum products subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered
under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)

The PPI asserts that it does not really matter that the law does not discriminate against the press because "even
nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional." PPI cites in support of this
assertion the following statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the
First Amendment is not so restricted. A license tax certainly does not acquire constitutional
validity because it classifies the privileges protected by the First Amendment along with the wares
and merchandise of hucksters and peddlers and treats them all alike. Such equality in treatment
does not save the ordinance. Freedom of press, freedom of speech, freedom of religion are in
preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence,
although its application to others, such those selling goods, is valid, its application to the press or to religious
groups, such as the Jehovah's Witnesses, in connection with the latter's sale of religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of a
preacher. It is quite another thing to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring a business license fee on those engaged in the sale of general
merchandise. It was held that the tax could not be imposed on the sale of bibles by the American Bible Society
without restraining the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment
is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general
regulation is not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the
sales are used to subsidize the cost of printing copies which are given free to those who cannot afford to pay so
that to tax the sales would be to increase the price, while reducing the volume of sale. Granting that to be the
case, the resulting burden on the exercise of religious freedom is so incidental as to make it difficult to
differentiate it from any other economic imposition that might make the right to disseminate religious doctrines
costly. Otherwise, to follow the petitioner's argument, to increase the tax on the sale of vestments would be to lay
an impermissible burden on the right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by 7 of R.A. No.
7716, although fixed in amount, is really just to pay for the expenses of registration and enforcement of
provisions such as those relating to accounting in 108 of the NIRC. That the PBS distributes free bibles and
therefore is not liable to pay the VAT does not excuse it from the payment of this fee because it also sells some
copies. At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the event it is
assessed this tax by the Commissioner of Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on taxation. CREBA
asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or
exempt without reasonable basis and (3) violates the rule that taxes should be uniform and equitable and that
Congress shall "evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of
real property by installment or on deferred payment basis would result in substantial increases in the monthly
amortizations to be paid because of the 10% VAT. The additional amount, it is pointed out, is something that the
buyer did not anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous sources are
cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old

one, interferes with a contract or impairs its obligation, within the meaning of the Constitution. Even though such
taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of
another, or may impose additional burdens upon one class and release the burdens of another, still the tax must
be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing
contract in its true legal sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)).
Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22 SCRA 135,
147 (1968)) Contracts must be understood as having been made in reference to the possible exercise of the
rightful authority of the government and no obligation of contract can extend to the defeat of that authority.
(Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of agricultural
products, food items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real
property which is equally essential. The sale of real property for socialized and low-cost housing is exempted from
the tax, but CREBA claims that real estate transactions of "the less poor," i.e., the middle class, who are equally
homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services
was already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is
in error in claiming that R.A. No. 7716 granted exemption to these transactions, while subjecting those of
petitioner to the payment of the VAT. Moreover, there is a difference between the "homeless poor" and the
"homeless less poor" in the example given by petitioner, because the second group or middle class can afford to
rent houses in the meantime that they cannot yet buy their own homes. The two social classes are thus
differently situated in life. "It is inherent in the power to tax that the State be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153
(1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1) which
provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed
at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes
of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons,
forms and corporations placed in similar situation. (City of Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716
merely expands the base of the tax. The validity of the original VAT Law was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds similar to those made in
these cases, namely, that the law was "oppressive, discriminatory, unjust and regressive in violation of Art. VI,
28(1) of the Constitution." (At 382) Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public,
which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by
persons engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small
corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, so that the costs of basic food and other necessities,
spared as they are from the incidence of the VAT, are expected to be relatively lower and within
the reach of the general public.

(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the Philippines,
Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the mandate of Congress to provide for
a progressive system of taxation because the law imposes a flat rate of 10% and thus places the tax burden on
all taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What
it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision
has been interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as possible, indirect
taxes should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)).
Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales
taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of
Art. VIII, 17(1) of the 1973 Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are also
regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No.
7716, 3, amending 102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4,
amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted from the VAT:
(a) Goods for consumption or use which are in their original state (agricultural, marine and forest
products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn
livestock and poultry feeds) and goods or services to enhance agriculture (milling of palay, corn
sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for the manufacture
of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens
returning to the Philippines) and or professional use, like professional instruments and
implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of
petroleum products subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered
under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those which involve goods and services
which are used or availed of mainly by higher income groups. These include real properties held primarily for sale
to customers or for lease in the ordinary course of trade or business, the right or privilege to use patent,
copyright, and other similar property or right, the right or privilege to use industrial, commercial or scientific
equipment, motion picture films, tapes and discs, radio, television, satellite transmission and cable television

time, hotels, restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent, tourist
buses, and other common carriers, services of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations by tendering issues
not at retail but at wholesale and in the abstract. There is no fully developed record which can impart to
adjudication the impact of actuality. There is no factual foundation to show in the concrete the application of the
law to actual contracts and exemplify its effect on property rights. For the fact is that petitioner's members have
not even been assessed the VAT. Petitioner's case is not made concrete by a series of hypothetical questions
asked which are no different from those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation,
as here, does not suffice. There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as void on its face, he has not
made out a case. This is merely to adhere to the authoritative doctrine that where the due process
and equal protection clauses are invoked, considering that they are not fixed rules but rather
broad standards, there is a need for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may be that postponement
of adjudication would result in a multiplicity of suits. This need not be the case, however. Enforcement of the law
may give rise to such a case. A test case, provided it is an actual case and not an abstract or hypothetical one,
may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues. Otherwise,
adjudication would be no different from the giving of advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality
of the government." This duty can only arise if an actual case or controversy is before us. Under Art . VIII, 5 our
jurisdiction is defined in terms of "cases" and all that Art. VIII, 1, 2 can plausibly mean is that in the exercise of
that jurisdiction we have the judicial power to determine questions of grave abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a court to hear
and decide cases pending between parties who have the right to sue and be sued in the courts of law and equity"
(Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from legislative and executive power. This power
cannot be directly appropriated until it is apportioned among several courts either by the Constitution, as in the
case of Art. VIII, 5, or by statute, as in the case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary
Reorganization Act of 1980 (B.P. Blg. 129). The power thus apportioned constitutes the court's "jurisdiction,"
defined as "the power conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all
others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its jurisdiction, this Court
cannot inquire into any allegation of grave abuse of discretion by the other departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of the Philippines
(CUP), after briefly surveying the course of legislation, argues that it was to adopt a definite policy of granting tax
exemption to cooperatives that the present Constitution embodies provisions on cooperatives. To subject
cooperatives to the VAT would therefore be to infringe a constitutional policy. Petitioner claims that in 1973, P.D.
No. 175 was promulgated exempting cooperatives from the payment of income taxes and sales taxes but in
1984, because of the crisis which menaced the national economy, this exemption was withdrawn by P.D. No.
1955; that in 1986, P.D. No. 2008 again granted cooperatives exemption from income and sales taxes until
December 31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally in 1987 the
framers of the Constitution "repudiated the previous actions of the government adverse to the interests of the
cooperatives, that is, the repeated revocation of the tax exemption to cooperatives and instead upheld the policy
of strengthening the cooperatives by way of the grant of tax exemptions," by providing the following in Art. XII:

1. The goals of the national economy are a more equitable distribution of opportunities, income,
and wealth; a sustained increase in the amount of goods and services produced by the nation for
the benefit of the people; and an expanding productivity as the key to raising the quality of life for
all, especially the underprivileged.
The State shall promote industrialization and full employment based on sound agricultural
development and agrarian reform, through industries that make full and efficient use of human
and natural resources, and which are competitive in both domestic and foreign markets. However,
the State shall protect Filipino enterprises against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be
given optimum opportunity to develop. Private enterprises, including corporations, cooperatives,
and similar collective organizations, shall be encouraged to broaden the base of their ownership.
15. The Congress shall create an agency to promote the viability and growth of cooperatives as
instruments for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out cooperatives by
withdrawing their exemption from income and sales taxes under P.D. No. 175, 5. What P.D. No. 1955, 1 did was
to withdraw the exemptions and preferential treatments theretofore granted to private business enterprises in
general, in view of the economic crisis which then beset the nation. It is true that after P.D. No. 2008, 2 had
restored the tax exemptions of cooperatives in 1986, the exemption was again repealed by E.O. No. 93, 1, but
then again cooperatives were not the only ones whose exemptions were withdrawn. The withdrawal of tax
incentives applied to all, including government and private entities. In the second place, the Constitution does
not really require that cooperatives be granted tax exemptions in order to promote their growth and viability.
Hence, there is no basis for petitioner's assertion that the government's policy toward cooperatives had been one
of vacillation, as far as the grant of tax privileges was concerned, and that it was to put an end to this indecision
that the constitutional provisions cited were adopted. Perhaps as a matter of policy cooperatives should be
granted tax exemptions, but that is left to the discretion of Congress. If Congress does not grant exemption and
there is no discrimination to cooperatives, no violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from taxation.
Such theory is contrary to the Constitution under which only the following are exempt from taxation: charitable
institutions, churches and parsonages, by reason of Art. VI, 28 (3), and non-stock, non-profit educational
institutions by reason of Art. XIV, 4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the equal
protection of the law because electric cooperatives are exempted from the VAT. The classification between
electric and other cooperatives (farmers cooperatives, producers cooperatives, marketing cooperatives, etc.)
apparently rests on a congressional determination that there is greater need to provide cheaper electric power to
as many people as possible, especially those living in the rural areas, than there is to provide them with other
necessities in life. We cannot say that such classification is unreasonable.
We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We have
in fact taken the extraordinary step of enjoining its enforcement pending resolution of these cases. We have now
come to the conclusion that the law suffers from none of the infirmities attributed to it by petitioners and that its
enactment by the other branches of the government does not constitute a grave abuse of discretion. Any
question as to its necessity, desirability or expediency must be addressed to Congress as the body which is
electorally responsible, remembering that, as Justice Holmes has said, "legislators are the ultimate guardians of
the liberties and welfare of the people in quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry.
Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No. 115543 does in
arguing that we should enforce the public accountability of legislators, that those who took part in passing the
law in question by voting for it in Congress should later thrust to the courts the burden of reviewing measures in
the flush of enactment. This Court does not sit as a third branch of the legislature, much less exercise a veto
power over legislation.

WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order
previously issued is hereby lifted.
SO ORDERED.
G.R. No. L-19371

February 28, 1966

HOSPITAL DE SAN JUAN DE DIOS, INC., plaintiff-appellant,

vs.
PASAY CITY, PABLO CUNETA, R. N. ASCAO and G. C. FUENTES, defendants-appellees.
Teodoro Padilla for the plaintiff-appellant.
R. N. Ascao and G. C. Fuentes for the defendants-appellees.
DIZON, J.:
Appeal taken by the Hospital de San Juan de Dios, Inc. from the decision of the Court of First Instance of Rizal in
Civil Case No. 1775-P dismissing its complaint against the City of Pasay - hereinafter referred to as the City Pablo Cuneta, R. N. Ascano and Ceferino Fuentes, in their capacities as Mayor, City Engineer and City Treasurer,
respectively, of said city.
It is admitted that on July 24, 1954 and May 27, 1957, appellant paid, under protest, to the City the amounts of
P829.60 and P879.90, respectively, representing electrical inspection fees allegedly due it from appellant under
Section 5, Ordinance No. 7, series of 1945, as amended by Ordinance No. 22, series of 1947 and further amended
by Ordinance No. 54, series of 1955, which reads as follows:
That the City Electrician shall inspect all electric wires, poles, and other apparatus whether electric crude
oil, charcoal or gasoline installed or used for generating, containing, conducting or measuring electricity
or telephone service, issue to the owner or user thereof a statement of the result of such inspection. . . .
However, residential houses with outlets not exceeding eight (8) in number shall be exempted from the
payment of the corresponding inspection fees. For the purpose of this ordinance, any accessoria,
irrespective of the number of doors or rooms it contains, is considered one building. Churches and such
other religious institutions and buildings housing charitable organizations, are likewise subject to annual
inspection but exempted from the payment of inspection fees.
Although appellant claimed that, as a charitable institution, it was exempt from the payment of the inspection
fees provided for in the above-quoted section, it found itself compelled to pay the amounts mentioned heretofore
by reason of the refusal of appellees Pablo Cuneta, as Mayor, and R. N. Ascao, as City Engineer, to issue a
building permit to make additional constructions applied for by appellant until after the full payment of the
electrical inspection fees assessed against it by appellee Ascao. As a result, appellant commenced the present
action in the Court of First Instance of Rizal (Civil Case No. 1775-P) to recover from appellees the abovementioned amounts it had paid as electrical inspection fees as well as the sum of P500.00 as attorney's fees and
the costs of suit.
After due trial the court rendered the appealed judgment.
The issue determinative of the present appeal is whether or not appellant is a charitable institution and, as such
exempt, under the provisions of the last sentence of Section 5 of the ordinance in question, from the payment of
the inspection fees provided for therein.
The trial court, while admitting that appellant was organized for charitable purposes, held that it "is not actually
being managed and operated as a charitable institution but one for profit" and, as such, "is not entitled to the
relief sought in the present action." This, We believe, is not correct.

It not being disputed that appellant was organized as a charitable institution, the presumption is that it is
operating as such, the burden of proof being on appellees to show that it is operating otherwise. The record does
not show that they have satisfactorily discharged this burden.1wph1.t
But the lower court, disregarding the presumption mentioned above, claims that "plaintiff failed to prove that it is
actually engaged in charitable work" and that "No evidence whatsoever was presented to show how it doles out
charity, etc." This is also erroneous. Aside from the appellant's Articles of Incorporation showing that it had no
capital stock and that no part of its net income, if any, could inure to the benefit of any private individual, there is
Exhibit D, a ruling of June 20, 1957 of the Workmen's Compensation Commissioner and the Undersecretary of
Labor to the effect that appellant is a charitable institution exempt from the scope of the Workmen's
Compensation Act; a written statement of appellant's cashier that the latter maintains two free wards of sixty
beds each; an admission by appellees to the effect that, in addition to the free wards just mentioned, appellant
also maintains six free beds in the Pediatrics Section (transcript of June 16, 1960, pp. 2-4).
It is not therefore correct to say that there is no evidence whatsoever showing how appellant doles out charity.
Moreover, the question of whether or not appellant and other institutions similarly situated and operated are
charitable institutions has been decided both here and in the United States. The American rule is summarized in
51 American Jurisprudence, p. 607, as follows:
636. Effect of Receipt of Pay from Patients.
The general rule that a charitable institution does not lose its charitable character and its consequent
exemption from taxation merely because recipients of its benefits who are able to pay are required to do
so, where funds derived in this manner are devoted to the charitable purposes of the institution, applies
to hospitals. A hospital owned and conducted by a charitable organization, devoted for the most part to
the gratuitous care of charity patients, is exempt from taxation as a building used for "purposes purely
charitable", notwithstanding it receives and cares for pay patients, where any profit thus derived is
applied to the purposes of the institution. An institution established, maintained, and operated for the
purpose of taking care of the sick, without any profit or view to profit, but at a loss, which is made up by
benevolent contributions, the benefits of which are open to the public generally, is a purely public charity
within the meaning of a statute exempting the property of institutions of purely public charity from
taxation; the fact that patients who are able to pay are charged for services rendered, according to their
ability, being of no importance upon the question of the character of the institution.
On the other hand, in Jesus Sacred Heart College vs. Collector, etc., G.R. No. L-6807, May 20, 1954, We overruled
the contention of the Collector of Internal Revenue to the effect that the fact that the appellant herein had a
profit or net income was sufficient to show that it was an institution "for profit and gain" and therefore no longer
exempt from income tax as follows:
To hold that an educational institution is subject to income tax wherever it is so administered as to
reasonably assure that it will not incur a deficit, is to nullify and defeat the aforementioned exemption.
Indeed, the effect, in general, of the interpretation advocated by appellant would be to deny the
exemption whenever there is a net income, contrary to the tenor of said Section 27 (e) which positively
exempts from taxation those corporations which, otherwise, would be subject thereto, because of the
existence of said net income.
Explaining our view that the making of profit does not destroy the tax exemption of a charitable, benevolent or
educational institution, We said:
Needless to say, every responsible organization must be so run as to at least, insure its existence, by
operating within the limits of its own resources, especially its regular income. In other words, it should
always strive, whenever possible, to have a surplus. Upon the other hand, appellant's pretense, would
limit the benefits of the exemption, under said Section 27 (e), to institutions which do not hope, or
propose, to have such surplus. Under this view, the exemption would apply only to schools which are on
the verge of bankruptcy, forunlike the United States, where a substantial number of institutions of

learning are dependent upon voluntary contributions and still enjoy economic stability, such as Harvard,
the trust fund of which has been steadily increasing with the yearsthere are, and there have always
been very few educational enterprises in the Philippines which are supported by donations, and those
organizations usually have a very precarious existence. The final result of appellant's contention, if
adopted, would be to discourage the establishment of colleges in the Philippines, which is precisely the
opposite of the objective consistently sought by our laws.
In U.S.T. Hospital Employees Association vs. Sto. Tomas University Hospital, G.R. No. L-6988 (May 24, 1952), it
was argued that the fact that the aforesaid hospital charged fees for 140 paying beds made it lose its character
of a charitable institution. We likewise rejected this view because the paying beds aforesaid were maintained to
partly finance the expenses of the free wards maintained by the hospital. We express the same view in Collector
of Internal Revenue vs. St. Paul's Hospital in Iloilo, G.R. No. L-12127 (May 25, 1959) where We said the following:
In this connection, it should be noted that respondent therein is a corporation organized for "charitable,
educational and religious purposes"; that no part of its net income inures to the benefit of any private
individual; that it is exempt from paying income tax; that it operates a hospital in which MEDICAL
assistance is given to destitute persons free of charge; that it maintains a pharmacy department within
the premises of said hospital, to supply drugs and medicines only to charity and paying patients confined
therein; and that only the paying patients are required to pay the medicines supplied to them, for which
they are charged the cost of the medicines, plus an additional 10% thereof, to partly offset the cost of
medicines supplied free of charge to charity patients. Under these facts, we are of the opinion, and so
hold, that the Hospital may not be regarded as engaged in "business" by reason of said sale of medicines
to its paying patients.
xxx

xxx

xxx

In line with the foregoing, in U.S.T. Hospital Employees Association vs. Santo Tomas University Hospital (G.R. No.
L-6988, decided May 24, 1954), we held that the U.S.T. Hospital was not established for profit-making purposes,
despite the fact that it had 140 paying beds, because the same were maintained only to "partly finance the
expenses of the free wards", containing 203 beds for charity patients. Although said case involved the
interpretation of Republic Act No. 772, it is patent from our decision therein that said institution was not
considered engaged in "business."
It is trite to say that a tax on the limited revenue of charitable institutions of this kind tends to hamper its
operation, and accordingly, to discourage the establishment and maintenance thereof. In the absence of a
clear legal provision thereon, we must not so construe our laws as to lead to such result. In other words,
the second, third and fourth assignments of error are untenable.
In San Juan de Dios Hospital (the same party appellant herein) vs. Metropolitan Water District, 54 Phil. 174, this
Court considered said hospital as a charitable institution in spite of the fact that it maintained paying beds. From
the decision in said case, We quote the following:
A hospital (referring to the San Juan de Dios Hospital) is generally considered to be a charitable
institution. It is good public policy to encourage works of charity. What Carriedo did in his will was to make
a beneficient grant not to a hospital thought of as a building, but to a hospital thought of as an institution.
The free water was for the good of the hospital in this large sense. Should the hospital be enlarged or
rebuilt, the water concession would continue just the same. But a hospital cannot function without
personnel. And such personnel must have a place to live, which is the reason why a home devoted
exclusively to the needs of the nurses was founded. Free water for a nurses home as an adjunct to a
hospital is as beneficial to the charitable purposes of the hospital as is free water for the hospital proper.
Finally, in Manila Sanitarium and Hospital vs. Gabuco, G.R. No. L-14331, January 31, 1963, We held that the mere
charging of medical and hospital fees from those who could afford to pay, did not make the institution one
established for profit or gain.

Upon all the foregoing, the appealed decision is reversed, and another is hereby rendered ordering appellees to
pay appellant the amount of P1,709.50, with interest at the legal rate from the date of the filing of complaint in
this case. With costs.

G.R. No. 124043 October 14, 1998

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S CHRISTIAN ASSOCIATION OF THE
PHILIPPINES, INC., respondents.

PANGANIBAN, J.:
Is the income derived from rentals of real property owned by the Young Men's Christian Association of the
Philippines, Inc. (YMCA) established as "a welfare, educational and charitable non-profit corporation" subject
to income tax under the National Internal Revenue Code (NIRC) and the Constitution?
The Case
This is the main question raised before us in this petition for review on certiorari challenging two Resolutions
issued by the Court of Appeals 1 on September 28, 1995 2 and February 29, 1996 3 in CA-GR SP No. 32007. Both
Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing the YMCA to claim tax exemption on
the latter's income from the lease of its real property.
The Facts
The facts are undisputed. 4 Private Respondent YMCA is a non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public, especially the young people, pursuant to its religious,
educational and charitable objectives.
In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion of its
premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees
collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment
to private respondent, in the total amount of P415,615.01 including surcharge and interest, for deficiency income
tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on
wages. Private respondent formally protested the assessment and, as a supplement to its basic protest, filed a
letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals (CTA) on
March 14, 1989. In due course, the CTA issued this ruling in favor of the YMCA:
. . . [T]he leasing of [private respondent's] facilities to small shop owners, to restaurant and
canteen operators and the operation of the parking lot are reasonably incidental to and reasonably
necessary for the accomplishment of the objectives of the [private respondents]. It appears from
the testimonies of the witnesses for the [private respondent] particularly Mr. James C. Delote,
former accountant of YMCA, that these facilities were leased to members and that they have to
service the needs of its members and their guests. The rentals were minimal as for example, the
barbershop was only charged P300 per month. He also testified that there was actually no lot
devoted for parking space but the parking was done at the sides of the building. The parking was
primarily for members with stickers on the windshields of their cars and they charged P.50 for nonmembers. The rentals and parking fees were just enough to cover the costs of operation and
maintenance only. The earning[s] from these rentals and parking charges including those from

lodging and other charges for the use of the recreational facilities constitute [the] bulk of its
income which [is] channeled to support its many activities and attainment of its objectives. As
pointed out earlier, the membership dues are very insufficient to support its program. We find it
reasonably necessary therefore for [private respondent] to make [the] most out [of] its existing
facilities to earn some income. It would have been different if under the circumstances, [private
respondent] will purchase a lot and convert it to a parking lot to cater to the needs of the general
public for a fee, or construct a building and lease it out to the highest bidder or at the market rate
for commercial purposes, or should it invest its funds in the buy and sell of properties, real or
personal. Under these circumstances, we could conclude that the activities are already profit
oriented, not incidental and reasonably necessary to the pursuit of the objectives of the
association and therefore, will fall under the last paragraph of Section 27 of the Tax Code and any
income derived therefrom shall be taxable.
Considering our findings that [private respondent] was not engaged in the business of operating
or contracting [a] parking lot, we find no legal basis also for the imposition of [a] deficiency fixed
tax and [a] contractor's tax in the amount[s] of P353.15 and P3,129.73, respectively.
xxx xxx xxx
WHEREFORE, in view of all the foregoing, the following assessments are hereby dismissed for lack
of merit:
1980 Deficiency Fixed Tax P353,15;
1980 Deficiency Contractor's Tax P3,129.23;
1980 Deficiency Income Tax P372,578.20.
While the following assessments are hereby sustained:
1980 Deficiency Expanded Withholding Tax P1,798.93;
1980 Deficiency Withholding Tax on Wages P33,058.82
plus 10% surcharge and 20% interest per annum from July 2, 1984 until fully paid but not to
exceed three (3) years pursuant to Section 51(e)(2) & (3) of the National Internal Revenue Code
effective as of 1984. 5
Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals (CA). In its Decision of February
16, 1994, the CA 6 initially decided in favor of the CIR and disposed of the appeal in the following manner:
Following the ruling in the afore-cited cases of Province of Abra vs. Hernando and Abra Valley
College Inc. vs. Aquino, the ruling of the respondent Court of Tax Appeals that "the leasing of
petitioner's (herein respondent's) facilities to small shop owners, to restaurant and canteen
operators and the operation of the parking lot are reasonably incidental to and reasonably
necessary for the accomplishment of the objectives of the petitioners, and the income derived
therefrom are tax exempt, must be reversed.
WHEREFORE, the appealed decision is hereby REVERSED in so far as it dismissed the assessment
for:
1980 Deficiency Income Tax P 353.15
1980 Deficiency Contractor's Tax P 3,129.23, &

1980 Deficiency Income Tax P 372,578.20

but the same is AFFIRMED in all other respect.

Aggrieved, the YMCA asked for reconsideration based on the following grounds:
I
The findings of facts of the Public Respondent Court of Tax Appeals being supported by substantial
evidence [are] final and conclusive.
II
The conclusions of law of [p]ublic [r]espondent exempting [p]rivate [r]espondent from the income
on rentals of small shops and parking fees [are] in accord with the applicable law and
jurisprudence. 8
Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed itself and promulgated on
September 28, 1995 its first assailed Resolution which, in part, reads:
The Court cannot depart from the CTA's findings of fact, as they are supported by evidence
beyond what is considered as substantial.
xxx xxx xxx
The second ground raised is that the respondent CTA did not err in saying that the rental from
small shops and parking fees do not result in the loss of the exemption. Not even the petitioner
would hazard the suggestion that YMCA is designed for profit. Consequently, the little income from
small shops and parking fees help[s] to keep its head above the water, so to speak, and allow it to
continue with its laudable work.
The Court, therefore, finds the second ground of the motion to be meritorious and in accord with
law and jurisprudence.
WHEREFORE, the motion for reconsideration is GRANTED; the respondent CTA's decision is
AFFIRMED in toto. 9
The internal revenue commissioner's own Motion for Reconsideration was denied by Respondent Court in its
second assailed Resolution of February 29, 1996. Hence, this petition for review under Rule 45 of the Rules of
Court. 10
The Issues
Before us, petitioner imputes to the Court of Appeals the following errors:
I
In holding that it had departed from the findings of fact of Respondent Court of Tax Appeals when
it rendered its Decision dated February 16, 1994; and
II
In affirming the conclusion of Respondent Court of Tax Appeals that the income of private
respondent from rentals of small shops and parking fees [is] exempt from taxation. 11

This Court's Ruling

The petition is meritorious.
First Issue:
Factual Findings of the CTA
Private respondent contends that the February 16, 1994 CA Decision reversed the factual findings of the CTA. On
the other hand, petitioner argues that the CA merely reversed the "ruling of the CTA that the leasing of private
respondent's facilities to small shop owners, to restaurant and canteen operators and the operation of parking
lots are reasonably incidental to and reasonably necessary for the accomplishment of the objectives of the
private respondent and that the income derived therefrom are tax exempt." 12 Petitioner insists that what the
appellate court reversed was the legal conclusion, not the factual finding, of the CTA. 13 The commissioner has a
point.
Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by substantial evidence,
will be disturbed on appeal unless it is shown that the said court committed gross error in the appreciation of
facts. 14 In the present case, this Court finds that the February 16, 1994 Decision of the CA did not deviate from
this rule. The latter merely applied the law to the facts as found by the CTA and ruled on the issue raised by the
CIR: "Whether or not the collection or earnings of rental income from the lease of certain premises and income
earned from parking fees shall fall under the last paragraph of Section 27 of the National Internal Revenue Code
of 1977, as amended." 15
Clearly, the CA did not alter any fact or evidence. It merely resolved the aforementioned issue, as indeed it was
expected to. That it did so in a manner different from that of the CTA did not necessarily imply a reversal of
factual findings.
The distinction between a question of law and a question of fact is clear-cut. It has been held that "[t]here is a
question of law in a given case when the doubt or difference arises as to what the law is on a certain state of
facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of alleged
facts." 16 In the present case, the CA did not doubt, much less change, the facts narrated by the CTA. It merely
applied the law to the facts. That its interpretation or conclusion is different from that of the CTA is not irregular
or abnormal.
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental income of the YMCA from its real estate subject to tax? At the
outset, we set forth the relevant provision of the NIRC:
Sec. 27. Exemptions from tax on corporations. The following organizations shall not be taxed
under this Title in respect to income received by them as such
xxx xxx xxx
(g) Civic league or organization not organized for profit but operated exclusively for the promotion
of social welfare;
(h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable
purposes, no part of the net income of which inures to the benefit of any private stockholder or
member;
xxx xxx xxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from any

of their activities conducted for profit, regardless of the disposition made of such income, shall be
subject to the tax imposed under this Code. (as amended by Pres. Decree No. 1457)
Petitioner argues that while the income received by the organizations enumerated in Section 27 (now Section 26)
of the NIRC is, as a rule, exempted from the payment of tax "in respect to income received by them as such," the
exemption does not apply to income derived ". . . from any of their properties, real or personal, or from any of
their activities conducted for profit, regardless of the disposition made of such income . . . ."
Petitioner adds that "rental income derived by a tax-exempt organization from the lease of its properties, real or
personal, [is] not, therefore, exempt from income taxation, even if such income [is] exclusively used for the
accomplishment of its objectives." 17 We agree with the commissioner.
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation
in construing tax exemptions. 18 Furthermore, a claim of statutory exemption from taxation should be manifest.
and unmistakable from the language of the law on which it is based. Thus, the claimed exemption "must
expressly be granted in a statute stated in a language too clear to be mistaken." 19
In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last
paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the
YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. Because
the last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real
property, 20the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any
convoluted attempt at construction.
It is axiomatic that where the language of the law is clear and unambiguous, its express terms must be
applied. 21Parenthetically, a consideration of the question of construction must not even begin, particularly when
such question is on whether to apply a strict construction or a liberal one on statutes that grant tax exemptions
to "religious, charitable and educational propert[ies] or institutions." 22
The last paragraph of Section 27, the YMCA argues, should be "subject to the qualification that the income from
the properties must arise from activities 'conducted for profit' before it may be considered taxable." 23 This
argument is erroneous. As previously stated, a reading of said paragraph ineludibly shows that the income from
any property of exempt organizations, as well as that arising from any activity it conducts for profit, is taxable.
The phrase "any of their activities conducted for profit" does not qualify the word "properties." This makes from
the property of the organization taxable, regardless of how that income is used whether for profit or for lofty
non-profit purposes.
Verba legis non est recedendum. Hence, Respondent Court of Appeals committed reversible error when it
allowed, on reconsideration, the tax exemption claimed by YMCA on income it derived from renting out its real
property, on the solitary but unconvincing ground that the said income is not collected for profit but is merely
incidental to its operation. The law does not make a distinction. The rental income is taxable regardless of
whence such income is derived and how it is used or disposed of. Where the law does not distinguish, neither
should we.
Constitutional Provisions
On Taxation
Invoking not only the NIRC but also the fundamental law, private respondent submits that Article VI, Section 28 of
par. 3 of the 1987 Constitution, 24 exempts "charitable institutions" from the payment not only of property taxes
but also of income tax from any source. 25 In support of its novel theory, it compares the use of the words
"charitable institutions," "actually" and "directly" in the 1973 and the 1987 Constitutions, on the one hand; and in
Article VI, Section 22, par. 3 of the 1935 Constitution, on the other hand. 26
Private respondent enunciates three points. First, the present provision is divisible into two categories: (1)
"[c]haritable institutions, churches and parsonages or convents appurtenant thereto, mosques and non-profit

cemeteries," the incomes of which are, from whatever source, all tax-exempt; 27 and (2) "[a]ll lands, buildings and
improvements actually and directly used for religious, charitable or educational purposes," which are exempt only
from property taxes. 28 Second, Lladoc v. Commissioner of Internal Revenue, 29 which limited the exemption only
to the payment of property taxes, referred to the provision of the 1935 Constitution and not to its counterparts in
the 1973 and the 1987 Constitutions. 30 Third, the phrase "actually, directly and exclusively used for religious,
charitable or educational purposes" refers not only to "all lands, buildings and improvements," but also to the
above-quoted first category which includes charitable institutions like the private respondent. 31
The Court is not persuaded. The debates, interpellations and expressions of opinion of the framers of the
Constitution reveal their intent which, in turn, may have guided the people in ratifying the Charter. 32 Such intent
must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is now a member of this
Court, stressed during the Concom debates that ". . . what is exempted is not the institution itself . . .; those
exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for
religious, charitable or educational
purposes." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution and also a member of the
Concom, adhered to the same view that the exemption created by said provision pertained only to property
taxes. 34
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax exemption
covers property taxes only." 35 Indeed, the income tax exemption claimed by private respondent finds no basis in
Article VI, Section 26, par. 3 of the Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3 of the Character, 36 claiming that the YMCA "is a nonstock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for
educational purposes so it is exempt from taxes on its properties and income." 37 We reiterate that private
respondent is exempt from the payment of property tax, but not income tax on the rentals from its property. The
bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption
from the payment of income tax.
As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be
granted the exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it
falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and exclusively for educational purposes. However, the Court
notes that not a scintilla of evidence was submitted by private respondent to prove that it met the said requisites.
Is the YMCA an educational institution within the purview of Article XIV, Section 4, par. 3 of the Constitution? We
rule that it is not. The term "educational institution" or "institution of learning" has acquired a well-known
technical meaning, of which the members of the Constitutional Commission are deemed cognizant. 38 Under the
Education Act of 1982, such term refers to schools. 39 The school system is synonymous with formal
education, 40 which "refers to the hierarchically structured and chronologically graded learnings organized and
provided by the formal school system and for which certification is required in order for the learner to progress
through the grades or move to the higher levels." 41 The Court has examined the "Amended Articles of
Incorporation" and "By-Laws" 43 of the YMCA, but found nothing in them that even hints that it is a school or an
educational institution. 44
Furthermore, under the Education Act of 1982, even non-formal education is understood to be school-based and
"private auspices such as foundations and civic-spirited organizations" are ruled out. 45 It is settled that the term
"educational institution," when used in laws granting tax exemptions, refers to a ". . . school seminary, college or
educational establishment . . . ." 46 Therefore, the private respondent cannot be deemed one of the educational
institutions covered by the constitutional provision under consideration.
. . . Words used in the Constitution are to be taken in their ordinary acceptation. While in its
broadest and best sense education embraces all forms and phases of instruction, improvement
and development of mind and body, and as well of religious and moral sentiments, yet in the

common understanding and application it means a place where systematic instruction in any or all
of the useful branches of learning is given by methods common to schools and institutions of
learning. That we conceive to be the true intent and scope of the term [educational institutions,]
as used in the
Constitution. 47
Moreover, without conceding that Private Respondent YMCA is an educational institution, the Court also notes
that the former did not submit proof of the proportionate amount of the subject income that was actually, directly
and exclusively used for educational purposes. Article XIII, Section 5 of the YMCA by-laws, which formed part of
the evidence submitted, is patently insufficient, since the same merely signified that "[t]he net income derived
from the rentals of the commercial buildings shall be apportioned to the Federation and Member Associations as
the National Board may decide." 48 In sum, we find no basis for granting the YMCA exemption from income tax
under the constitutional provision invoked.
Cases Cited by Private
Respondent Inapplicable
The cases 49 relied on by private respondent do not support its cause. YMCA of Manila v. Collector of Internal
Revenue50 and Abra Valley College, Inc. v. Aquino 51 are not applicable, because the controversy in both cases
involved exemption from the payment of property tax, not income tax. Hospital de San Juan de Dios, Inc. v. Pasay
City 52 is not in point either, because it involves a claim for exemption from the payment of regulatory fees,
specifically electrical inspection fees, imposed by an ordinance of Pasay City an issue not at all related to that
involved in a claimed exemption from the payment of income taxes imposed on property leases. In Jesus Sacred
Heart College v. Com. of Internal Revenue, 53 the party therein, which claimed an exemption from the payment of
income tax, was an educational institution which submitted substantial evidence that the income subject of the
controversy had been devoted or used solely for educational purposes. On the other hand, the private
respondent in the present case has not given any proof that it is an educational institution, or that part of its rent
income is actually, directly and exclusively used for educational purposes.
Epilogue
In deliberating on this petition, the Court expresses its sympathy with private respondent. It appreciates the
nobility of its cause. However, the Court's power and function are limited merely to applying the law fairly and
objectively. It cannot change the law or bend it to suit its sympathies and appreciations. Otherwise, it would be
overspilling its role and invading the realm of legislation.
We concede that private respondent deserves the help and the encouragement of the government. It needs laws
that can facilitate, and not frustrate, its humanitarian tasks. But the Court regrets that, given its limited
constitutional authority, it cannot rule on the wisdom or propriety of legislation. That prerogative belongs to the
political departments of government. Indeed, some of the members of the Court may even believe in the wisdom
and prudence of granting more tax exemptions to private respondent. But such belief, however well-meaning and
sincere, cannot bestow upon the Court the power to change or amend the law.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated September 28, 1995 and
February 29, 1996 are hereby REVERSED and SET ASIDE. The Decision of the Court of Appeals dated February 16,
1995 is REINSTATED, insofar as it ruled that the income derived by petitioner from rentals of its real property is
subject to income tax. No pronouncement as t

[G.R. No. 144104. June 29, 2004]

LUNG CENTER OF THE PHILIPPINES, petitioner, vs. QUEZON CITY and CONSTANTINO P. ROSAS, in his
capacity as City Assessor of Quezon City, respondents.

DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision[1] dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the decision of the
Central Board of Assessment Appeals holding that the lot owned by the petitioner and its hospital building
constructed thereon are subject to assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on January 16,
1981 by virtue of Presidential Decree No. 1823.[2] It is the registered owner of a parcel of land, particularly
described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central
District, Quezon City. The lot has an area of 121,463 square meters and is covered by Transfer Certificate of Title
(TCT) No. 261320 of the Registry of Deeds of Quezon City. Erected in the middle of the aforesaid lot is a hospital
known as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for
canteen and small store spaces, and to medical or professional practitioners who use the same as their private
clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on
the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the
corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise
known as the Elliptical Orchids andGarden Center.
The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both
paying and non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies from
the government.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property
taxes in the amount of P4,554,860 by the City Assessor of Quezon City. [3] Accordingly, Tax Declaration Nos. C-02101226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and the hospital building, respectively.
[4]
On August 25, 1993, the petitioner filed a Claim for Exemption [5] from real property taxes with the City
Assessor, predicated on its claim that it is a charitable institution. The petitioners request was denied, and a
petition was, thereafter, filed before the Local Board of Assessment Appeals of Quezon City (QC-LBAA, for brevity)
for the reversal of the resolution of the City Assessor. The petitioner alleged that under Section 28, paragraph 3 of
the 1987 Constitution, the property is exempt from real property taxes. It averred that a minimum of 60% of its
hospital beds are exclusively used for charity patients and that the major thrust of its hospital operation is to
serve charity patients. The petitioner contends that it is a charitable institution and, as such, is exempt from real
property taxes. The QC-LBAA rendered judgment dismissing the petition and holding the petitioner liable for real
property taxes.[6]
The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals of
Quezon City (CBAA, for brevity) [7] which ruled that the petitioner was not a charitable institution and that its real
properties were not actually, directly and exclusively used for charitable purposes; hence, it was not entitled to
real property tax exemption under the constitution and the law. The petitioner sought relief from the Court of
Appeals, which rendered judgment affirming the decision of the CBAA.[8]
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO REALTY TAX EXEMPTIONS
ON THE GROUND THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE
NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER ITS CHARTER, PD 1823,
SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION.

The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of the
1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact that it admits
paying patients and renders medical services to them, leases portions of the land to private parties, and rents out
portions of the hospital to private medical practitioners from which it derives income to be used for operational
expenses. The petitioner points out that for the years 1995 to 1999, 100% of its out-patients were charity
patients and of the hospitals 282-bed capacity, 60% thereof, or 170 beds, is allotted to charity patients. It asserts
that the fact that it receives subsidies from the government attests to its character as a charitable institution. It
contends that the exclusivity required in the Constitution does not necessarily mean solely. Hence, even if a
portion of its real estate is leased out to private individuals from whom it derives income, it does not lose its
character as a charitable institution, and its exemption from the payment of real estate taxes on its real
property. The petitioner cited our ruling in Herrera v. QC-BAA[9] to bolster its pose. The petitioner further contends
that even if P.D. No. 1823 does not exempt it from the payment of real estate taxes, it is not precluded from
seeking tax exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver that the petitioner is not a charitable entity. The
petitioners real property is not exempt from the payment of real estate taxes under P.D. No. 1823 and even under
the 1987 Constitution because it failed to prove that it is a charitable institution and that the said property is
actually, directly and exclusively used for charitable purposes. The respondents noted that in a newspaper report,
it appears that graft charges were filed with the Sandiganbayan against the director of the petitioner, its
administrative officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids and Garden Center, for
entering into a lease contract over 7,663.13 square meters of the property in 1990 for only P20,000 a month,
when the monthly rental should be P357,000 a month as determined by the Commission on Audit; and that
instead of complying with the directive of the COA for the cancellation of the contract for being grossly prejudicial
to the government, the petitioner renewed the same on March 13, 1995 for a monthly rental of
only P24,000. They assert that the petitioner uses the subsidies granted by the government for charity patients
and uses the rest of its income from the property for the benefit of paying patients, among other purposes. They
aver that the petitioner failed to adduce substantial evidence that 100% of its out-patients and 170 beds in the
hospital are reserved for indigent patients. The respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service. That before a
patient is admitted for treatment in the Center, first impression is that it is pay-patient and required to pay a
certain amount as deposit. That even if a patient is living below the poverty line, he is charged with high hospital
bills. And, without these bills being first settled, the poor patient cannot be allowed to leave the hospital or be
discharged without first paying the hospital bills or issue a promissory note guaranteed and indorsed by an
influential agency or person known only to the Center; that even the remains of deceased poor patients suffered
the same fate. Moreover, before a patient is admitted for treatment as free or charity patient, one must undergo
a series of interviews and must submit all the requirements needed by the Center, usually accompanied by
endorsement by an influential agency or person known only to the Center. These facts were heard and admitted
by the Petitioner LCP during the hearings before the Honorable QC-BAA and Honorable CBAA.These are the
reasons of indigent patients, instead of seeking treatment with the Center, they prefer to be treated at the
Quezon Institute. Can such practice by the Center be called charitable?[10]
The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable institution within the
context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act
No. 7160; and (b) whether the real properties of the petitioner are exempt from real property taxes.
The Courts Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973 and
1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the elements
which should be considered include the statute creating the enterprise, its corporate purposes, its constitution

and by-laws, the methods of administration, the nature of the actual work performed, the character of the
services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties.[11]
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for
the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of
education or religion, by assisting them to establish themselves in life or otherwise lessening the burden of
government.[12] It may be applied to almost anything that tend to promote the well-doing and well-being of social
man. It embraces the improvement and promotion of the happiness of man. [13] The word charitable is not
restricted to relief of the poor or sick. [14] The test of a charity and a charitable organization are in law the
same.The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in
law as charitable or whether it is maintained for gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions
of the decree, is to be administered by the Office of the President of the Philippines with the Ministry of Health
and the Ministry of Human Settlements. It was organized for the welfare and benefit of the Filipino people
principally to help combat the high incidence of lung and pulmonary diseases in the Philippines. The raison
detre for the creation of the petitioner is stated in the decree, viz:
Whereas, for decades, respiratory diseases have been a priority concern, having been the leading cause of illness
and death in the Philippines, comprising more than 45% of the total annual deaths from all causes, thus, exacting
a tremendous toll on human resources, which ailments are likely to increase and degenerate into serious lung
diseases on account of unabated pollution, industrialization and unchecked cigarette smoking in the country;
Whereas, the more common lung diseases are, to a great extent, preventable, and curable with early and
adequate medical care, immunization and through prompt and intensive prevention and health education
programs;
Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies and efforts at
preventing, treating and rehabilitating people affected by lung diseases, and to undertake research and training
on the cure and prevention of lung diseases, through a Lung Center which will house and nurture the above and
related activities and provide tertiary-level care for more difficult and problematical cases;
Whereas, to achieve this purpose, the Government intends to provide material and financial support towards the
establishment and maintenance of a Lung Center for the welfare and benefit of the Filipino people.[15]
The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus:
SECOND: That the purposes for which such corporation is formed are as follows:
1. To construct, establish, equip, maintain, administer and conduct an integrated medical institution which shall
specialize in the treatment, care, rehabilitation and/or relief of lung and allied diseases in line with the concern of
the government to assist and provide material and financial support in the establishment and maintenance of a
lung center primarily to benefit the people of the Philippines and in pursuance of the policy of the State to secure
the well-being of the people by providing them specialized health and medical services and by minimizing the
incidence of lung diseases in the country and elsewhere.
2. To promote the noble undertaking of scientific research related to the prevention of lung or pulmonary ailments
and the care of lung patients, including the holding of a series of relevant congresses, conventions, seminars and
conferences;
3. To stimulate and, whenever possible, underwrite scientific researches on the biological, demographic, social,
economic, eugenic and physiological aspects of lung or pulmonary diseases and their control; and to collect and
publish the findings of such research for public consumption;
4. To facilitate the dissemination of ideas and public acceptance of information on lung consciousness or
awareness, and the development of fact-finding, information and reporting facilities for and in aid of the general

purposes or objects aforesaid, especially in human lung requirements, general health and physical fitness, and
other relevant or related fields;
5. To encourage the training of physicians, nurses, health officers, social workers and medical and technical
personnel in the practical and scientific implementation of services to lung patients;
6. To assist universities and research institutions in their studies about lung diseases, to encourage advanced
training in matters of the lung and related fields and to support educational programs of value to general health;
7. To encourage the formation of other organizations on the national, provincial and/or city and local levels; and
to coordinate their various efforts and activities for the purpose of achieving a more effective programmatic
approach on the common problems relative to the objectives enumerated herein;
8. To seek and obtain assistance in any form from both international and local foundations and organizations; and
to administer grants and funds that may be given to the organization;
9. To extend, whenever possible and expedient, medical services to the public and, in general, to promote and
protect the health of the masses of our people, which has long been recognized as an economic asset and a
social blessing;
10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of the people in any and
all walks of life, including those who are poor and needy, all without regard to or discrimination, because of race,
creed, color or political belief of the persons helped; and to enable them to obtain treatment when such disorders
occur;
11. To participate, as circumstances may warrant, in any activity designed and carried on to promote the general
health of the community;
12. To acquire and/or borrow funds and to own all funds or equipment, educational materials and supplies by
purchase, donation, or otherwise and to dispose of and distribute the same in such manner, and, on such basis as
the Center shall, from time to time, deem proper and best, under the particular circumstances, to serve its
general and non-profit purposes and objectives;
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of properties, whether real or
personal, for purposes herein mentioned; and
14. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the powers
herein set forth and to do every other act and thing incidental thereto or connected therewith.[16]
Hence, the medical services of the petitioner are to be rendered to the public in general in any and all walks
of life including those who are poor and the needy without discrimination. After all, any person, the rich as well as
the poor, may fall sick or be injured or wounded and become a subject of charity.[17]
As a general principle, a charitable institution does not lose its character as such and its exemption from
taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or
receives subsidies from the government, so long as the money received is devoted or used altogether to the
charitable object which it is intended to achieve; and no money inures to the private benefit of the persons
managing or operating the institution. [18] InCongregational Sunday School, etc. v. Board of Review,[19] the State
Supreme Court of Illinois held, thus:
[A]n institution does not lose its charitable character, and consequent exemption from taxation, by reason of the
fact that those recipients of its benefits who are able to pay are required to do so, where no profit is made by the
institution and the amounts so received are applied in furthering its charitable purposes, and those benefits are
refused to none on account of inability to pay therefor. The fundamental ground upon which all exemptions in
favor of charitable institutions are based is the benefit conferred upon the public by them, and a consequent
relief, to some extent, of the burden upon the state to care for and advance the interests of its citizens.[20]

As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of South
Dakota v. Baker:[21]
[T]he fact that paying patients are taken, the profits derived from attendance upon these patients being
exclusively devoted to the maintenance of the charity, seems rather to enhance the usefulness of the institution
to the poor; for it is a matter of common observation amongst those who have gone about at all amongst the
suffering classes, that the deserving poor can with difficulty be persuaded to enter an asylum of any kind
confined to the reception of objects of charity; and that their honest pride is much less wounded by being placed
in an institution in which paying patients are also received. The fact of receiving money from some of the patients
does not, we think, at all impair the character of the charity, so long as the money thus received is devoted
altogether to the charitable object which the institution is intended to further.[22]
The money received by the petitioner becomes a part of the trust fund and must be devoted to public trust
purposes and cannot be diverted to private profit or benefit.[23]
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its character
as a charitable institution simply because the gift or donation is in the form of subsidies granted by the
government. As held by the State Supreme Court of Utah in Yorgason v. County Board of Equalization of Salt Lake
County:[24]
Second, the government subsidy payments are provided to the project. Thus, those payments are like a gift or
donation of any other kind except they come from the government. In both Intermountain Health Care and the
present case, the crux is the presence or absence of material reciprocity. It is entirely irrelevant to this analysis
that the government, rather than a private benefactor, chose to make up the deficit resulting from the exchange
between St. Marks Tower and the tenants by making a contribution to the landlord, just as it would have been
irrelevant in Intermountain Health Care if the patients income supplements had come from private individuals
rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the government rather
than private charitable contributions does not dictate the denial of a charitable exemption if the facts otherwise
support such an exemption, as they do here.[25]
In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies
from the government for 1991 and 1992 for its patients and for the operation of the hospital. It even incurred a
net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those
portions of its real property that are leased to private entities are not exempt from real property taxes as these
are not actually, directly and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the
exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax
payments must be clearly shown and based on language in the law too plain to be mistaken. [26] As held
in Salvation Army v. Hoehn:[27]
An intention on the part of the legislature to grant an exemption from the taxing power of the state will never be
implied from language which will admit of any other reasonable construction. Such an intention must be
expressed in clear and unmistakable terms, or must appear by necessary implication from the language used, for
it is a well settled principle that, when a special privilege or exemption is claimed under a statute, charter or act
of incorporation, it is to be construed strictly against the property owner and in favor of the public. This principle
applies with peculiar force to a claim of exemption from taxation . [28]
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the
petitioner shall enjoy the tax exemptions and privileges:

SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized primarily to help
combat the high incidence of lung and pulmonary diseases in the Philippines, all donations, contributions,
endowments and equipment and supplies to be imported by authorized entities or persons and by the Board of
Trustees of the Lung Center of the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be
exempt from income and gift taxes, the same further deductible in full for the purpose of determining the
maximum deductible amount under Section 30, paragraph (h), of the National Internal Revenue Code, as
amended.
The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees imposed by the
Government or any political subdivision or instrumentality thereof with respect to equipment purchases made by,
or for the Lung Center.[29]
It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption privileges
for its real properties as well as the building constructed thereon. If the intentions were otherwise, the same
should have been among the enumeration of tax exempt privileges under Section 2:
It is a settled rule of statutory construction that the express mention of one person, thing, or consequence implies
the exclusion of all others. The rule is expressed in the familiar maxim,expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of the rule is
principle that what is expressed puts an end to that which is implied.Expressium facit cessare tacitum. Thus,
where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretation or construction,
be extended to other matters.
...
The rule of expressio unius est exclusio alterius and its variations are canons of restrictive interpretation. They
are based on the rules of logic and the natural workings of the human mind. They are predicated upon ones own
voluntary act and not upon that of others. They proceed from the premise that the legislature would not have
made specified enumeration in a statute had the intention been not to restrict its meaning and confine its terms
to those expressly mentioned.[30]
The exemption must not be so enlarged by construction since the reasonable presumption is that the State
has granted in express terms all it intended to grant at all, and that unless the privilege is limited to the very
terms of the statute the favor would be intended beyond what was meant.[31]
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly andexclusively used for religious,
charitable or educational purposes shall be exempt from taxation.[32]
The tax exemption under this constitutional provision covers property taxes only.[33] As Chief Justice Hilario G.
Davide, Jr., then a member of the 1986 Constitutional Commission, explained: . . . what is exempted is not the
institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually,
directly and exclusively used for religious, charitable or educational purposes.[34]
Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160
(otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property
tax:
...

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or
religious cemeteries and all lands, buildings, and improvements actually,directly, and exclusively used for
religious, charitable or educational purposes.[35]
We note that under the 1935 Constitution, ... all lands, buildings, and improvements used exclusively for
charitable purposes shall be exempt from taxation. [36]However, under the 1973 and the present Constitutions, for
lands, buildings, and improvements of the charitable institution to be considered exempt, the same should not
only be exclusively used for charitable purposes; it is required that such property be used actually and directly for
such purposes.[37]
In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling
in Herrera v. Quezon City Board of Assessment Appealswhich was promulgated on September 30, 1961 before
the 1973 and 1987 Constitutions took effect.[38] As this Court held in Province of Abra v. Hernando:[39]
Under the 1935 Constitution: Cemeteries, churches, and parsonages or convents appurtenant thereto, and all
lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be
exempt from taxation. The present Constitution added charitable institutions, mosques, and non-profit
cemeteries and required that for the exemption of lands, buildings, and improvements, they should not only be
exclusively but also actually and directly used for religious or charitable purposes. The Constitution is worded
differently. The change should not be ignored. It must be duly taken into consideration. Reliance on past decisions
would have sufficed were the words actually as well as directly not added. There must be proof therefore of
the actual and direct use of the lands, buildings, and improvements for religious or charitable purposes to be
exempt from taxation.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the
petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its
real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.Exclusive is defined as
possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and exclusively
is defined, in a manner to exclude; as enjoying a privilege exclusively.[40] If real property is used for one or more
commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. [41] The
words dominant use or principal use cannot be substituted for the words used exclusively without doing violence
to the Constitutions and the law.[42] Solely is synonymous with exclusively.[43]
What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and
immediate and actual application of the property itself to the purposes for which the charitable institution is
organized. It is not the use of the income from the real property that is determinative of whether the property is
used for tax-exempt purposes.[44]
The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly
and exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients
and the dispensation of medical services to them, whether paying or non-paying, other portions thereof are being
leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a
private individual for her business enterprise under the business name Elliptical Orchids and Garden Center.
Indeed, the petitioners evidence shows that it collected P1,136,483.45 as rentals in 1991 andP1,679,999.28 for
1992 from the said lessees.
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt from such taxes. [45] On the other hand, the portions of the
land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon City
Assessor is hereby DIRECTED to determine, after due hearing, the precise portions of the land and the area
thereof which are leased to private persons, and to compute the real property taxes due thereon as provided for
by law.

SO ORDERED.

[G. R. No. 119775. October 24, 2003]

JOHN HAY PEOPLES ALTERNATIVE COALITION, MATEO CARIO FOUNDATION INC., CENTER FOR
ALTERNATIVE SYSTEMS FOUNDATION INC., REGINA VICTORIA A. BENAFIN REPRESENTED AND
JOINED BY HER MOTHER MRS. ELISA BENAFIN, IZABEL M. LUYK REPRESENTED AND JOINED BY
HER MOTHER MRS. REBECCA MOLINA LUYK, KATHERINE PE REPRESENTED AND JOINED BY HER
MOTHER ROSEMARIE G. PE, SOLEDAD S. CAMILO, ALICIA C. PACALSO ALIAS KEVAB, BETTY I.
STRASSER, RUBY C. GIRON, URSULA C. PEREZ ALIAS BA-YAY, EDILBERTO T. CLARAVALL,
CARMEN CAROMINA, LILIA G. YARANON, DIANE MONDOC, petitioners, vs. VICTOR LIM,
PRESIDENT, BASES CONVERSION DEVELOPMENT AUTHORITY; JOHN HAY PORO POINT
DEVELOPMENT CORPORATION, CITY OF BAGUIO, TUNTEX (B.V.I.) CO. LTD., ASIAWORLD
INTERNATIONALE
GROUP,
INC.,
DEPARTMENT
OF
ENVIRONMENT
AND
NATURAL
RESOURCES, respondents.
DECISION
CARPIO MORALES, J.:
By the present petition for prohibition, mandamus and declaratory relief with prayer for a temporary
restraining order (TRO) and/or writ of preliminary injunction, petitioners assail, in the main, the constitutionality
of Presidential Proclamation No. 420, Series of 1994, CREATING AND DESIGNATING A PORTION OF THE AREA
COVERED BY THE FORMER CAMP JOHN [HAY] AS THE JOHN HAY SPECIAL ECONOMIC ZONE PURSUANT TO
REPUBLIC ACT NO. 7227.
Republic Act No. 7227, AN ACT ACCELERATING THE CONVERSION OF MILITARY RESERVATIONS INTO OTHER
PRODUCTIVE USES, CREATING THE BASES CONVERSION AND DEVELOPMENT AUTHORITY FOR THIS PURPOSE,
PROVIDING FUNDS THEREFOR AND FOR OTHER PURPOSES, otherwise known as the Bases Conversion and
Development Act of 1992, which was enacted on March 13, 1992, set out the policy of the government to
accelerate the sound and balanced conversion into alternative productive uses of the former military bases under
the 1947 Philippines-United States of America Military Bases Agreement, namely, the Clark and Subic military
reservations as well as their extensions including the John Hay Station (Camp John Hay or the camp) in the City of
Baguio.[1]
As noted in its title, R.A. No. 7227 created public respondent Bases Conversion and Development
Authority[2] (BCDA), vesting it with powers pertaining to the multifarious aspects of carrying out the ultimate
objective of utilizing the base areas in accordance with the declared government policy.
R.A. No. 7227 likewise created the Subic Special Economic [and Free Port] Zone (Subic SEZ) the metes and
bounds of which were to be delineated in a proclamation to be issued by the President of the Philippines.[3]
R.A. No. 7227 granted the Subic SEZ incentives ranging from tax and duty-free importations, exemption of
businesses therein from local and national taxes, to other hallmarks of a liberalized financial and business
climate.[4]
And R.A. No. 7227 expressly gave authority to the President to create through executive proclamation,
subject to the concurrence of the local government units directly affected, other Special Economic Zones (SEZ) in
the areas covered respectively by the Clark military reservation, the Wallace Air Station in San Fernando, La
Union, and Camp John Hay.[5]
On August 16, 1993, BCDA entered into a Memorandum of Agreement and Escrow Agreement with private
respondents Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld Internationale Group, Inc. (ASIAWORLD), private
corporations registered under the laws of the British Virgin Islands, preparatory to the formation of a joint venture

for the development of Poro Point in La Union and Camp John Hay as premier tourist destinations and recreation
centers. Four months later or on December 16, 1993, BCDA, TUNTEX and ASIAWORD executed a Joint Venture
Agreement[6] whereby they bound themselves to put up a joint venture company known as the Baguio
International Development and Management Corporation which would lease areas within Camp John Hay and
Poro Point for the purpose of turning such places into principal tourist and recreation spots, as originally
envisioned by the parties under their Memorandum of Agreement.
The Baguio City government meanwhile passed a number of resolutions in response to the actions taken by
BCDA as owner and administrator of Camp John Hay.
By Resolution[7] of September 29, 1993, the Sangguniang Panlungsod of Baguio City (the sanggunian)
officially asked BCDA to exclude all the barangays partly or totally located within Camp John Hay from the reach
or coverage of any plan or program for its development.
By a subsequent Resolution[8] dated January 19, 1994, the sanggunian sought from BCDA an abdication,
waiver or quitclaim of its ownership over the home lots being occupied by residents of nine (9) barangays
surrounding the military reservation.
Still by another resolution passed on February 21, 1994, the sanggunian adopted and submitted to BCDA a
15-point concept for the development of Camp John Hay. [9] The sanggunians vision expressed, among other
things, a kind of development that affords protection to the environment, the making of a family-oriented type of
tourist destination, priority in employment opportunities for Baguio residents and free access to the base area,
guaranteed participation of the city government in the management and operation of the camp, exclusion of the
previously named nine barangays from the area for development, and liability for local taxes of businesses to be
established within the camp.[10]
BCDA, TUNTEX and ASIAWORLD agreed to some, but rejected or modified the other proposals of
the sanggunian.[11] They stressed the need to declare Camp John Hay a SEZ as a condition precedent to its full
development in accordance with the mandate of R.A. No. 7227.[12]
On May 11, 1994, the sanggunian passed a resolution requesting the Mayor to order the determination of
realty taxes which may otherwise be collected from real properties of Camp John Hay. [13] The resolution was
intended to intelligently guide the sanggunian in determining its position on whether Camp John Hay be declared
a SEZ, it (the sanggunian) being of the view that such declaration would exempt the camps property and the
economic activity therein from local or national taxation.
More than a month later, however, the sanggunian passed Resolution No. 255, (Series of 1994), [14] seeking
and supporting, subject to its concurrence, the issuance by then President Ramos of a presidential proclamation
declaring an area of 288.1 hectares of the camp as a SEZ in accordance with the provisions of R.A. No. 7227.
Together with this resolution was submitted a draft of the proposed proclamation for consideration by the
President.[15]
On July 5, 1994 then President Ramos issued Proclamation No. 420, [16] the title of which was earlier indicated,
which established a SEZ on a portion of Camp John Hay and which reads as follows:
xxx
Pursuant to the powers vested in me by the law and the resolution of concurrence by the City Council of Baguio, I,
FIDEL V. RAMOS, President of the Philippines, do hereby create and designate a portion of the area covered by the
former John Hay reservation as embraced, covered, and defined by the 1947 Military Bases Agreement between
the Philippines and the United States of America, as amended, as the John Hay Special Economic Zone, and
accordingly order:
SECTION 1. Coverage of John Hay Special Economic Zone. The John Hay Special Economic Zone shall cover the
area consisting of Two Hundred Eighty Eight and one/tenth (288.1) hectares, more or less, of the total of Six
Hundred Seventy-Seven (677) hectares of the John Hay Reservation, more or less, which have been surveyed and

verified by the Department of Environment and Natural Resources (DENR) as defined by the following technical
description:
A parcel of land, situated in the City of Baguio, Province of Benguet, Island of Luzon, and particularly described in
survey plans Psd-131102-002639 and Ccs-131102-000030 as approved on 16 August 1993 and 26 August 1993,
respectively, by the Department of Environment and Natural Resources, in detail containing :
Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 13, Lot 14, Lot 15, and Lot 20 of Ccs-131102-000030
-andLot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot 10, Lot 11, Lot 14, Lot 15, Lot 16, Lot 17, and Lot 18 of Psd131102-002639 being portions of TCT No. T-3812, LRC Rec. No. 87.
With a combined area of TWO HUNDRED EIGHTY EIGHT AND ONE/TENTH HECTARES (288.1 hectares); Provided
that the area consisting of approximately Six and two/tenth (6.2) hectares, more or less, presently occupied by
the VOA and the residence of the Ambassador of the United States, shall be considered as part of the SEZ only
upon turnover of the properties to the government of the Republic of the Philippines.
Sec. 2. Governing Body of the John Hay Special Economic Zone. Pursuant to Section 15 of Republic Act No. 7227,
the Bases Conversion and Development Authority is hereby established as the governing body of the John Hay
Special Economic Zone and, as such, authorized to determine the utilization and disposition of the lands
comprising it, subject to private rights, if any, and in consultation and coordination with the City Government of
Baguio after consultation with its inhabitants, and to promulgate the necessary policies, rules, and regulations to
govern and regulate the zone thru the John Hay Poro Point Development Corporation, which is its implementing
arm for its economic development and optimum utilization.
Sec. 3. Investment Climate in John Hay Special Economic Zone. Pursuant to Section 5(m) and Section 15 of
Republic Act No. 7227, the John Hay Poro Point Development Corporation shall implement all necessary policies,
rules, and regulations governing the zone, including investment incentives, in consultation with pertinent
government departments. Among others, the zone shall have all the applicable incentives of the Special
Economic Zone under Section 12 of Republic Act No. 7227 and those applicable incentives granted in the Export
Processing Zones, the Omnibus Investment Code of 1987, the Foreign Investment Act of 1991, and new
investment laws that may hereinafter be enacted.
Sec. 4. Role of Departments, Bureaus, Offices, Agencies and Instrumentalities. All Heads of departments,
bureaus, offices, agencies, and instrumentalities of the government are hereby directed to give full support to
Bases Conversion and Development Authority and/or its implementing subsidiary or joint venture to facilitate the
necessary approvals to expedite the implementation of various projects of the conversion program.
Sec. 5. Local Authority. Except as herein provided, the affected local government units shall retain their basic
autonomy and identity.
Sec. 6. Repealing Clause. All orders, rules, and regulations, or parts thereof, which are inconsistent with the
provisions of this Proclamation, are hereby repealed, amended, or modified accordingly.
Sec. 7. Effectivity. This proclamation shall take effect immediately.
Done in the City of Manila, this 5th day of July, in the year of Our Lord, nineteen hundred and ninety-four.
The issuance of Proclamation No. 420 spawned the present petition [17] for prohibition, mandamus and
declaratory relief which was filed on April 25, 1995 challenging, in the main, its constitutionality or validity as well
as the legality of the Memorandum of Agreement and Joint Venture Agreement between public respondent BCDA
and private respondents TUNTEX and ASIAWORLD.
Petitioners allege as grounds for the allowance of the petition the following:

I. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1990 (sic) IN SO FAR AS IT GRANTS TAX
EXEMPTIONS IS INVALID AND ILLEGAL AS IT IS AN UNCONSTITUTIONAL EXERCISE BY THE PRESIDENT
OF A POWER GRANTED ONLY TO THE LEGISLATURE.
II. PRESIDENTIAL PROCLAMATION NO. 420, IN SO FAR AS IT LIMITS THE POWERS AND INTERFERES WITH
THE AUTONOMY OF THE CITY OF BAGUIO IS INVALID, ILLEGAL AND UNCONSTITUTIONAL.
III. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1994 IS UNCONSTITUTIONAL IN THAT IT VIOLATES
THE RULE THAT ALL TAXES SHOULD BE UNIFORM AND EQUITABLE.
IV. THE MEMORANDUM OF AGREEMENT ENTERED INTO BY AND BETWEEN PRIVATE AND PUBLIC
RESPONDENTS BASES CONVERSION DEVELOPMENT AUTHORITY HAVING BEEN ENTERED INTO ONLY
BY DIRECT NEGOTIATION IS ILLEGAL.
V. THE TERMS AND CONDITIONS OF THE MEMORANDUM OF AGREEMENT ENTERED INTO BY AND
BETWEEN
PRIVATE
AND
PUBLIC
RESPONDENT
BASES
CONVERSION
DEVELOPMENT
AUTHORITY IS (sic) ILLEGAL.
VI.

THE CONCEPTUAL DEVELOPMENT PLAN OF RESPONDENTS NOT HAVING UNDERGONE

ENVIRONMENTAL IMPACT ASSESSMENT IS BEING ILLEGALLY CONSIDERED WITHOUT A VALID
ENVIRONMENTAL IMPACT ASSESSMENT.

A temporary restraining order and/or writ of preliminary injunction was prayed for to enjoin BCDA, John Hay
Poro Point Development Corporation and the city government from implementing Proclamation No. 420,
and TUNTEX and ASIAWORLD from proceeding with their plan respecting Camp John Hays development pursuant
to their Joint Venture Agreement with BCDA.[18]
Public respondents, by their separate Comments, allege as moot and academic the issues raised by the
petition, the questioned Memorandum of Agreement and Joint Venture Agreement having already been deemed
abandoned by the inaction of the parties thereto prior to the filing of the petition as in fact, by letter of November
21, 1995, BCDA formally notified TUNTEX and ASIAWORLD of the revocation of their said agreements.[19]
In maintaining the validity of Proclamation No. 420, respondents contend that by extending to the John Hay
SEZ economic incentives similar to those enjoyed by the Subic SEZ which was established under R.A. No. 7227,
the proclamation is merely implementing the legislative intent of said law to turn the US military bases into hubs
of business activity or investment. They underscore the point that the governments policy of bases conversion
can not be achieved without extending the same tax exemptions granted by R.A. No. 7227 to Subic SEZ to other
SEZs.
Denying that Proclamation No. 420 is in derogation of the local autonomy of Baguio City or that it is violative
of the constitutional guarantee of equal protection, respondents assail petitioners lack of standing to bring the
present suit even as taxpayers and in the absence of any actual case or controversy to warrant this Courts
exercise of its power of judicial review over the proclamation.
Finally, respondents seek the outright dismissal of the petition for having been filed in disregard of the
hierarchy of courts and of the doctrine of exhaustion of administrative remedies.
Replying,[20] petitioners aver that the doctrine of exhaustion of administrative remedies finds no application
herein since they are invoking the exclusive authority of this Court under Section 21 of R.A. No. 7227 to enjoin or
restrain implementation of projects for conversion of the base areas; that the established exceptions to the
aforesaid doctrine obtain in the present petition; and that they possess the standing to bring the petition which is
a taxpayers suit.
Public respondents have filed their Rejoinder[21] and the parties have filed their respective memoranda.

Before dwelling on the core issues, this Court shall first address the preliminary procedural questions
confronting the petition.
The judicial policy is and has always been that this Court will not entertain direct resort to it except when the
redress sought cannot be obtained in the proper courts, or when exceptional and compelling circumstances
warrant availment of a remedy within and calling for the exercise of this Courts primary jurisdiction. [22]Neither will
it entertain an action for declaratory relief, which is partly the nature of this petition, over which it has no original
jurisdiction.
Nonetheless, as it is only this Court which has the power under Section 21 [23] of R.A. No. 7227 to enjoin
implementation of projects for the development of the former US military reservations, the issuance of which
injunction petitioners pray for, petitioners direct filing of the present petition with it is allowed. Over and above
this procedural objection to the present suit, this Court retains full discretionary power to take cognizance of a
petition filed directly to it if compelling reasons, or the nature and importance of the issues raised, warrant.
[24]
Besides, remanding the case to the lower courts now would just unduly prolong adjudication of the issues.
The transformation of a portion of the area covered by Camp John Hay into a SEZ is not simply a reclassification of an area, a mere ascription of a status to a place. It involves turning the former US military
reservation into a focal point for investments by both local and foreign entities. It is to be made a site of vigorous
business activity, ultimately serving as a spur to the countrys long awaited economic growth. For, as R.A. No.
7227 unequivocally declares, it is the governments policy to enhance the benefits to be derived from the base
areas in order to promote the economic and social development of Central Luzon in particular and the country in
general.[25] Like the Subic SEZ, the John Hay SEZ should also be turned into a self-sustaining, industrial,
commercial, financial and investment center.[26]
More than the economic interests at stake, the development of Camp John Hay as well as of the other base
areas unquestionably has critical links to a host of environmental and social concerns. Whatever use to which
these lands will be devoted will set a chain of events that can affect one way or another the social and economic
way of life of the communities where the bases are located, and ultimately the nation in general.
Underscoring the fragility of Baguio Citys ecology with its problem on the scarcity of its water supply,
petitioners point out that the local and national government are faced with the challenge of how to provide for an
ecologically sustainable, environmentally sound, equitable transition for the city in the wake of Camp John Hays
reversion to the mass of government property. [27] But that is why R.A. No. 7227 emphasizes the sound and
balanced conversion of the Clark and Subic military reservations and their extensions consistent with ecological
and environmental standards.[28] It cannot thus be gainsaid that the matter of conversion of the US bases into
SEZs, in this case Camp John Hay, assumes importance of a national magnitude.
Convinced then that the present petition embodies crucial issues, this Court assumes jurisdiction over the
petition.
As far as the questioned agreements between BCDA and TUNTEX and ASIAWORLD are concerned, the legal
questions being raised thereon by petitioners have indeed been rendered moot and academic by the revocation
of such agreements. There are, however, other issues posed by the petition, those which center on the
constitutionality of Proclamation No. 420, which have not been mooted by the said supervening event upon
application of the rules for the judicial scrutiny of constitutional cases. The issues boil down to:
(1) Whether the present petition complies with the requirements for this Courts exercise of jurisdiction
over constitutional issues;
(2) Whether Proclamation No. 420 is constitutional by providing for national and local tax exemption
within and granting other economic incentives to the John Hay Special Economic Zone; and
(3) Whether Proclamation No. 420 is constitutional for limiting or interfering with the local autonomy of
Baguio City;

It is settled that when questions of constitutional significance are raised, the court can exercise its power of
judicial review only if the following requisites are present: (1) the existence of an actual and appropriate case; (2)
a personal and substantial interest of the party raising the constitutional question; (3) the exercise of judicial
review is pleaded at the earliest opportunity; and (4) the constitutional question is the lis mota of the case.[29]
An actual case or controversy refers to an existing case or controversy that is appropriate or ripe for
determination, not conjectural or anticipatory.[30] The controversy needs to be definite and concrete, bearing upon
the legal relations of parties who are pitted against each other due to their adverse legal interests. [31]There is in
the present case a real clash of interests and rights between petitioners and respondents arising from the
issuance of a presidential proclamation that converts a portion of the area covered by Camp John Hay into a SEZ,
the former insisting that such proclamation contains unconstitutional provisions, the latter claiming otherwise.
R.A. No. 7227 expressly requires the concurrence of the affected local government units to the creation of
SEZs out of all the base areas in the country. [32] The grant by the law on local government units of the right of
concurrence on the bases conversion is equivalent to vesting a legal standing on them, for it is in effect a
recognition of the real interests that communities nearby or surrounding a particular base area have in its
utilization. Thus, the interest of petitioners, being inhabitants of Baguio, in assailing the legality of Proclamation
No. 420, is personal and substantial such that they have sustained or will sustain direct injury as a result of the
government act being challenged.[33] Theirs is a material interest, an interest in issue affected by the
proclamation and not merely an interest in the question involved or an incidental interest, [34] for what is at stake
in the enforcement of Proclamation No. 420 is the very economic and social existence of the people of Baguio
City.
Petitioners locus standi parallels that of the petitioner and other residents of Bataan, specially of the town of
Limay, in Garcia v. Board of Investments[35] where this Court characterized their interest in the establishment of a
petrochemical plant in their place as actual, real, vital and legal, for it would affect not only their economic life
but even the air they breathe.
Moreover, petitioners Edilberto T. Claravall and Lilia G. Yaranon were duly elected councilors of Baguio at the
time, engaged in the local governance of Baguio City and whose duties included deciding for and on behalf of
their constituents the question of whether to concur with the declaration of a portion of the area covered by
Camp John Hay as a SEZ. Certainly then, petitioners Claravall and Yaranon, as city officials who voted
against[36] the sanggunian Resolution No. 255 (Series of 1994) supporting the issuance of the now challenged
Proclamation No. 420, have legal standing to bring the present petition.
That there is herein a dispute on legal rights and interests is thus beyond doubt. The mootness of the issues
concerning the questioned agreements between public and private respondents is of no moment.
By the mere enactment of the questioned law or the approval of the challenged act, the dispute is deemed to
have ripened into a judicial controversy even without any other overt act.Indeed, even a singular violation of the
Constitution and/or the law is enough to awaken judicial duty.[37]
As to the third and fourth requisites of a judicial inquiry, there is likewise no question that they have been
complied with in the case at bar. This is an action filed purposely to bring forth constitutional issues, ruling on
which this Court must take up. Besides, respondents never raised issues with respect to these requisites, hence,
they are deemed waived.
Having cleared the way for judicial review, the constitutionality of Proclamation No. 420, as framed in the
second and third issues above, must now be addressed squarely.
The second issue refers to petitioners objection against the creation by Proclamation No. 420 of a regime of
tax exemption within the John Hay SEZ. Petitioners argue that nowhere in R. A. No. 7227 is there a grant of tax
exemption to SEZs yet to be established in base areas, unlike the grant under Section 12 thereof of tax
exemption and investment incentives to the therein established Subic SEZ. The grant of tax exemption to the
John Hay SEZ, petitioners conclude, thus contravenes Article VI, Section 28 (4) of the Constitution which provides

that No law granting any tax exemption shall be passed without the concurrence of a majority of all the members
of Congress.
Section 3 of Proclamation No. 420, the challenged provision, reads:
Sec. 3. Investment Climate in John Hay Special Economic Zone. Pursuant to Section 5(m) and Section 15 of
Republic Act No. 7227, the John Hay Poro Point Development Corporation shall implement all necessary policies,
rules, and regulations governing the zone, including investment incentives, in consultation with pertinent
government departments. Among others, the zone shall have all the applicable incentives of the Special
Economic Zone under Section 12 of Republic Act No. 7227 and those applicable incentivesgranted in
the Export Processing Zones, the Omnibus Investment Code of 1987, the Foreign Investment Act of
1991, and new investment laws that may hereinafter be enacted. (Emphasis and underscoring supplied)
Upon the other hand, Section 12 of R.A. No. 7227 provides:
xxx
(a) Within the framework and subject to the mandate and limitations of the Constitution and the pertinent
provisions of the Local Government Code, the Subic Special Economic Zone shall be developed into a selfsustaining, industrial, commercial, financial and investment center to generate employment opportunities in and
around the zone and to attract and promote productive foreign investments;
b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring
free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as
well as provide incentives such as tax and duty free importations of raw materials, capital and equipment.
However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other
parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code
and other relevant tax laws of the Philippines;
(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and
national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%)
of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone shall be
remitted to the National Government, one percent (1%) each to the local government units affected by the
declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby
established a development fund of one percent (1%) of the gross income earned by all businesses and
enterprises within the Subic Special Economic Zone to be utilized for the Municipality of Subic, and other
municipalities contiguous to be base areas. In case of conflict between national and local laws with respect to tax
exemption privileges in the Subic Special Economic Zone, the same shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied and free markets for foreign exchange, gold, securities and
futures shall be allowed and maintained in the Subic Special Economic Zone;
(e) The Central Bank, through the Monetary Board, shall supervise and regulate the operations of banks and
other financial institutions within the Subic Special Economic Zone;
(f) Banking and Finance shall be liberalized with the establishment of foreign currency depository units of local
commercial banks and offshore banking units of foreign banks with minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic Zone whose continuing investment shall not be less than
Two Hundred fifty thousand dollars ($250,000), his/her spouse and dependent children under twenty-one (21)
years of age, shall be granted permanent resident status within the Subic Special Economic Zone. They shall
have freedom of ingress and egress to and from the Subic Special Economic Zone without any need of special
authorization from the Bureau of Immigration and Deportation. The Subic Bay Metropolitan Authority referred to
in Section 13 of this Act may also issue working visas renewable every two (2) years to foreign executives and
other aliens possessing highly-technical skills which no Filipino within the Subic Special Economic Zone
possesses, as certified by the Department of Labor and Employment. The names of aliens granted permanent

residence status and working visas by the Subic Bay Metropolitan Authority shall be reported to the Bureau of
Immigration and Deportation within thirty (30) days after issuance thereof;
x x x (Emphasis supplied)
It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ which was granted by Congress with
tax exemption, investment incentives and the like. There is no express extension of the aforesaid benefits to
other SEZs still to be created at the time via presidential proclamation.
The deliberations of the Senate confirm the exclusivity to Subic SEZ of the tax and investment privileges
accorded it under the law, as the following exchanges between our lawmakers show during the second reading of
the precursor bill of R.A. No. 7227 with respect to the investment policies that would govern Subic SEZ which are
now embodied in the aforesaid Section 12 thereof:
xxx
Senator Maceda: This is what I was talking about. We get into problems here because all of these following
policies are centered around the concept of free port. And in the main paragraph above, we have declared both
Clark and Subic as special economic zones, subject to these policies which are, in effect, a free-port arrangement.
Senator Angara: The Gentleman is absolutely correct, Mr. President. So we must confine these policies only to
Subic.
May I withdraw then my amendment, and instead provide that THE SPECIAL ECONOMIC ZONE OF SUBIC SHALL
BE ESTABLISHED IN ACCORDANCE WITH THE FOLLOWING POLICIES. Subject to style, Mr. President.
Thus, it is very clear that these principles and policies are applicable only to Subic as a free port.
Senator Paterno: Mr. President.
The President: Senator Paterno is recognized.
Senator Paterno: I take it that the amendment suggested by Senator Angara would then prevent the
establishment of other special economic zones observing these policies.
Senator Angara: No, Mr. President, because during our short caucus, Senator Laurel raised the point that if we
give this delegation to the President to establish other economic zones, that may be an unwarranted delegation.
So we agreed that we will simply limit the definition of powers and description of the zone to Subic, but that does
not exclude the possibility of creating other economic zones within the baselands.
Senator Paterno: But if that amendment is followed, no other special economic zone may be created under
authority of this particular bill. Is that correct, Mr. President?
Senator Angara: Under this specific provision, yes, Mr. President. This provision now will be confined only to
Subic.[38]
x x x (Underscoring supplied).
As gathered from the earlier-quoted Section 12 of R.A. No. 7227, the privileges given to Subic SEZ consist
principally of exemption from tariff or customs duties, national and local taxes of business entities therein
(paragraphs (b) and (c)), free market and trade of specified goods or properties (paragraph d), liberalized banking
and finance (paragraph f), and relaxed immigration rules for foreign investors (paragraph g). Yet, apart from
these, Proclamation No. 420 also makes available to the John Hay SEZ benefits existing in other laws such as the
privilege of export processing zone-based businesses of importing capital equipment and raw materials free from

taxes, duties and other restrictions; [39] tax and duty exemptions, tax holiday, tax credit, and other incentives
under the Omnibus Investments Code of 1987; [40] and the applicability to the subject zone of rules governing
foreign investments in the Philippines.[41]
While the grant of economic incentives may be essential to the creation and success of SEZs, free trade
zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The incentives under R.A. No.
7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the John Hay SEZ finds no support
therein. Neither does the same grant of privileges to the John Hay SEZ find support in the other laws specified
under Section 3 of Proclamation No. 420, which laws were already extant before the issuance of the proclamation
or the enactment of R.A. No. 7227.
More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the legislature,
unless limited by a provision of the state constitution, that has full power to exempt any person or corporation or
class of property from taxation, its power to exempt being as broad as its power to tax. [42] Other than Congress,
the Constitution may itself provide for specific tax exemptions, [43] or local governments may pass ordinances on
exemption only from local taxes.[44]
The challenged grant of tax exemption would circumvent the Constitutions imposition that a law granting
any tax exemption must have the concurrence of a majority of all the members of Congress. [45] In the same vein,
the other kinds of privileges extended to the John Hay SEZ are by tradition and usage for Congress to legislate
upon.
Contrary to public respondents suggestions, the claimed statutory exemption of the John Hay SEZ from
taxation should be manifest and unmistakable from the language of the law on which it is based; it must be
expressly granted in a statute stated in a language too clear to be mistaken. [46] Tax exemption cannot be implied
as it must be categorically and unmistakably expressed.[47]
If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and incentives
given to the Subic SEZ, it would have so expressly provided in the R.A. No. 7227.
This Court no doubt can void an act or policy of the political departments of the government on either of two
groundsinfringement of the Constitution or grave abuse of discretion.[48]
This Court then declares that the grant by Proclamation No. 420 of tax exemption and other privileges to the
John Hay SEZ is void for being violative of the Constitution. This renders it unnecessary to still dwell on
petitioners claim that the same grant violates the equal protection guarantee.
With respect to the final issue raised by petitioners that Proclamation No. 420 is unconstitutional for being in
derogation of Baguio Citys local autonomy, objection is specifically mounted against Section 2 thereof in which
BCDA is set up as the governing body of the John Hay SEZ.[49]
Petitioners argue that there is no authority of the President to subject the John Hay SEZ to the governance of
BCDA which has just oversight functions over SEZ; and that to do so is to diminish the city governments power
over an area within its jurisdiction, hence, Proclamation No. 420 unlawfully gives the President power of control
over the local government instead of just mere supervision.
Petitioners arguments are bereft of merit. Under R.A. No. 7227, the BCDA is entrusted with, among other
things, the following purpose:[50]
xxx
(a) To own, hold and/or administer the military reservations of John Hay Air Station, Wallace Air Station, ODonnell
Transmitter Station, San Miguel Naval Communications Station, Mt. Sta. Rita Station (Hermosa, Bataan) and those
portions of Metro Manila Camps which may be transferred to it by the President;
x x x (Underscoring supplied)

With such broad rights of ownership and administration vested in BCDA over Camp John Hay, BCDA virtually has
control over it, subject to certain limitations provided for by law. By designating BCDA as the governing agency of
the John Hay SEZ, the law merely emphasizes or reiterates the statutory role or functions it has been granted.
The unconstitutionality of the grant of tax immunity and financial incentives as contained in the second
sentence of Section 3 of Proclamation No. 420 notwithstanding, the entire assailed proclamation cannot be
declared unconstitutional, the other parts thereof not being repugnant to law or the Constitution. The delineation
and declaration of a portion of the area covered by Camp John Hay as a SEZ was well within the powers of the
President to do so by means of a proclamation.[51] The requisite prior concurrence by the Baguio City government
to such proclamation appears to have been given in the form of a duly enacted resolution by the sanggunian. The
other provisions of the proclamation had been proven to be consistent with R.A. No. 7227.
Where part of a statute is void as contrary to the Constitution, while another part is valid, the valid portion, if
separable from the invalid, may stand and be enforced. [52] This Court finds that the other provisions in
Proclamation No. 420 converting a delineated portion of Camp John Hay into the John Hay SEZ are separable from
the invalid second sentence of Section 3 thereof, hence they stand.
WHEREFORE, the second sentence of Section 3 of Proclamation No. 420 is hereby declared NULL AND VOID
and is accordingly declared of no legal force and effect. Public respondents are hereby enjoined from
implementing the aforesaid void provision.
Proclamation No. 420, without the invalidated portion, remains valid and effective.
SO ORDERED.

G.R. No. 91649

May 14, 1991

ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND LORENZO

SANCHEZ,petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent.
H.B. Basco & Associates for petitioners.
Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.

PARAS, J.:
A TV ad proudly announces:
"The new PAGCOR responding through responsible gaming."
But the petitioners think otherwise, that is why, they filed the instant petition seeking to annul the Philippine
Amusement and Gaming Corporation (PAGCOR) Charter PD 1869, because it is allegedly contrary to morals,
public policy and order, and because
A. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law. It waived
the Manila City government's right to impose taxes and license fees, which is recognized by law;
B. For the same reason stated in the immediately preceding paragraph, the law has intruded into the local
government's right to impose local taxes and license fees. This, in contravention of the constitutionally
enshrined principle of local autonomy;

C. It violates the equal protection clause of the constitution in that it legalizes PAGCOR conducted
gambling, while most other forms of gambling are outlawed, together with prostitution, drug trafficking
and other vices;
D. It violates the avowed trend of the Cory government away from monopolistic and crony economy, and
toward free enterprise and privatization. (p. 2, Amended Petition; p. 7, Rollo)
In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the declared national policy
of the "new restored democracy" and the people's will as expressed in the 1987 Constitution. The decree is said
to have a "gambling objective" and therefore is contrary to Sections 11, 12 and 13 of Article II, Sec. 1 of Article
VIII and Section 3 (2) of Article XIV, of the present Constitution (p. 3, Second Amended Petition; p. 21, Rollo).
The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner Basco being also the
Chairman of the Committee on Laws of the City Council of Manila), can question and seek the annulment of PD
1869 on the alleged grounds mentioned above.
The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067-A dated
January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January 1, 1977 "to establish, operate
and maintain gambling casinos on land or water within the territorial jurisdiction of the Philippines." Its operation
was originally conducted in the well known floating casino "Philippine Tourist." The operation was considered a
success for it proved to be a potential source of revenue to fund infrastructure and socio-economic projects, thus,
P.D. 1399 was passed on June 2, 1978 for PAGCOR to fully attain this objective.
Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate and
centralize all games of chance authorized by existing franchise or permitted by law, under the following declared
policy
Sec. 1. Declaration of Policy. It is hereby declared to be the policy of the State to centralize and
integrate all games of chance not heretofore authorized by existing franchises or permitted by law in
order to attain the following objectives:
(a) To centralize and integrate the right and authority to operate and conduct games of chance into one
corporate entity to be controlled, administered and supervised by the Government.
(b) To establish and operate clubs and casinos, for amusement and recreation, including sports gaming
pools, (basketball, football, lotteries, etc.) and such other forms of amusement and recreation including
games of chance, which may be allowed by law within the territorial jurisdiction of the Philippines and
which will: (1) generate sources of additional revenue to fund infrastructure and socio-civic projects, such
as flood control programs, beautification, sewerage and sewage projects, Tulungan ng Bayan Centers,
Nutritional Programs, Population Control and such other essential public services; (2) create recreation
and integrated facilities which will expand and improve the country's existing tourist attractions; and (3)
minimize, if not totally eradicate, all the evils, malpractices and corruptions that are normally prevalent
on the conduct and operation of gambling clubs and casinos without direct government involvement.
(Section 1, P.D. 1869)
To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its Charter's
repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent therewith, are
accordingly repealed, amended or modified.
It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of Internal
Revenue and the Bureau of Customs. In 1989 alone, PAGCOR earned P3.43 Billion, and directly remitted to the
National Government a total of P2.5 Billion in form of franchise tax, government's income share, the President's
Social Fund and Host Cities' share. In addition, PAGCOR sponsored other socio-cultural and charitable projects on
its own or in cooperation with various governmental agencies, and other private associations and organizations.
In its 3 1/2 years of operation under the present administration, PAGCOR remitted to the government a total of
P6.2 Billion. As of December 31, 1989, PAGCOR was employing 4,494 employees in its nine (9) casinos
nationwide, directly supporting the livelihood of Four Thousand Four Hundred Ninety-Four (4,494) families.
But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is "null and void" for
being "contrary to morals, public policy and public order," monopolistic and tends toward "crony economy", and
is violative of the equal protection clause and local autonomy as well as for running counter to the state policies
enunciated in Sections 11 (Personal Dignity and Human Rights), 12 (Family) and 13 (Role of Youth) of Article II,
Section 1 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution.

This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most deliberate
consideration by the Court, involving as it does the exercise of what has been described as "the highest and most
delicate function which belongs to the judicial department of the government." (State v. Manuel, 20 N.C. 144;
Lozano v. Martinez, 146 SCRA 323).
As We enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of the
government We need not be reminded of the time-honored principle, deeply ingrained in our jurisprudence, that
a statute is presumed to be valid. Every presumption must be indulged in favor of its constitutionality. This is not
to say that We approach Our task with diffidence or timidity. Where it is clear that the legislature or the executive
for that matter, has over-stepped the limits of its authority under the constitution, We should not hesitate to wield
the axe and let it fall heavily, as fall it must, on the offending statute (Lozano v. Martinez, supra).
In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice Zaldivar underscored
the
. . . thoroughly established principle which must be followed in all cases where questions of
constitutionality as obtain in the instant cases are involved. All presumptions are indulged in favor of
constitutionality; one who attacks a statute alleging unconstitutionality must prove its invalidity beyond a
reasonable doubt; that a law may work hardship does not render it unconstitutional; that if any
reasonable basis may be conceived which supports the statute, it will be upheld and the challenger must
negate all possible basis; that the courts are not concerned with the wisdom, justice, policy or expediency
of a statute and that a liberal interpretation of the constitution in favor of the constitutionality of
legislation should be adopted. (Danner v. Hass, 194 N.W. 2nd534, 539; Spurbeck v. Statton, 106
N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734, 739 [1970]; Peralta v.
Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-242
[1983] cited in Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521, 540)
Of course, there is first, the procedural issue. The respondents are questioning the legal personality of petitioners
to file the instant petition.
Considering however the importance to the public of the case at bar, and in keeping with the Court's duty, under
the 1987 Constitution, to determine whether or not the other branches of government have kept themselves
within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the
Court has brushed aside technicalities of procedure and has taken cognizance of this petition. (Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371)
With particular regard to the requirement of proper party as applied in the cases before us, We hold that
the same is satisfied by the petitioners and intervenors because each of them has sustained or is in
danger of sustaining an immediate injury as a result of the acts or measures complained of. And even if,
strictly speaking they are not covered by the definition, it is still within the wide discretion of the Court to
waive the requirement and so remove the impediment to its addressing and resolving the serious
constitutional questions raised.
In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the
constitutionality of several executive orders issued by President Quirino although they were involving only
an indirect and general interest shared in common with the public. The Court dismissed the objection that
they were not proper parties and ruled that "the transcendental importance to the public of these cases
demands that they be settled promptly and definitely, brushing aside, if we must technicalities of
procedure." We have since then applied the exception in many other cases. (Association of Small
Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).
Having disposed of the procedural issue, We will now discuss the substantive issues raised.
Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of gambling does not
mean that the Government cannot regulate it in the exercise of its police power.
The concept of police power is well-established in this jurisdiction. It has been defined as the "state authority to
enact legislation that may interfere with personal liberty or property in order to promote the general welfare."
(Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an imposition or restraint upon liberty or property,
(2) in order to foster the common good. It is not capable of an exact definition but has been, purposely, veiled in
general terms to underscore its all-comprehensive embrace. (Philippine Association of Service Exporters, Inc. v.
Drilon, 163 SCRA 386).

Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be
done, provides enough room for an efficient and flexible response to conditions and circumstances thus assuming
the greatest benefits. (Edu v. Ericta, supra)
It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the charter. Along
with the taxing power and eminent domain, it is inborn in the very fact of statehood and sovereignty. It is a
fundamental attribute of government that has enabled it to perform the most vital functions of governance.
Marshall, to whom the expression has been credited, refers to it succinctly as the plenary power of the state "to
govern its citizens". (Tribe, American Constitutional Law, 323, 1978). The police power of the State is a power coextensive with self-protection and is most aptly termed the "law of overwhelming necessity." (Rubi v. Provincial
Board of Mindoro, 39 Phil. 660, 708) It is "the most essential, insistent, and illimitable of powers." (Smith Bell &
Co. v. National, 40 Phil. 136) It is a dynamic force that enables the state to meet the agencies of the winds of
change.
What was the reason behind the enactment of P.D. 1869?
P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an appropriate
institution all games of chance authorized by existing franchise or permitted by law" (1st whereas clause, PD
1869). As was subsequently proved, regulating and centralizing gambling operations in one corporate entity
the PAGCOR, was beneficial not just to the Government but to society in general. It is a reliable source of much
needed revenue for the cash strapped Government. It provided funds for social impact projects and subjected
gambling to "close scrutiny, regulation, supervision and control of the Government" (4th Whereas Clause, PD
1869). With the creation of PAGCOR and the direct intervention of the Government, the evil practices and
corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies at the
bottom of the enactment of PD 1896.
Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal
fees; that the exemption clause in P.D. 1869 is violative of the principle of local autonomy. They must be referring
to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any
kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or
Local."
(2) Income and other taxes. a) Franchise Holder: No tax of any kind or form, income or otherwise as
well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and
collected under this franchise from the Corporation; nor shall any form or tax or charge attach in any way
to the earnings of the Corporation, except a franchise tax of five (5%) percent of the gross revenues or
earnings derived by the Corporation from its operations under this franchise. Such tax shall be due and
payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or
assessments of any kind, nature or description, levied, established or collected by any municipal,
provincial or national government authority (Section 13 [2]).
Their contention stated hereinabove is without merit for the following reasons:
(a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes (Icard v. City of
Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA 643).
Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume
it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to a legislative act which
is superior having been passed upon by the state itself which has the "inherent power to tax" (Bernas, the
Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445).
(b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal
corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which has the
power to "create and abolish municipal corporations" due to its "general legislative powers" (Asuncion v. Yriantes,
28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the power of control over Local
governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can grant the City of Manila the
power to tax certain matters, it can also provide for exemptions or even take back the power.
(c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the
power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn
by P.D. No. 771 and was vested exclusively on the National Government, thus:

Sec. 1. Any provision of law to the contrary notwithstanding, the authority of chartered cities and other
local governments to issue license, permit or other form of franchise to operate, maintain and establish
horse and dog race tracks, jai-alai and other forms of gambling is hereby revoked.
Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish, horse and dog race tracks,
jai-alai and other forms of gambling shall be issued by the national government upon proper application
and verification of the qualification of the applicant . . .
Therefore, only the National Government has the power to issue "licenses or permits" for the operation of
gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance of
"licenses or permits" is no longer vested in the City of Manila.
(d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are
owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises
regulatory powers thus:
Sec. 9. Regulatory Power. The Corporation shall maintain a Registry of the affiliated entities, and shall
exercise all the powers, authority and the responsibilities vested in the Securities and Exchange
Commission over such affiliating entities mentioned under the preceding section, including, but not
limited to amendments of Articles of Incorporation and By-Laws, changes in corporate term, structure,
capitalization and other matters concerning the operation of the affiliated entities, the provisions of the
Corporation Code of the Philippines to the contrary notwithstanding, except only with respect to original
incorporation.
PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which
places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control
the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Marland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local governments.
Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the
part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a
federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p.
140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities
may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v.
Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to
wield it.
(e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D. 1869. This is
a pointless argument. Article X of the 1987 Constitution (on Local Autonomy) provides:
Sec. 5. Each local government unit shall have the power to create its own source of revenue and to levy
taxes, fees, and other charges subject to such guidelines and limitation as the congress may provide,
consistent with the basic policy on local autonomy. Such taxes, fees and charges shall accrue exclusively
to the local government. (emphasis supplied)
The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may
provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art.
XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power of local

governments to impose taxes and fees. It cannot therefore be violative but rather is consistent with the principle
of local autonomy.
Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization" (III Records
of the 1987 Constitutional Commission, pp. 435-436, as cited in Bernas, The Constitution of the Republic of the
Philippines, Vol. II, First Ed., 1988, p. 374). It does not make local governments sovereign within the state or an
"imperium in imperio."
Local Government has been described as a political subdivision of a nation or state which is constituted
by law and has substantial control of local affairs. In a unitary system of government, such as the
government under the Philippine Constitution, local governments can only be an intra sovereign
subdivision of one sovereign nation, it cannot be an imperium in imperio. Local government in such a
system can only mean a measure of decentralization of the function of government. (emphasis supplied)
As to what state powers should be "decentralized" and what may be delegated to local government units remains
a matter of policy, which concerns wisdom. It is therefore a political question. (Citizens Alliance for Consumer
Protection v. Energy Regulatory Board, 162 SCRA 539).
What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State concern and
hence, it is the sole prerogative of the State to retain it or delegate it to local governments.
As gambling is usually an offense against the State, legislative grant or express charter power is
generally necessary to empower the local corporation to deal with the subject. . . . In the absence of
express grant of power to enact, ordinance provisions on this subject which are inconsistent with the
state laws are void. (Ligan v. Gadsden, Ala App. 107 So. 733 Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757
following in re Ah You, 88 Cal. 99, 25 PAC 974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan
Vol. 3 Ibid, p. 548, emphasis supplied)
Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution, because "it
legalized PAGCOR conducted gambling, while most gambling are outlawed together with prostitution, drug
trafficking and other vices" (p. 82, Rollo).
We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores the well-accepted
meaning of the clause "equal protection of the laws." The clause does not preclude classification of individuals
who may be accorded different treatment under the law as long as the classification is not unreasonable or
arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law does not have to operate in equal force on all persons or
things to be conformable to Article III, Section 1 of the Constitution (DECS v. San Diego, G.R. No. 89572,
December 21, 1989).
The "equal protection clause" does not prohibit the Legislature from establishing classes of individuals or objects
upon which different rules shall operate (Laurel v. Misa, 43 O.G. 2847). The Constitution does not require
situations which are different in fact or opinion to be treated in law as though they were the same (Gomez v.
Palomar, 25 SCRA 827).
Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection is not clearly
explained in the petition. The mere fact that some gambling activities like cockfighting (P.D 449) horse racing
(R.A. 306 as amended by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are
legalized under certain conditions, while others are prohibited, does not render the applicable laws, P.D. 1869 for
one, unconstitutional.
If the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied. (Gomez v. Palomar, 25 SCRA 827)
The equal protection clause of the 14th Amendment does not mean that all occupations called by the
same name must be treated the same way; the state may do what it can to prevent which is deemed as
evil and stop short of those cases in which harm to the few concerned is not less than the harm to the
public that would insure if the rule laid down were made mathematically exact. (Dominican Hotel v.
Arizona, 249 US 2651).
Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away from
monopolies and crony economy and toward free enterprise and privatization" suffice it to state that this is not a

ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the government's policies then it is
for the Executive Department to recommend to Congress its repeal or amendment.
The judiciary does not settle policy issues. The Court can only declare what the law is and not what the
law should be.1wphi1 Under our system of government, policy issues are within the domain of the
political branches of government and of the people themselves as the repository of all state power.
(Valmonte v. Belmonte, Jr., 170 SCRA 256).
On the issue of "monopoly," however, the Constitution provides that:
Sec. 19. The State shall regulate or prohibit monopolies when public interest so requires. No combinations
in restraint of trade or unfair competition shall be allowed. (Art. XII, National Economy and Patrimony)
It should be noted that, as the provision is worded, monopolies are not necessarily prohibited by the Constitution.
The state must still decide whether public interest demands that monopolies be regulated or prohibited. Again,
this is a matter of policy for the Legislature to decide.
On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12 (Family) and 13 (Role of
Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the
1987 Constitution, suffice it to state also that these are merely statements of principles and, policies. As such,
they are basically not self-executing, meaning a law should be passed by Congress to clearly define and
effectuate such principles.
In general, therefore, the 1935 provisions were not intended to be self-executing principles ready for
enforcement through the courts. They were rather directives addressed to the executive and the
legislature. If the executive and the legislature failed to heed the directives of the articles the available
remedy was not judicial or political. The electorate could express their displeasure with the failure of the
executive and the legislature through the language of the ballot. (Bernas, Vol. II, p. 2)
Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387; Salas v.
Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore, for PD 1869
to be nullified, it must be shown that there is a clear and unequivocal breach of the Constitution, not merely a
doubtful and equivocal one. In other words, the grounds for nullity must be clear and beyond reasonable doubt.
(Peralta v. Comelec, supra) Those who petition this Court to declare a law, or parts thereof, unconstitutional must
clearly establish the basis for such a declaration. Otherwise, their petition must fail. Based on the grounds raised
by petitioners to challenge the constitutionality of P.D. 1869, the Court finds that petitioners have failed to
overcome the presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D. 1869
remains a wise legislation considering the issues of "morality, monopoly, trend to free enterprise, privatization as
well as the state principles on social justice, role of youth and educational values" being raised, is up for Congress
to determine.
As this Court held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521
Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in its favor the
presumption of validity and constitutionality which petitioners Valmonte and the KMU have not
overturned. Petitioners have not undertaken to identify the provisions in the Constitution which they claim
to have been violated by that statute. This Court, however, is not compelled to speculate and to imagine
how the assailed legislation may possibly offend some provision of the Constitution. The Court notes,
further, in this respect that petitioners have in the main put in question the wisdom, justice and
expediency of the establishment of the OPSF, issues which are not properly addressed to this Court and
which this Court may not constitutionally pass upon. Those issues should be addressed rather to the
political departments of government: the President and the Congress.
Parenthetically, We wish to state that gambling is generally immoral, and this is precisely so when the gambling
resorted to is excessive. This excessiveness necessarily depends not only on the financial resources of the
gambler and his family but also on his mental, social, and spiritual outlook on life. However, the mere fact that
some persons may have lost their material fortunes, mental control, physical health, or even their lives does not
necessarily mean that the same are directly attributable to gambling. Gambling may have been the antecedent,
but certainly not necessarily the cause. For the same consequences could have been preceded by an overdose of
food, drink, exercise, work, and even sex.
WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.